Monthly Archives: November 2011

Foreclosure Fraud in a Nutshell and How Newt Gingrich Abetted the Theft of Average Joe’s Home

by Bill Butler
Previously by Bill Butler: Attempted Murder of Capitalism

The untold story in the foreclosure crisis unfolding across America is that, following a foreclosure perpetrated by one of the October 2008 Bailout Banks (e.g. Bank of America, Citibank, JPMorgan, Wells Fargo) Fannie Mae or Freddie Mac suddenly appear as the record owner of Average Joe’s home. These federal government sponsored entities then go into local housing court and get a court order authorizing them to evict Joe. If Joe resists, these supposedly charitable institutions obtain a writ ordering the local sheriff to forcibly remove Joe from his home.

Newt Gingrich recently admitted to accepting $1.8 million from Freddie Mac ($25,0000 to $30,000 a month during one span of time) for advising this proto-fascist entity. Gingrich claims that he supports Fannie and Freddie because he believes the federal government "should have programs to help low income people acquire the ability to buy homes." But Fannie and Freddie don’t do this and never have. When government "helps" someone by subsidizing the purchase of something (through easy credit or lower-than-market rates), it makes that something more expensive. Helping someone buy something that is overpriced because of your help is not help. Fannie/Freddie subsidies not only hurt the low income people they intend to help, they hurt everyone by subsidizing, and therefore distorting, the entire housing market. Fannie/Freddie’s charity has now taken a dark turn. Like their Depression-era New Deal predecessor the Regional Agricultural Credit Corp., Fannie/Freddie are now repossessing homes at an increasing and alarming rate.

Mr. Gingrich either does not understand economics – government subsidies make things more expensive, not less expensive, and therefore hurt their intended beneficiaries – or he is a vain, selfish, and cynical man with no interest in actually helping his neighbor.

You decide.


The facts indicate that the Federal Reserve "printed" at least 16 trillion dollars as part of the 2008 bailouts. The bigger questions, however, who got it, why and what did the Fed get in return? The Fed doesn’t just print money. It prints money to buy stuff. Most often this is U.S. Treasuries. That changed in October of 2008. In and after October 2008 the Fed printed new money to buy mortgage-backed securities (MBS) that were defaulting at a rapid rate. Want proof? Here is a link to the Federal Reserve balance sheet which shows that the Fed is holding over a trillion dollars in mortgage backed securities that it began acquiring in 2008.

Why is the Federal Reserve holding all these MBS? Because when "the market" collapsed in September of 2008, what really collapsed is the Fannie/Freddie/Wall Street mortgage "daisy chain" securitization scheme. As increasing numbers of MBS went into default, the purchasers of derivatives (naked insurance contracts betting on MBS default) began filing claims against the insurance writers (e.g. AIG) demanding payment. This started in February 2007 when HSBC Bank announced billions in MBS losses, gained momentum in June of 2007 when Bear Stearns announced $3.8 billion in MBS exposure in just one Bear Stearns fund, and further momentum with the actual collapse of Bear Stears in July and August of 2007. By September of 2008, the Bear Stearns collapse proved to be the canary in the coal mine as the claims on off-balance sheet derivatives became the cascading cross defaults that Alan Greenspan warned could collapse the entire Western financial system.

Part of what happened in October 2008 is that the Federal Reserve paid AIG's and others’ derivative obligations to the insureds (pension funds, hedge funds, major banks, foreign banks) who held the naked insurance contracts guaranteeing Average Joe's payments. To understand this, imagine that a cataclysmic event occurred in the U.S. that destroyed nearly every car in the U.S. and further that Allstate insured all of these cars. That is what happened to AIG. When the housing market collapsed and borrowers began defaulting on their securitized loans, AIG’s derivative obligations exceeded its ability (or willingness) to pay. So the Fed stepped in as the insurer of last resort and bailed out AIG (and probably others). When an insurer pays on a personal property claim, it has "subrogation" rights. This means when it pays it has the right to demand possession of the personal property it insured or seek recovery from those responsible for the loss. In Allstate’s case this is wrecked cars. In the case of AIG and the Fed, it is MBS. That is what the trillions of MBS on the Fed’s balance sheet represent: wrecked cars that Fannie and Freddie are now liquidating for scrap value.

Thank you Mr. Gingrich. Great advice.


To understand how it came to be that the Fed has paid Average Joe’s original actual lender (the MBS purchaser) and now Fannie and Freddie are trying to take Joe’s home, you first have to understand some mortgage law and securitization basics.

The Difference Between Notes and Mortgages

When you close on the purchase of your home, you sign two important documents. You sign a promissory note that represents your legal obligation to pay. You sign ONE promissory note. You sign ONE promissory note because it is a negotiable instrument, payable "to the order of" the "lender" identified in the promissory note. If you signed two promissory notes on a $300,000 loan from Countrywide, you could end up paying Countrywide (or one of its successors) $600,000.

At closing you also sign a Mortgage (or a Deed of Trust in Deed of Trust States). You may sign more than one Mortgage. You may sign more than one Mortgage because it does not represent a legal obligation to pay anything. You could sign 50 Mortgages relating to your $300,000 Countrywide loan and it would not change your obligation. A Mortgage is a security instrument. It is security and security only. Without a promissory note, a mortgage is nothing. Nothing.

You "give" or "grant" a mortgage to your original lender as security for the promise to pay as represented by the promissory note. In real estate law parlance, you "give/grant" the "mortgage" to the "holder" of your "promissory note."

If you question my bona fides in commenting on the important distinction between notes and mortgages, I know what I am talking about. I tried and won perhaps the first securitized mortgage lawsuit ever in the country in First National Bank of Elk River v. Independent Mortgage Services, 1996 WL 229236 (Minn. Ct. App. No. DX-95-1919).

