Mortgage-Backed Securities (MBS): Houston, We Have A Problem


Whoo boy.  A couple things on the MBS front today, both succinctly synopsized by The Market-Ticker:

The MBS Edifice Is (Finally) Under Attack

After nearly four years in which I’ve outlined that I don’t believe the formalities of MBS securitization were followed, and two years of increasing evidence, despite intentional obstruction by OTS, OCC, the FDIC, The Fed and Congress, along with a rapidly-increasing number of court rulings that strongly suggest that I (and a few others) have been right while the naysayers are wrong, we finally have a law enforcement agency looking into this matter:

New York Attorney General Eric Schneiderman has targeted Bank of America, the biggest U.S. bank by assets, in a new probe that questions the validity of potentially thousands of mortgage securities and their associated foreclosures, two people familiar with the matter said.

The investigation, which began quietly in recent weeks, is part of a larger inquiry that is scrutinizing whether mortgage companies and Wall Street firms took the necessary steps under New York state law when creating mortgage-backed securities, these people said, who requested anonymity because they weren’t authorized to speak publicly about the probe.

There’s plenty of reason to ask these questions.  Like, for example, the court ruling that I cited last week.  Then there’s this ruling which just popped up as well, this time from the 9th Circuit in Arizona.

Again, the record shows that the note was not properly indorsed into the trust.  A late assignment was attempted but was judged legally defective.

Note, however, that this leaves open the question of what’s in the MBS box that the presumed holders of certificates which were issued against this obligation?

It appears, in this case and in literally hundreds of thousands of others, that these assignments are being made – whether legally sufficient at the time or not – well beyond the legal closing date of the trust involved.

That is, for the purpose of assigning interest they may (or may not) be sufficient to permit a foreclosure but as a matter of law and fact they cannot transfer the asset, in this case the note, into a trust that closed a year, two or even five years in the past!

The record in these cases is quite clear: When these fraudclosures are contested assignments “magically appear” (as opposed to being documented as having occurred contemporary with the creation of the trust in question) and often are dated on or near the date of the foreclosure proceeding.  This may be legal to effectuate a foreclosure but at the same time it documents that the MBS certificate holders bought an empty box since these assignments invariably are not from the Trust to a servicer or institution for the purpose of foreclosure and recovery (perfectly legal) but rather are typically from the originator to the servicer, documenting that the transfer that was supposed to have taken place years previously did not as a matter of both law and fact.

Well folks?  You can’t have this both ways.  If the legal formalities of NY Trust Law (and IRS REMIC requirements) were complied with then what should be presented to the court is the original or a certified copy of the original assignment chain that took place into the trust prior to its closing date.

I challenge you to find documents evidencing these alleged transfers.  What I keep seeing in these cases, in virtually every contested case I’ve seen, is instead a transfer that purports to grant the rights in the mortgage to the servicer-cum-foreclosing party from the originator on or about the time the foreclosure is filed.

The problem is that the originator was paid within days of the issuance of the mortgage and according to NY Trust Law had to indorse and tender that note to the Securitizer, who then had to tender it to the Depositor, and who then was supposed to have tendered it into the trust.



HERE IT COMES! (MBS Trustee Investigation)

Now we’re cooking!

New York Attorney General Eric Schneiderman’s office requested documents from Deutsche Bank AG (DB) and Bank of New York Mellon Corp. (BK), which act as trustees for mortgage-bond trusts, said the person. Between five and 10 trustees are being asked to provide information, said the person, who declined to be identified because the matter isn’t public.

New York law governs more than 80 percent of the trusts while Delaware controls the remainder, said the person. The two states, which have agreed to share information, are looking into whether the trusts are valid, the person said.

Gee, now they’re going to look into it?  Isn’t that amusing – after how many court cases and decisions does someone finally get interested in the root cause of the mess and the issue – whether the actual transfers as required by both the PSAs and the law actually took place?

What happens, may I ask, if the trusts are not valid?

smiley smiley smiley