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Archive for the ‘Countrywide’ Category

Bank of America may be about to part with more money than it has earned since 2008 in what will soon be the biggest financial settlement in the industry to date According to the WSJ, the Charlotte, NC-based bank is preparing to pay $8.5 billion to settle mortgage (mis)representation claims (aka the Mortgage putback issue) brought on by such high profile figures as BlackRock, Pimco, MetLife and, of course, the Federal Reserve, previously discussed on Zero Hedge. “A deal would end a nine-month fight with a group of 22 investors that hold more than $56 billion in mortgage-backed securities at the center of the dispute, including giant money manager BlackRock Inc., insurer MetLife Inc. and the Federal Reserve Bank of New York.” Keep in mind that this is actually not good news for the bank, contrary to what the company’s stock is doing after hours, as this still keeps the company exposed to a multitude of other rep and warranty litigation (which will now be largely underreserved), not to mention fraudclosure issues, which are totally unrelated, and which will plague the bank for years and years. Lastly, BAC is largley underreserved (see below) for a settlement of this size which means its Tier 1 capital ratio will likely be impacted due to a major outflow of cash.

From the WSJ:

The deal could embolden mutual-fund managers, insurance companies and investment partnerships to go after similar settlements with other major U.S. banks, arguing that billions in loans scooped up before the U.S. housing collapse didn’t meet sellers’ promises or were improperly managed. Most vulnerable would be Wells Fargo & Co and J.P. Morgan Chase & Co., which along with Bank of America collect loan payments on about half of all outstanding U.S. mortgages.

The dispute between Bank of America and the mortgage investors began last fall when they alleged that securities they bought before the financial crisis from Countrywide Financial Corp. were composed of loans that didn’t meet sellers’ promises about the quality of the borrowers or the collateral.

While it is still very much unclear what the terms of the settlement are, one thing is certain: BofA acquisition of Countrywide for $4 billion is rapidly becoming the worst purchase in the history of M&A. Luckily, Angelo “Agent Orange” Mozillo, has a permanent get out of jail card. One wonders just what dirty secrets old Angelo know about the housing market (or regulators’ sexual lifestyles) that not one regulatory agency or DA office is willing to go after him?

And, as often happens, we were quite correct when we speculated back in January that Bank of America is woefully underreserved for this development:

Can You Spell U-N-D-E-R-R-E-S-E-R-V-E-D? If Not, Here Is A Visualization Aid

Following today’s news of an imminent lawsuit to be filed against Bank of America by such entities as the New York Fed (which, by the way, it had to do, and not voluntarily, but merely as a function of its fiduciary duty to taxpayers through its Maiden Lane holdings, managed, conveniently enough, by Bank of America minority holding BlackRock) everyone promptly has taken a quick look back at the bank’s earnings presentation, and especially one little piece of data: the putback reserve. Taking a quick look a page 23 on the pdf we read: “3Q10 reps and warranties provision of $872M is $376M lower than 2Q10, as the current quarter included an increase in expected repurchases from GSEs while 2Q10 included additional provision for monolines.” So how does this stack up relative to the $47 billion in putback demands by such legal “dilettantes” as Bill Gross, Bill Dudley and Larry Fink? We have created the chart below to assist in that particular question. We are also confident that with each passing day we will have to add to the red-shaded area as more and more putback lawsuits come out of the woodwork. And as to where the deficiency amount will have to be funded from? Think cold, hard cash. The same cash that until recently would have been on the “sidelines.”

ZeroHedge

It appears that Utah has had enough:

ReconTrust Co. isn’t meeting requirements for carrying out foreclosures in the state, Utah Attorney General Mark Shurtleffsaid in a letter to Bank of America Chief Executive Officer Brian Moynihan. The letter, dated May 19, was released today by Shurtleff’s office.

“All real estate foreclosures conducted by ReconTrust in the state of Utah are not in compliance with Utah’s statutes, and are hence illegal,” Shurtleff wrote.

If you remember I wrote on this recently, on 3/12:

To the State of Utah: Where are your balls?

I want to know if you can find them with both hands and a flashlight, or if you’re going to knob-job Bank of America and screw your citizens while making a lot of worthless noise.

The time to rattle sabers is over.  Start revoking foreign corporate registrations (necessary to do business in a given state) and bringing indictments.

To Utah: Time for this sort of treatment of these jackals:

The Market-Ticker

Oh my, what do we have here?

Life Insurance Companies v Countrywide – filed Jan 24 2011

That would be a nasty little lawsuit (well, maybe not so little) against Countrywide (and its successor, Bank of America) in which it is alleged that Countrywide sold a lot of bogus paper to pretty much every large insurance company in the world.