In FNBER v. IMS a mortgage assignee (IMS) claimed the ownership of two mortgages relating to loans (promissory notes) held by my client, the First National Bank of Elk River (FNBER). After a three-day trial where IMS was capably represented by a former partner of the international law firm Dorsey & Whitney, my client prevailed and the Court voided the recorded mortgage assignments to IMS. My client prevailed not because of my great skill but because it had actual, physical custody of the original promissory notes (payable to the order of my client) and had been "servicing" (receiving payments on) the loans for years notwithstanding the recorded assignment of mortgage. The facts at trial showed that IMS rejected the loans because they did not conform to their securitization parameters. In short, IMS, as the "record owner" of the mortgages without any provable connection to the underlying notes, had nothing. FNBER, on the other hand, had promissory notes payable to the order of FNBER but did not have "record title" to the mortgages. FNBER was the winner because its possession of and entitlement to enforce the notes made it the "legal owner" of the mortgages.

The lesson: if you have record title to a mortgage but cannot show that you have possession of and/or entitlement to enforce the promissory notes that the mortgage secures, you lose.

This is true for 62 million securitized loans.

Securitization – The Car That Doesn’t Go In Reverse

There is nothing per se illegitimate about securitization. The law has for a long time recognized the rights of a noteholder to sell off pro-rata interests in the note. So long as the noteholder remains the noteholder he has the right to exercise rights in a mortgage (take the house) when there is a default on the note. Securitization does not run afoul of traditional real estate and foreclosure law when the mortgage holder can prove his connection to the noteholder.

But modern securitization doesn’t work this way.

The "securitization" of a "mortgage loan" today involves multiple parties but the most important parties and documents necessary for evaluating whether a bank has a right to foreclose on a mortgage are:

(1) the Borrower (Average Joe);

(2) the Original Lender (Mike's Baitshop and Mortgages or Bailey Savings & Loan – whoever is across the closing table from Joe);

(3) the Original Mortgagee (could be Mike's B&M, but could be anyone, including Fannie's Creature From the Black Lagoon, the mortgagee "nominee" MERS);

(4) the "Servicer" of the loan as identified in the PSA (usually a Bank or anyone with "servicer" in its name, the entity to whom Joe makes his payments);

(5) the mortgage loan "pooling and servicing agreement" (PSA) and the PSA Trust created by the PSA;

(6) the "PSA Trust" is the "special purpose entity" created by the PSA. The PSA Trust is the heart of the PSA. It holds all securitized notes and mortgages and also sells MBS securities to investors; and

(7) the "Trustee" of the PSA Trust is the entity responsible for safekeeping of Joe's promissory note and mortgage and the issuer of MBS.

The PSA Servicer is essentially the Chief Operating Officer and driver of the PSA. Without the Servicer, the securitization car does not go. The Servicer is the entity to which Joe pays his "mortgage" (really his note, but you get it) every month. When Joe's loan gets "sold" multiple times, the loan is not actually being sold, the servicing rights are. The Servicer has no right, title or interest in either the promissory note or the mortgage. Any right that the Servicer has to receive money is derived from the PSA. The PSA, not Joe's Note or Joe's Mortgage, gives the Servicer the right to take droplets of cash out of Joe's monthly payments before distributing the remainder to MBS purchasers.

The PSA Trustee and the sanctity of the PSA Trust are vitally important to the validity of the PSA. The PSA promoters (the usual suspects, Goldman Sachs, Lehman Bros., Merrill, Deutchebank, Barclays, etc.) persuaded MBS purchasers to part with trillions of dollars based on the idea that they would ensure that Joe's Note would be properly endorsed by every person or entity that touched it after Joe signed it, that they would place Joe's Note and Joe's Mortgage in the vault-like PSA Trust and the note and mortgage would remain in the PSA Trust with a green-eyeshade, PSA Trustee diligently safekeeping them for 30 years. Further, the PSA promoters hired law firms to persuade the MBS purchasers that the PSA Trust, which is more than100 percent funded (that is, oversold) by the MBS purchasers, was the real owner of Joe's Note and Joe's Mortgage and that the PSA Trust, using other people’s money, had purchased or soon would purchase thousands of similar notes and mortgages in a "true sale" in accordance with FASB 140.

The PSA does not distribute pool proceeds that can be tracked pro rata to identifiable loans. In this respect, in the wrong hands (e.g. Countrywide’s Angelo Mozilo) PSAs have the potential to operate like a modern "daisy chain" fraud whereby the PSA oversells the loans in the PSA Trust, thus defrauding the MBS investors. The PSA organizers also do not inform Joe at the other end of the chain that they have sold his $300,000 loan for $600,000 and that the payout to the MBS purchasers (and other derivative side-bettors) when Joe defaults is potentially multiples of $300,000.

The PSA organizers can cover the PSA’s obligations to MBS purchasers through derivatives. Derivatives are like homeowners’ fire insurance that anyone can buy. If everyone in the world can bet that Joe’s home is going to burn down and has no interest in preventing it, odds are that Joe’s home will burn down. This is part of the reason Warren Buffet called derivatives a "financial weapon of mass destruction." They are an off-balance sheet fiat money multiplier (the Fed stopped reporting the explosive expansion of M3 in 2006 most likely because of derivatives and mortgage loan securitization fraud), and create incentive for fraud. On the other end of the chain, Joe has no idea that the "Lender" across the table from him has no skin in the game and is more than likely receiving a commission for dragging Joe to the table.

