The Fourteenth Banker Blog

October 9, 2010

Mortgages 101

Filed under: Running Commentary — thefourteenthbanker @ 2:56 AM

Here is a good primer with graphics on the basics of mortgages and Residential Mortgage Backed Securities (RMBS)

Link

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11 Comments »

  1. Very large banks that are insolvent gets a second chance from a government bailout (TARP) so that these same banks can foreclose on homeowners that are insolvent?

    Comment by tippygolden — October 9, 2010 @ 11:51 AM | Reply

  2. Here is an interesting piece intruding as a lead on one of the oil sites I follow.

    The mortgage note owned by a pure nominee when the nominee cannot even point to an owner in fact other than an unknown pool of potentially thousands in any given securitization. Does anyone know of research in the area of nominees and secured interest Notes. I have been a shareholder nominee many times over the years but I knew who the owner was at all times and had the piece of paper to prove it.

    Have a lot of fun with this link.

    http://www.moriarty.com/ML_News/The_Cake_is_a_Lie/

    Comment by Jerry J — October 9, 2010 @ 3:22 PM | Reply

  3. I read the MERS press release where MERS asserts that they are nominee’s of the real owners. Ok, let’s take them at their word for a moment. If MERS is a bona fide nominee the owners of the Note holding clear title to the Note by endorsement must have a valid conveyance to MERS as nominees. This means that any Note owned by MERS as nominee should be physically readily transferable to anyone in a forward transaction with full legal effect. If were loaned money by Podunk Bank and Podunk sold the Note to WaMu who sold it to Freddie who sold it to Dusseldorf ABS Trust who owns it now, there should be a nominee conveyance from Dusseldorf to MERS. All documents, in writing, in the original, and intact being producable and endorsed over to me when I pay off the Note. I presume here that the sale of the cash flow by Dusseldorf to their bondholders did not convey the Note as property. Only the Note induced cash flow rights were sold. If the cash flow rights sale constituted a Note sale then indeed their might be thousands of owners of any single Note. That practically kills everything if it be the case.

    So far as I know, all statutes implementing the common law Statute of Frauds are intact. They were intact when I made the Note. I relied on them. I am entirely within my rights under the law to insist on a reconveyance under existing law. The Geeks may scream Snail Law or whatever, but they were not part of the transaction. They also do not possess the power to waive Snail Law. They probably do not have the right to even seek waiver by me upfront to the provisions of Snail Law because I do not have the power to waive the law either. MERS cannot substitute either.

    Is this a correct understanding notwithstanding claims about Geekcopies being an equal substitute? If the body of law allows digitual geekstitution then MERS is entirely correct. But even digital copies must provide verifiable valid ownership transfer chains. They must still legally prove the chain from me, as the maker, and Podunk as the Originator to me to MERS. Even MERS must then stand total surety for losses and costs to me of an invalid transfer to me on my paying off the Note.

    I cannot see where MERS is held to this standard upfront and not as a result of individual litigation. Original or digital , the transactional standards of the laws relating to the Statute of Frauds must stand. Is this where MERS meets massive failure and they know it? If you cannot produce the proper original documents how can you have proper digital copies? Both stand or fall together. Both are required.

    In short, MERS has a problem unless they control the original documents too! Even worse for MERS they cannot get the requirement waived. 14th, is this a decent summation of the problem?

    Comment by Jerry J — October 10, 2010 @ 12:39 PM | Reply

    • The MERS press release will be heavily parsed in the next 24 hours. Yves Smith says it is full of half truths and falsehoods and she is going to get an attorney to review it. I suspect by tomorrow Naked Capitalism will have a good rebuttal.

      There are many facets of this problem and I believe you have hit on the ones that impact the most people who expect to pay their mortgage and want to be able to sell their home or get clear title when they pay if off.

      http://www.creditwritedowns.com has a couple good articles and think they will get engaged around this issue.

      One commenter to Ezra Klein had this to say:

      Fraud vitiates everything it touches.

      The alleged “contract” was conceived in fraud from the beginning(fraud in the inducement). There is a SCOTUS decision from 1872, Carpenter v. Longan that states quite clearly once the deed of trust/mortgage is separated from the promissory note the deed of trust/mortgage becomes invalid. It was intentional from the inception that the DoT and PN be separated, it had to in order to be securitized. Once the PN was taken out of the original grantor deed/mortgage and placed into the securitization trust the original grantor deed/mortgage became extinguished.

      I’ll say it again. When the loan was securitized, purchased by the securitized trust through the investor(s), at that juncture, the grantor deed of trust which is the original one that started everything was EXTINGUISHED because it was satisfied!

      It was satisfied at that juncture and in actuality the trustee in question, the one who is trying to foreclose, because pursuant to title 12 226.39 a(1) says servicers can’t foreclose, is the trustee of the securitized trust, not the original deed of trust.

      However to hide what they are doing they are reaching out and grabbing onto the the original DoT which is actually empty.

      (See the Trust Indenture Act of 1939, reaffirmed in 2009, mortgages/ Deeds of trust are trust instruments and fall under trust law)

      The majority of the foundational documents they use to record in the public record are fraudulent. The PSA on securitized loans, the assignments taking place in the public record do not match up with the PSA or the note itself has not been transfered properly in accordance with the PSA’s terms and conditions. This is a big problem with chain of title. This means the foreclosing entity can not foreclose and subsequently no one can foreclose.