In point, here’s the salient section:

1. This action concerns a massive fraud perpetrated by Defendant Countrywide Financial and certain of its officers and affiliates against the Plaintiffs, which are investors in mortgage-backed securities (MBS) issued by Countrywides subsidiaries. The Plaintiffs are institutional investors that wanted conservative, low-risk investments and thus bought Countrywide MBS (the Certificates) that were represented to be backed by mortgages issued pursuant to specific underwriting guidelines and rated investment-grade (primarily AAA). In purchasing the Certificates, the Plaintiffs and their investment managers relied on term sheets, prospectuses and other materials prepared by and provided to them by the Defendants, which made representations about the Countrywide Defendants purportedly conservative mortgage underwriting standards, the appraisals of the mortgaged properties, the mortgages loan-to-value (LTV) ratios, and other facts that were material to Plaintiffs investment decisions. Plaintiffs and their investment managers also relied on Defendants public statements concerning the Countrywide Defendants adherence to prudent underwriting guidelines and careful credit analysis. These representations by Defendants were recklessly or knowingly false when made. In reality, Countrywide was an enterprise driven by only one purpose to originate and securitize as many mortgage loans as possible into MBS to generate profits for the Countrywide Defendants, without regard to the investors that relied on the critical, false information provided to them with respect to the related Certificates.

If you want it distilled down into one sentence, it’s this: You told us you were selling us good paper, and in fact you were knowingly selling us a box of dogcrap.

We’ve seen a couple of these before.  But this one adds a new twist, and leads me to run up the

sign again….

Read starting at page 62.  Oh I’ll do it for you…

H. Countrywide Failed To Ensure That Title To The Underlying Loans Was Effectively Transferred

147. The rules for these transfers are governed by the law of the state where the property is located, by the terms of the pooling and servicing agreement (PSA) for each securitization, and by the law governing the issuing trust (with respect to matters of trust law). Generally, state laws and the PSAs require the promissory note and security instrument to be transferred by indorsement, in the same way that a check can be transferred by indorsement, or by sale. In addition, state laws generally require that the trustee have physical possession of the original, manually signed note in order for the loan to be enforceable by the trustee against the borrower in case of default.

148. In order to preserve the bankruptcy-remote status of the issuing trusts in RMBS transactions, the notes and security instruments are generally not transferred directly from the mortgage loan originator to the trust. Rather, the notes and security instruments are generally initially transferred from the originator (e.g., Countrywide Home) to the depositor (e.g., CWALT), either directly or via one or more special-purpose entities established by Countrywide Financial. After this initial transfer to the depositor, the depositor transfers the notes and security interests to the issuing trust for the particular securitization. Each of these transfers must be valid under applicable state law in order for the trust to have good title to the mortgage loans.

149. In addition, the PSA generally requires the transfers of the mortgage loans to the trust to be completed within a strict time limit after formation of the trust in order to ensure that the trust qualifies as a tax-free real estate mortgage investment conduit (REMIC).

150. The applicable state trust law generally requires strict compliance with the trust documents, including the PSA, so that failure to comply strictly with the timeliness, indorsement, physical delivery, and other requirements of the PSA with respect to the transfers of the notes and security instruments means that the transfers would be void and the trust would not havegood title to the mortgage loans.

151. The Offering Documents for each offering of the Certificates represented in substance that the issuing trust for that offering had obtained good title to the mortgage loans comprising the pool for the offering. In reality, however, Countrywide routinely failed to comply with the requirements of applicable state laws and the PSAs for valid transfers of the notes and security instruments to the issuing trusts. In Kemp .v. Countrywide Home Loans, Inc., Bkrtcy. No. 08-18700 (D.N.J.), Countrywide sought to prove that the Bank of New York, as trustee for an RMBS issuing trust that purportedly held Mr. Kemps mortgage, was entitled to enforce the mortgage. Countrywide presented testimony by Linda DeMartini, who had been employed by Countrywide Servicing for almost ten years as of August 2009 and was then a supervisor and operational team leader for the Litigation Management Department of Countrywide Servicing. Ms. DeMartini testified that, in her extensive career in the mortgage loan servicing business of Countrywide, I had to know about everything . . . . She testified that Countrywide Home originated Kemps loan in 2006 and transferred it to the Bank of New York as trustee for the issuing trust, but that Countrywide Servicing retained the original note in its own possession and never delivered it to the Bank of New York because Countrywide Servicing was the servicer for the loan.

What have I been prattling on for over a year about?  This exact point.

How many people have said this didn’t matter and wouldn’t be a problem?  Remember all the apologists for the banksters that said this wouldn’t lead to liability, it didn’t represent a void transfer, and that all this would be swept under the rug and be ok?

Care to rethink that position…. just a wee bit?

Looks to me like as the Statute of Limitations approaches and the firms in question that have gotten screwed have faced the choice of “shut up or sue” they’ve decided that the correct response is “Ok, I’ll sue.”

I doubt they’ll be interested in settling for a tiny amount of money either, given the default and economic harm numbers put forward in the complaint.

Nor do I think this will be a singular complaint – drop in your name and play “template” with this one folks.