A serious problem with modern securitization is that it destroys "privity." Privity of contract is the traditional notion that there are two parties to a contract and that only a party to the contract can enforce or renegotiate that contract. Put simply, if A and B have a contract, C cannot enforce B’s rights against A (unless A expressly agrees or C otherwise shows a lawful agency relationship with B). The frustration for Joe is that he cannot find the other party to his transaction. When Joe talks to his "bank" (really his Servicer) and tries to renegotiate his loan, his bank tells him that a mysterious "investor" will not approve. He can’t do this because they don’t exist, have been paid or don’t have the authority to negotiate Joe’s loan.

Joe’s ultimate "investor" is the Fed, as evidenced by the trillion of MBSs on its balance sheet. Although Fannie/Freddie purportedly now "own" 80 percent of all U.S. "mortgage loans," Fannie/Freddie are really just the Fed’s repo agents. Joe has no privity relationship with Fannie/Freddie. Fannie, Freddie and the Fed know this. So they are using the Bailout Banks to frontrun the process – the Bailout Bank (who also have no cognizable connection to the note and therefore no privity relationship with Joe) conducts a fraudulent foreclosure by creating a "record title" right to foreclose and, when the fraudulent process is over, hands the bag of stolen loot (Joe’s home) to Fannie and Freddie.

Record Title and Legal Title

Virtually all 62 million securitized notes define the "Noteholder" as "anyone who takes this Note by transfer and who is entitled to receive payment under this Note…" Very few of the holders of securitized mortgages can establish that they both hold (have physical possession of) the note AND are entitled to receive payments on the notes. For whatever reason, if a Bailout Bank has possession of an original note, it is usually endorsed payable to the order of some other (often bankrupt) entity.

If you are a Bailout Bank and you have physical possession of an original securitized note, proving that you are "entitled to receive payment" on the note is nearly impossible. First, you have to explain how you obtained the note when it should be in the hands of a PSA Trustee and it is not endorsed by the PSA Trustee. Second, even if you can show how you obtained the note, explaining why you are entitled to receive payments when you paid nothing for it and when the Fed may have satisfied your original creditors is a very difficult proposition. Third, because a mortgage is security for payments due to the noteholder and only the noteholder, if you cannot establish legal right to receive payments on the note but have a recorded mortgage all you have is "record" title to the mortgage. You have the "power" to foreclose (because courts trust recorded documents) but not necessarily the legal "right" to foreclose. Think FNBER v. IMS.

The "robosigner" controversy, reported by 60 Minutes months ago, is a symptom of the banks’ problem with "legal title" versus "record title." The 60 Minutes reports shows that Bailout Banks are hiring 16 year old, independent contractors from Backwater, Georgia to pose as vice presidents and sign mortgage assignments which they "record" with local county recorders. This is effective in establishing the Bailout Banks’ "record title" to the "mortgage." Unlike real bank vice presidents subject to Sarbanes-Oxley, Backwater 16-year olds have no reason to ask: "Where is the note?"; "Is my bank the noteholder?"; or "Is my Bank entitled to receive payments on the note?"

The Federal Office of the Comptroller of the Currency and the Office of Thrift Supervision agree with this analysis. In April of 2011 the OCC and OTS reprimanded the Bailout Banks for fraudulently foreclosing on millions of Average Joe’s:

…without always ensuring that the either the promissory note or the mortgage document were properly endorsed or assigned and, if necessary, in the possession of the appropriate party at the appropriate time…

The OCC and OTS further found that the Bailout Banks "failed to sufficiently oversee outside counsel and other third-party providers handling foreclosure-related services."

Finally, Bailout Banks consented to the OCC and OTS spanking by admitting that they have engaged in "unsafe and unsound banking practices."

In these "Order and Consent Decrees," the OCC and the OTS reprimanded all of the usual suspects: Bank of AmericaCitibankHSBCJPMorgan ChaseMetLifeMERSCorpPNC BankUS BankWells FargoAurora BankEverbankOneWest BankIMB HoldCo LLC, and Sovereign Bank.

Although the OCC and OTS Orders are essentially wrist slaps for what is a massive fraud, these orders at least expose some truth. In response to the OCC Order, the Fannie/Freddie-created Mortgage Electronic Registration Systems (MERS), changed its rules (see Rule 8) to demand that foreclosing lawyers identify the "noteowner" prior to initiating foreclosure proceedings.


Those of us fighting the banks began to see a disturbing trend starting about a year ago. Fannie and Freddie began showing up claiming title and seeking to evict homeowners from their homes.

The process works like this, using Bank of America as an example. Average Joe had a securitized loan with Countrywide. Countrywide, which might as well have been run by the Gambino family with expertise in "daisy chain" fraud, never followed the PSA, did not care for the original notes and almost never deposited the original notes in the PSA Trust. Countrywide goes belly up. Bank of America (BOA) takes over Countrywide in perhaps the worst deal in the history of corporate America, acquiring more liabilities than assets. Bank of America realizes that it has acquired a big bag of dung (no notes = no mortgages = big problem) and so sets up an entity called "BAC Home Loans LLP" whose general partner is another BOA entity.

The purpose of these BOA entities is to execute the liquidation the Countrywide portfolio as quickly as possible and, at the same time, isolate the liability to two small BOA subsidiaries. BOA uses BAC Home Loans LLP to conduct the foreclosure on Joe’s home. BAC Home Loans LLP feeds local foreclosure lawyers phony, robosigned documents that establish an "of record" transfer of the Countrywide mortgage to BAC Home Loans LLP. BAC Home Loans LLP, "purchases" Joe’s home at a Sheriff’s sale by bidding Joe’s debt owed to Countrywide. BAC Home Loans LLP does not have and cannot prove any connection to Joe’s note so BAC Home Loans LLP quickly deeds Joe’s property to Fannie and Freddie.