      Comment by thefourteenthbanker — October 10, 2010 @ 3:00 PM | Reply

      • Thanks ever so much 14th. Ezra Klein’s post is simply incredible. Right off, Carpenter v. Longan rings a bell. Probably , every business student in the fifties that took business law was introduced to the case. Things will get very hot for the fraudsters. They wind up with a note to enforce with no security interest. The old adage years ago drummed into student’s head was that ” You choose to pursue the Note or the Mortgage but not both”. Fortunately , I was a tax guy.

        Comment by Jerry J — October 10, 2010 @ 4:34 PM

      • Oi gevalt, it just hit me that if the Mortgage/ Deed of Trust is extinguished the property is free and clear. This means that everyone owning a residence and in trouble could force payment to them of the Homestead Exemption . The house is sold, they get the exemption from the proceeds! That will be something that could be well fought over. In many cases that might well be the entire residence value in a collapsed real estate market.

        Comment by Jerry J — October 10, 2010 @ 4:42 PM

  4. Yves Smith is going after MERS and the financial system with a vengeance today. She focuses light on Obama siding with the banks and the banks becoming ever more frightened of a backlash as they endured over bonuses emerging. The issue of more bank fraud has gone virulent now. they cannot contain it. But, those in politics still have a a virulent virus of the political system to contend with.

    Every political system rests on citizen myth. The myth binds the political system together. A simple example in old Russia was the myth that the Tsar took care of the peasants interests. Batushka Tsar was a very deep political myth of Tsarist Russia. Then , one day, after nearly a century of assault on the Tsarist system , the Massacre in front of the Winter Palace occurred. The myth of Batushka and Matushka died. The mystery was gone.

    Americans are deeply anti statist and very much radical egalitarians. They actually believe they are in charge of the system. American populism is legendary. The financial collapse and rescue of the banks with the citizens money followed by the bonuses was a very, very deep shock. Add in a second shock where big finance can override any law in the citizens mind and the Americam myth structure collapses. When the ” American Dream” , ” Our Country” and ultimately ” Our Home” and other ideas about citizen rule are serially destroyed, the political system is as good as dead. When does hatred and disgust of the Federal Government cross over into a fatal dead opposition? How Federal politicans, all but two locally elected, handle this most recent scandal about financial elite influence will determine the fate of the political system as it now stands.

    Right now, I do not know if I safely own my own home. I followed all the rules that insured for centuries that I safely own my ” own home”. Now, it seems, the elites may override the rules to take my home if they choose and I have no redress. Here is the core issue that will motivate the vast middle if the system surrenders to the financial elites. This issue , twisted properly, would be the biggest political motivator since FDR. On November 2nd the latency of this idea will be proven or disproven.

    Two thirds of the citizens own their own homes and the vast majority religiously pay their mortgages. If this issue does not trigger a massive response against financial elites in the next couple of years, what the hell would?

    Comment by Jerry J — October 11, 2010 @ 12:37 PM | Reply

  5. Lost Notes. In NY, someone who is trying to enforce a lost note must post a surety bond in the amount of twice the amount of the note (NY UCC 3-804). So a $250k note must have a $500k surety bond posted. This will cost the note enforcer approximately 2% or $10,000. However, the surety insurer will be on the hook for the entire $500,000.

    Can we find out if any of these surety bond insurers are likely to go for this deal given what we now know about how these notes were securitized and sold into the netherworld?

    Comment by Bob G. — October 14, 2010 @ 5:37 AM | Reply

    • Thanks Bob G. Many states have similar provisions. If I were paying off my own note , I would insist on the Surety Bond. In the past, when selling a house, the Note was paid off at the closing . The paid off lender, through the title company, issued a reconveyance or mortgage release that was recorded. The title company was on the hook for a claim against the title. The only person left holding the bag was the former owner if he did not receive the Original Note back and note maker/ seller had recourse against their attorney who handled the closing. Lost Notes were very unusual. The security of title in a foreclosure was also guaranteed because the future sale of the property by the bank carried title insurance coverage as in a normal conveyance.

      Now we have no idea of how bad a title would be clouded in a foreclosure and the title companies and sureties must be very aware of their risks. It is easy to see that masses of Notes, entire original files are missing. The files remained at the originators. The originators folded. There was no party to that would pay for storage and few knew who to send the original files to anyway. If there was a great deal of originator fraud or coaxed debtor fraud these files would have been sent out for destruction anyway. That is, if the crook originator had even a little cunning.

      So, what percentage of small originator original files were destroyed? The percentage must be substantial. There were thousands of small originators. The same could be said for even small office of the big firms when the offices were shut down. It would take special efforts by the Corporate Office of these originators to preserve the files. All of them were in turmoil too. So, just about every closed mortgage office must be a contributor to the problem. The first excuse would be that what was important was scanned anyway.

      Human nature in a messy situation suggests the docs were tossed. Human nature also guaranteed doing what ever it takes to pass the problem onto others but get rid of the problem for themselves.

      Comment by Jerry J — October 14, 2010 @ 12:08 PM | Reply

      • The catch here is that you must ask for a Lost Instrument Surety Bond. The banks will not make the offer obviously. I can see this requirement getting out of hand very quickly in terms of cost to the banks. Given what has already happened, will sureties even offer to underwrite a Lost Instrument Bond? So, if a document was faked, the sureties would wind up taking on risks of criminals. I would think the fees would get quite steep. More like the bail bond business?

        Comment by Jerry J — October 14, 2010 @ 1:44 PM

  6. Great article! I really learned a lot from this post. Thank you!

    Comment by Greg McCallum — April 14, 2011 @ 2:18 PM | Reply


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