The Market-Ticker

Wow. Stopforeclosurefraud finds testimony from New Jersey bankruptcy court case indicating that Countrywide (BAC) was not passing along notes as part of the securitization process:

The new allonge was signed by Sharon Mason, Vice President of Countrywide Home Loans, Inc., in the Bankruptcy Risk Litigation Management Department. Linda DeMartini, a supervisor and operational team leader for the Litigation Management Department for BAC Home Loans Servicing L.P. (“BAC Servicing”V testified that the new allonge was prepared in anticipation of this litigation, and that it was signed several weeks before the trial by Sharon Mason.

As to the location of the note, Ms. DeMartini testified that to her knowledge, the original note never left the possession of Countrywide, and that the original note appears to have been transferred to Countrywide’s foreclosure unit, as evidenced by internal FedEx tracking numbers. She also confirmed that the new allonge had not been attached or otherwise affIXed to the note. She testified further that it was customary for Countrywide to maintain possession of the original note and related loan documents.

Both Yves Smith and David Dayen have write-ups of this news that you should read.

Why is this a big deal? It might be helpful to go back to the diagram we used for Part 1 of the Foreclosure Fraud for Dummies series that explained the chain of securitization. Let’s update it for the Countrywide situation. As you can see, at each point conveying and transferring the note plays a crucial part of creating these mortgage-backed securities (please click through for larger, easier to read, image):

(Click to enlarge)

These are not technicalities – these obligations come from secured credit and trust law, two of fields where strict requirements are essential. We don’t want confusion over conflicting claims to property, and we don’t want tax-free trusts being set up without the homework being done. The channels for the securitization are tax free under a special type of law (“REMIC”), and in exchange for that the trusts have to be setup correctly from the get go.

These laws are based out of New York trust law, not congressional law. As Professor Adam Levitin noted in his testimony, between the New York trust law and the Pooling and Service Agreements there are very specific requirements to passing these notes down the chain. They are required to protect investors from both malfeasance, to avoid fraudulent transfer concerns, and to create “bankruptcy remoteness” of that asset from the originator/sponsor.

And it appears that during the worst excesses of the mortgage bubble the very basic rules of property transfer and record-keeping were ignored. The trust and its servicers have no standing to foreclose.

Key point: Tim Geithner and Treasury did not announce this breakthrough in what we know. The Federal Reserve did not announce this breakthrough in what we know. Even at this late stage, the actions of the trust, servicers and depositors are opaque to regulators and investors.

The only reason we know about this is from a New Jersey bankruptcy court. And it’s only because of the people in the field, deposing robosigners, piecing together the records and fighting to get information about what is actually broken in the biggest piece of our stalled economy, that we know any of this. Advances like this will disappear if Congress doesn’t allocate the $35 million dollars it is supposed to for legal aid groups, and you can now understand why lawmakers are hoping this request dies quietly. And it also shows why Attorneys General will need to step up to the plate and take over this fight, while the public needs to hold federal regulators accountable for their lack of effort here.

UPDATE:

At nakedcapitalism, Tom Adams goes and pulls the securitization documents for the Countrywide case involved above, and finds that there aren’t any special exemptions. They stated they moved these notes when they did not:

On Sunday, the New York Times reported on a recent case known as Kemp vs. Countrywide. In it, the judge in his decision states that for the mortgage loan in question in the case, a Countrywide employee testified that the mortgage note had never been delivered to the trustee, as required under the securitization documents. In addition, the Countrywide employee testified that it was the company’s practice not to deliver the notes.

These facts were so extraordinary that I felt compelled to track down the underlying legal documents to the securitization to see what was going on….In the Kemp case, it appears that not only did Countrywide fail to properly convey the mortgage loan, it didn’t even bother to deliver it. Based on my review, Countrywide failed to comply with the terms of the agreement for the delivery of the mortgage notes….I tracked down the pooling and servicing agreement in the Kemp case from CWABS 2006-8 to make sure it did not have any unique exceptions to delivery. It did not…The trustee, pursuant to Section 2.02(a) of the PSA states that it has possession of the mortgage note (identified as section 2.01(g)(i)) and the assignment of mortgage (identified as section 2.01(g)(iii)….

According to the language above, the trustee specifically issues a preliminary certification that it has all of the notes on the closing date….In March, 2007 Countrywide filed the form below from Bank of New York, as trustee, that the trustee’s sections of Reg AB were in compliance, including the pool assets and documents were safeguarded as required by the PSA….

Countrywide’s law firm has denied that the bank failed to convey notes as a matter of policy. However, it seems odd that an employee would make such a claim without some basis for that belief. We are in the early stages of finding out how widespread the failure to convey notes really was, and the Countrywide employee statement suggests these concerns could be well founded.

SeekingAlpha

As Many As 30 Senators or Senate Employees Got Countrywide VIP Loans

It’s what the WSJ points out today in their lead editorial. After we’ve watched the tarring and feathering of Chris Dodd (which I joined) and the fourth-and-long attempt by Team McMahon to somehow link Blumy to the whole mess there are still perhaps as many 30 senators or senate employees who got VIP loans from Angelo Mozilo. But those names are still being withheld by the Senate Ethics Committee.

From U.S. Rep. Darrell Issa’s letter to the Senate Ethics Committee sent last July: 

Courant