When it is time to kick Joe out of his home, Fannie Mae shows up in the eviction action. When compelled to show its cards, Fannie will claim title to Joe’s house via a "quit claim deed" or an assignment of the Sheriff’s Certificate of sale. Adding insult to injury, while Joe may have spent years trying to get BOA to "modify" his loan, and may have begged BOA for the right to pay BOA $1000 a month if only BOA will stop the foreclosure, Fannie now claims that BOA deeded Joe’s property to Fannie for nothing. That right, nothing. All county recorders require that a real estate purchaser claim how much they paid for the property to determine the tax value. Fannie claims on these recorded documents that it paid nothing for Joe’s home and, further, falsely claims that it is exempt because it is a US government agency. It isn’t. It is a government sponsored entity that is currently in conservatorship and run by the US government.

Great advice Newt.


It is apparent that the US government is so broke that it will do anything to pay its bills, including stealing Average Joe’s home.

That’s change that both Barack Obama and Newt Gingrich can believe in.


More and more courts are agreeing that the banks "inside" the PSA do not have legal standing (they have no skin in the game and so cannot show the necessary "injury in fact"), are not "real parties in interest" (they cannot show that they followed the terms of the PSA or are otherwise "entitled to enforce" the note) and that there are real questions of whether any securitized mortgage can ever be properly perfected.

The banks' weakness is exposed most often in bankruptcy courts because it is there that they have to show their cards and explain how they claim a legal right, rather than the "of record" right, to foreclose the mortgage. More and more courts are recognizing that, without proof of ownership of the underlying note, holding a mortgage means nothing.

The most recent crack in the Banks’s position is evidenced by the federal Eight Circuit Court of Appeals’ decision inIn Re Banks, No. 11-6025 (8th Cir., Sept. 13, 2011). In Banks, a bank attempted to execute a foreclosure within a bankruptcy case. The bank had a note payable to the order of another entity; that is, the foreclosing bank was "Bank C" but had a note payable to the order of "Bank B" and endorsed in blank by Bank B. The bank, Bank C, alleged that, because the note was endorsed in blank and "without recourse," that it had the right to foreclose. The Court held that this was insufficient to show a sufficient chain of title to the note, reversed the lower court’s decision and remanded for findings regarding when and how Bank C acquired the note.

See also, In Re AagardNo. 810-77338-reg (Bankr. E.D.N.Y., Feb. 10, 2011) (Judge Grossman slams MERS as lacking standing, working as both principal and agent in same transaction, and exposes MERS' alleged principal US Bank as unable to produce or provide evidence that it is in fact the holder of the note); In Re VargasNo. 08-17036SB (Bankr. C.D. Cal., Sept. 30, 2008) (Judge Bufford correctly applied rules of evidence and held that MERS could not establish right to possession of the 83-year old Mr. Vargas' home through the testimony of a low-level employee who had no foundation to testify about the legal title to the original note); In Re WalkerBankr. E.D. Cal. No. 10-21656-E-11 (May 20, 2010) (holding that neither MERS nor its alleged principal could show that they were "real parties in interest" because neither could provide any evidence of the whereabouts of, much less legal title to, the original note); Landmark v.Kesler216 P.2d 158 (Kan. 2009) (in this case the Kansas Supreme Court provides the most cogent state court analysis of the problem created by securitization – the "splitting" of the note and the mortgage and the real party in interest and standing problems that the holder of the mortgage has when it cannot also show that it has clean and clear legal title to the note); U.S. Bank Nat'l Ass'n v. Ibanez, 941 NE 40 (Mass. 2011), (the Massachusetts Supreme Court denied two banks' attempts to "quiet title" following foreclosure because the banks' proffered evidence did not show ownership of the mortgages – or for that matter, the notes – prior to the Sheriff's sale); and Jackson v. MERS770 N.W.2d 489 (Minn. 2009) (this federal-gun-to-the-head – certified question from federal court asking for state court blessing of its already decided ruling – to the Minnesota Supreme Court is most notable for the courageous dissent of NFL Hall of Fame player and only popularly elected Justice Alan Page who opined that MERS should pound sand and obey state recording standards).

November 28, 2011

Bill Butler [send him mail] is a Minneapolis attorney and the owner of Butler Liberty Law.

Copyright © 2011 by Permission to reprint in whole or in part is gladly granted, provided full credit is given.

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Notary who blew whistle on foreclosure fraud found dead

LAS VEGAS (KSNV MyNews3) -- The notary who signed tens of thousands of false documents in a massive robo-signing scandal case was found dead in her home on Monday. 

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The notary, 43-year-old Tracy Lawrence, was supposed to be in court at 8:30 Monday morning for her sentencing hearing. When her attorney did not hear from her for more than an hour, Sr. Deputy Attorney General Robert Giunta asked for a bench warrant to be issued for Lawrence. The judge denied the request.

Police were sent to Lawrence's house to check on her after her lawyer expressed concern for her client's well-being. They found her body inside her home.

Metro Homicide Detectives are working currently the case. It is unclear if her death was due to natural causes, or if it was a suicide.

Detectives said this afternoon that they have ruled out homicide as a cause of death.

Last Monday, Lawrence pled guilty to only one criminal charge of notary fraud.

Lawrence came forward earlier this month and admitted that she had notarized around 25,000 fraudulent documents as part of a foreclosure fraud scheme.

Title officers Gary Trafford and Geraldine Sheppard of California are allegedly behind the fraud that involved forging signatures on tens of thousands of notices of default between 2005 and 2008. The two were indicted on more than 600 charges in a 439-page indictment filed on November 16.

First Criminal Charges Filed In Nevada Over Robo-Signing

The Nevada attorney general has indicted two midlevel staffers at a mortgage document company, Lender Processing Services, on a whopping 606 counts of felony and gross misdemeanor for directing employees to forge signatures and falsely notarize documents used to illegally foreclose on Nevada homeowners.

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Nevada's is the first criminal indictment since last year's discovery of the nationwide "robo-signing" scandal, in which mortgage servicing companies and banks were processing foreclosures en masse at lightning speed by signing documents they neglected to review and falsifying information.

"The grand jury found probable cause that there was a robo-signing scheme which resulted in the filing of tens of thousands of fraudulent documents with the Clark County Recorder's Office between 2005 and 2008," said Nevada's chief deputy attorney general, John Kelleher, in a statement.

The indictment against the two employees, Gary Trafford and Gerri Sheppard, describes them as LPS title officers and California residents. Neither has been arrested, but the court has set bail at $500,000 each.


In a Thursday release, LPS said that it's cooperating with the investigation. It also asserted that no homeowners have been harmed: "Based on the company's reviews, LPS acknowledges the signing procedures on some of these documents were flawed; however, the company also believes these documents were properly authorized and their recording did not result in a wrongful foreclosure."

Prentiss Cox, a law professor at the University of Minnesota and a former assistant state attorney general, said it was admirable for Nevada Attorney General Catherine Cortez Masto to pursue the robo-signing case. But, he added, "When criminal prosecutions are done for robo-signing, I would hope the target of those prosecutions would be the people who designed the system and profited from it, not just the low-level people doing what they were told."

The Nevada indictments come as a coalition of state law enforcement officials and the Obama administration are pursuing a settlement with big banks over their role in robo-signing and other alleged mistreatment of struggling homeowners.

After the existence of robo-signing came to light in October 2010, attorneys general from all 50 states banded together with the federal government to punish five large financial institutions -- Bank of America, JPMorgan Chase, Citigroup, Wells Fargo and Ally Financial -- for mortgage-related misconduct, including robo-signing and failing to provide mortgage modifications to eligible homeowners. As it now stands, that punishment would take the form of a $25 billion civil settlement. The deal would reform the mortgage servicing industry and require banks to offer relief to homeowners in the form of modifications, principal write-downs and refinancing, among other options.

The negotiations, led by Iowa Attorney General Tom Miller, hit a snag this summer when several attorneys general -- most notably Eric Schneiderman of New York and Beau Biden of Delaware -- objected that the deal was too narrowly focused on robo-signing and mortgage servicing and that it would release banks from liability for too much potential wrongdoing. Schneiderman and Biden called for a more thorough investigation of how home loans were originated and sold to investors. In October, Biden sued MERS, a company that has served as big banks' private national mortgage registry, and Schneiderman subpoenaed the company.

Masto said on MSNBC earlier this month that she applauded Biden's MERS lawsuit. But, she added, "Some of us are attacking in different areas -- that doesn't necessarily mean we won't all get to the same litigation."


Winnebago County recorder still finds instances of ‘robo-signing’

By Alex Gary


ROCKFORD — In late 2010, the furor over “robo-signers” revealed the complicated — and occasionally sloppy, if not entirely negligent — mountains of paperwork that accompany mortgages and the process of foreclosure.

Attorneys representing homeowners in several states uncovered the fact that many banks, or the companies the banks used to process paperwork, were authorizing documents without checking their accuracy or even giving them more than a cursory glance. In some cases, these “robo-signers” fraudulently signed the names of bank officials, attorneys and notaries.

Several of the largest banks, including Wells Fargo, JPMorgan Chase and Bank of America, halted foreclosures for several months in states that don’t use the court system in order to check the accuracy of the documents in their foreclosure pipeline.

In Illinois, foreclosures are processed through the courts so the foreclosure wave continued unabated. And Winnebago County Recorder Nancy McPherson believes she has found evidence that “robo-signing” is still rampant here in the Rock River Valley.

McPherson is one of 12 county recorders collecting evidence of mortgage document fraud for Illinois Attorney General Lisa Madigan.

She joined the wave of state attorneys general investigating foreclosures in May when she issued subpoenas against Lender Processing Services and Nationwide Title Clearing, two Florida-based companies that provide “document preparation services” for mortgage lenders to use against borrowers who are in default, foreclosure or bankruptcy.

McPherson’s office sampled a small number of foreclosure documents in her office and found hundreds of apparent forgeries.

“‘Linda Green’ is on documents as vice president of Wells Fargo. She’s (on other documents as) vice president of (Mortgage Electronic Registration Systems Inc.). She is vice president of Optical Mortgage Co. as well, and all of the signatures are completely different,” McPherson said. “Another name to take notice of is ‘Pat Kingston.’ She or he has several different titles. Lately, (the lenders or document providers) haven’t been using ‘Linda Green’ as much. There’s a new set of fake names. ‘Brian Blaine’ is the vice president of Chase Mortgage Bank. He is vice president of Washington Mutual Bank. He is vice president of Nations Credit Financial Services Corp. He’s vice president and attorney in fact for IndyMac Federal Bank.”

Not surprisingly, McPherson is opposed to settling with major lending institutions.

“We’re telling the attorney general not to settle. They haven’t fixed the problem yet,” McPherson said.

Reportedly, the nation’s 50 attorneys general are close to announcing a $20 billion settlement with major lenders that would give those lenders legal immunity.

Robin Ziegler, a spokesman for Madigan’s office, said the “investigation and the negotiations with the banks are both ongoing.”

“It is the goal of the attorney general that any settlement must require significant, meaningful reform and provide immediate relief for homeowners across the country,” Ziegler said in an email.

Recently, McPherson has noticed a greater number of mortgage modification documents — a change from past practice, because major mortgage lenders have been criticized for being unwilling to modify loans to help struggling homeowners.

On Saturday, McPherson will join Madigan’s staff at the Hilton Garden Inn for a five-hour seminar to help homeowners avoid foreclosure rescue scams and explore available state programs.

“The number of modifications we’re seeing is a lot higher,” she said. “If this investigation finally pushes banks to do more modifications, then it’s a very good thing for neighborhoods and taxpayers.”

Reach Assistant Business Editor Alex Gary at or 815-987-1339.

Massachusetts Attorney General Coakley pressed to reject 50-state foreclosure settlement

Boston  Massachusetts housing advocates and victims of the housing crisis are pressing Attorney General Martha Coakley to reject a settlement over foreclosure abuses that federal officials and other state attorneys general are negotiating with major U.S. banks.

Critics of the resolution are scheduled to gather at the Statehouse in Boston on Tuesday to rally against a reported $20-billion settlement they say amounts to "a slap on the wrist" for financial institutions whose practices fueled the economic crisis.

The agreement was supposed to settle claims of poor mortgage and foreclosure practices, including document fraud known as "robo-signing" — approving documents in foreclosures without actually reading them.

Underwater rescue

Short sales offer a viable option for homeowners who want to sell

Your home is underwater and your spouse is out of work. The bank refuses to lower your monthly payments, and you’re terrified by the thought of an eviction notice.

It’s a nightmare, but a growing number of people in your predicament are turning to the short sale to avoid a ruinous foreclosure.

What is a short sale? Say you still owe $300,000 on your mortgage, but with housing prices in the dumps, your home is worth just $200,000. If your lender agrees, you could sell the house for its current value, writing off the remaining $100,000. Even if the lender won’t forgive the entire difference, you can still try to whittle it down.

Short sales have become so hot in recent months that some large banks are encouraging them to take the plunge.

Bank of America just launched a program promising up to $20,000 at closing for Florida residents who put their houses on the market before the end of November and sell by next August. JPMorgan Chase and Wells Fargo have similar programs, as does the federal government, which is offering up to $3,000 in relocation costs for eligible sellers.

But real-estate experts say the rise of the short sale coincides with setbacks to the foreclosure process, especially in the wake of the “robo-signing” scandal that caught banks forging documents and filing flawed paperwork to push people from their homes.

Also, lenders are concerned that evicted homeowners are more likely to trash their homes, which can lead to even larger losses, says Alex Charfen, co-founder of the Distressed Property Institute in Austin, Texas.

Debra Wingo, a real-estate agent with the Selby Group in Orlando, Fla., says she has seen short sales in her area outpace foreclosures. She credits technology advances with streamlining the process, which has helped cut the application process to three to six months, down from one to three years, Wingo says, adding that the process “just wore a lot of people out.”

But Charfen warns potential sellers to watch out for con artists who have flocked to the short-sale space to take advantage of scared homeowners.

“The biggest risk in the short sale right now is fraud,” says Charfen. “People are being charged money upfront, which should never, ever happen.” — Kaja Whitehouse

Mortgagors, BEWARE! Ocwen Set to Buy $15 Billion in MSRs from JPMorgan

Something strange is going on here and it looks like a complete set up… Don’t ask me why it just seems like risky business.

Wanna Bet?


The M Report-

JPMorgan Chase & Co. has a buyer for $15 billion in mortgage servicing rights from the financial institution, with the announcement that Ocwen Financial Corp. would purchase the bank’s MSRs for a rumored $950 million. Ocwen’s acquisition follows the company’s decision to raise $375 million in new equity through offering 25 million shares of public common stock.

The equity transaction is set to close on November 16, prior to the finalization of the MSR deal with JPMorgan, and Ocwen’s public common stock will be priced at $13 per unit. The company has previously stated that it intended to use proceeds from the sale to purchase JPMorgan’s MSRs, and that acquisition will close on January 1, 2012.

California resists Obama’s banking sellout


There’s no three-strikes law for crooked bankers. There’s not even a law for a fifth strike, as The New York Times reported in the case of Citigroup, cited last month in a $1 billion fraud case. Unlike the California third-striker I once wrote about whom a district attorney wanted banished forever to state prison for stealing a piece of pizza from the plate of a person dining outdoors, Citigroup executives get off with a fine and by offering a promise not to do it again — and again and again.

As the Times reported when Citigroup agreed to settle SEC charges last month: “Citigroup’s main brokerage subsidiary, its predecessors or its parent company agreed to not violate the very same antifraud statute in July 2010. And in May 2006. Also as far back as March 2005 and April 2000.”

Not that the bankers face prison time, since the Justice Department has refused to act in these cases and the Securities and Exchange Commission is bringing only civil charges, which the banks find quite tolerable. This time, the fine against Citigroup was $285 million, which might sound like a lot, except that the bank raked off as much as $700 million on this particular toxic securities deal.

As the Bloomberg news service editorialized, “There should be only one answer from Jed S. Rakoff, the federal judge in New York assigned to weigh the merits of the agreement: You’ve got to be kidding.”

Not to pick on Citigroup, the too-big-to-fail bank that Clinton administration Treasury Secretary Robert Rubin helped make legal before he was paid off with a $126 million job on Wall Street; that corporation was not the only serial offender.

“Citigroup has a lot of company in this regard on Wall Street,” the Times noted, “nearly all of the biggest financial companies — Goldman Sachs, Morgan Stanley, J.P. Morgan Chase and Bank of America among them — have settled fraud cases by promising that they would never again violate an antifraud law, only to have the SEC conclude they did it again a few years later.”

So forget relying on the federal government to hold the Wall Street swindlers accountable. Indeed, the Obama administration has been involved in negotiating a deal with state attorneys general to settle their complaints with the banks for a pittance of compensation for the victims. In return, the states would promise not to institute further legal proceedings against the banks.

The fix was in for what a New York Times editorial on Tuesday headlined “Letting the Banks Off Easy” described as “paltry” mortgage relief, reducing by less than $20 billion the balances of 14.5 million underwater homeowners who are “drowning in some $700 billion of negative equity.”

The deal has been stalled by the refusal of California Attorney General Kamala Harris to accept this sellout. Among its other disastrous concessions would be ending further investigation by the states into financial skullduggery connected with the housing meltdown.

In September, Harris, elected in a Democratic sweep of the state’s top offices in 2010, went against the dictates of the Democrat in the White House, saying she refused to release the banks from legal liability for the mortgage crisis. That is the nub of the pending White House-brokered deal with the banks.

As the Times summarized it: “The proposed settlement reportedly would prevent the states from pursuing claims against banks relating to fraud or abuse in the origination of the bubble. It would also prevent states from pursuing claims for foreclosure abuses, like improper denial of loan modifications.”

Traditionally, the states provided the essential regulation of mortgage origination, ownership and sales as a transparent process duly recorded and subject to public examination at the county level. But to facilitate the gathering of those mortgages into the sort of collateralized debt obligations that the banks could then bet on and trade worldwide, homeownership became a murky matter.

Many of the mortgages now in question, including the ones that Citigroup’s “synthetic” derivative was based on, are no longer owned by the banks that originated them. They are instead part of the Mortgage Electronic Registration Systems (MERS) database, owned by a consortium of banks and residing in computers in Reston, Va.

The MERS system is described by the Times as “a land registry system implicated in bubble-era violations of tax, trust and property law.”

The Obama-supported settlement would make it very difficult — if not impossible — to investigate at long last the workings of MERS and other systemic sources of what is now a full-blown international economic crisis. As the Times editorial put it, “In effect, the legal waivers being contemplated would let the banks pay up to sweep wrongdoing under the rug.”

Thankfully, we have a few state attorneys general, most prominently California’s Harris, standing up for the American people, but it is outrageous that a president who committed to defending the public interest would now be subverting that effort rather than leading it.

State AGs target mortgage mess


America’s free markets work only when there is one set of rules for everyone — and everyone plays by those rules.

It is now clear, however, that many in the mortgage finance industry ignored the rules over the past decade. This led to a breakdown in our housing market and in the market for mortgage-backed securities.

These two markets are inextricably linked. Any real effort to repair the damage caused by the collapse of the housing bubble must address the injury in both sectors. Tens of millions of homeowners and millions of investors — including retirees with money in pension and mutual funds — were devastated by this manmade catastrophe.

We recognized early this year that, though many public officials — including state attorneys general, members of Congress and the Obama administration — have delved into aspects of the bubble and crash, we needed a more comprehensive investigation before the financial institutions at the heart of the crisis are granted broad releases from liability.

We undertook such an inquiry, building on the work of many others. And we know time is of the essence. Homeowners and investors are suffering every day, and patterns of abuse and misconduct are continuing. We’re working hard to complete the first — and most critical — phase of our investigation before the end of 2011.

The key to our strategy to root out the conduct that triggered the biggest financial crisis since the Great Depression is recognizing that a comprehensive effort requires an attack from both sides — looking at harm both to borrowers and to investors. So we are investigating four distinct, but interdependent, areas of abuse. Only one of those areas is being discussed in the negotiations now under way among the banks, the administration and some of our colleagues.

First, we are investigating misconduct by loan originators: banks and the other lenders engaged in patterns of deceptive conduct when they made mortgage loans across the country.

Second, we are delving into the aggregation, or pooling, of mortgages by major banks. These pools of mortgages were, for the most part, deposited into New York and Delaware trusts, sliced into shares of toxic debt and sold for trillions of dollars as mortgage-backed securities. The banks sponsoring those trusts vouched for the quality and title of these mortgage pools to investors — and in their submissions to tax authorities, insurance companies and rating agencies.

Third, we are examining the continuing abuses in the servicing of millions of mortgages, most of which are the responsibility of other branches or divisions of the banks that assembled the pools of mortgages in the first place. This investigation includes allegations of widespread abuse of our courts and deed registries — such as the submission of false documents in legal proceedings. It also includes “dual tracking,” a practice in which borrowers are forced to negotiate a workout to a delinquent loan with their bank while simultaneously fighting the bank in a foreclosure action. There has also been widespread failure to adhere to the requirements of the Servicemembers Civil Relief Act.

The clearest example of the gross levels of misconduct during this process is the use and abuse of the Frankenstein’s monster of a recording system called the Mortgage Electronic Registration Systems. It was set up by financial institutions, including the government-sponsored enterprises Fannie Mae and Freddie Mac, as a means to evade the decades-old system of recording who owns interests in a given piece of property.

MERS, on behalf of its members, has foreclosed on properties in which it did not own any interest. In addition, MERS’s shoddy record keeping and opaque practices continue to wreak havoc on homeowners, investors and all stakeholders in our property sysyem.

Delaware sued MERS — a Delaware corporation — on Oct. 27 for deceptive business practices. The state alleges that MERS does not follow its own rules, that its registry is inaccurate and unreliable, and that MERS often acts without authority to foreclose or transfer loans on behalf of securitization vehicles when those vehicles themselves have failed to follow the rules and, thus, do not own the loans on which MERS tries to take action.

New York has also expanded its investigation. The state issued a subpoena for MERS’s records relating to the banks using its services to bring foreclosure proceedings all across America. We are determined to get out in the open the troubling facts related to the banks’ use of MERS.

All 50 state attorneys general teamed up with federal agencies last fall to focus on the last of these four areas. As our colleagues seek to settle these servicing-related issues, the financial institutions on the other side of the negotiating table have predictably sought releases that are as broad as possible from future liabilities, delaying the process.

We look forward to doing whatever it takes to obtain servicing reforms — whether through a negotiated deal with banks or through regulations issued by the federal Consumer Financial Protection Bureau. But we will not release claims that we are currently investigating, including securitization, origination and MERS.

Reforming the servicing of mortgages is crucial. But these servicing abuses did not create the mortgage bubble. Robo-signing did not blow up the U.S. economy. Rather, these are symptoms of a more far-reaching and insidious problem.

The American people deserve a full investigation and public exposure of the conduct that got us into the economic quagmire we face today. We must ensure that it never happens again. And we must restore public confidence that ours is a nation committed to the goal of equal justice for all.

Eric Schneiderman is the attorney general of New York, and Beau Biden is the attorney general of Delaware.

The Emperor Has No Clothes

Ted Kaufman

Fmr. U.S. Senator from Delaware


Much of the recent media coverage and Internet chatter about financial industry reform has focused on the Occupy Wall Street movement. If we ever end up with the kind of reforms needed, that movement would certainly deserve some of the credit. 

If we look back on the Fall of 2011 a few years from now, however, I suspect we may trace the beginnings of real reform from two events that occurred last week with little fanfare.

The first of the two events was when Federal District Court Judge Jed S. Rakoff refused to approve a settlement with Citigroup that the S.E.C. had proposed. The second was the lawsuit filed by Delaware Attorney General Beau Biden in the Delaware Court of Chancery accusing the Mortgage Electronic Registration System (MERS) of deceptive trade practices. (Full disclosure: I have been a friend of Beau's his entire life.) Together, these two initiatives do the equivalent of exposing that the emperor has no clothes.

Judge Rakoff had earlier refused to approve an S.E.C.-endorsed settlement of $33 million with Bank of America. When he finally did approve a $150 million settlement, he described even that as "inadequate." Last week, he dropped a second shoe on the major banks. Refusing to approve the S.E.C.'s $285 million settlement with Citigroup, which was accused of fraud in the sale to investors of $1 billion of Collateralized Debt Obligations, Judge Rakoff demanded that, before any settlement was approved, the S.E.C. first answer a number of questions. They are great, commonsense questions -- exactly the ones that should have been asked in a whole strong of prior big bank settlements. Among them:

• Why should the Court impose a judgment in a case in which the S.E.C. alleges serious securities fraud, but the defendant neither admits nor denies wrongdoing?

• Why is the penalty in this case to be paid in large part by Citigroup and its shareholders rather than by the 'culpable individual offenders acting for the corporation? ... If the SEC was for the most part unable to identify such alleged offenders, why was this?

• What specific 'control weaknesses' led to the acts alleged in the Complaint?... How will the proposed 'remedial undertakings' ensure that those acts do not occur again?

• How can a securities fraud of this nature and magnitude be the result simply of negligence?

Do you think for a moment that the average target of an investigation would get a deal that did not include answers to these questions? Stay tuned.

Merscorp was founded in 1995 and is owned by the major financial institutions involved in the mortgage market, including Citigroup, Chase, Bank of America, Wells Fargo, FNMA, FMAC and others. MERS tracks mortgages and was established to reduce the charges of recording home ownership in local communities, thus making the widespread securitization of residential mortgages possible.

AG Biden's suit is the result of concerns he and New York AG Eric Schneiderman have expressed for some time about the potential settlement between the banks and the 50 State AGs. Those settlement talks began after the exposure of widespread problems with MERS and the banks' foreclosure procedures, including the practice of filing affidavits in court in which the lenders' employees claimed they had personal knowledge when they did not. Many documents had been "robo signed" or signed without being read. Essential documents were lost or destroyed. Files simply disappeared. Evidence of falsified documents is widespread.

A lot of the AGs seem to be willing to impose some monetary penalties on the banks and reach a settlement without any more investigation. That settlement would allow the banks to move on without any admission of guilt or wrongdoing.

Biden, Schneiderman and a few other AGs see it differently. They have been insisting on further investigations before any settlement is reached. The charges in Biden's suit against MERS include a series of allegations based on his investigations to date. Among them:

• Hiding the true mortgage owner and removing that information from the public land records.

• Creating a systemically important, yet inherently unreliable, database that created
 confusion and inappropriate assignments and foreclosures of mortgages.

• Failing to ensure the proper transfer of mortgage loan documentation to the securitization
 trusts, which may have resulted in the failure of securitizations to own the loans upon which
 they claimed to foreclose. (This is called "securities fail" and is the theory that allows put backs that crush the bank/originators.)

• Initiating foreclosures in the name of MERS without authority to do so or without appropriate
controls to ensure the actions were being carried out by the actual owner of the mortgage.

• Allowing the entry and management of data by those MERS members who are identified as 
owners or servicers in the MERS System, instead of controlling entry and management itself.

• Initiating foreclosure actions in which the real party in interest was hidden, thus preventing
homeowners from ascertaining who owned their mortgage in order to challenge whether or not 
they had a right to foreclose and limiting their legal defenses.