Monthly Archives: August 2012

Washington Supreme Court Issues MERS Smackdown


While MERS has served to illustrate the utter recklessness of the securitization industry, in that its promoters apparently believed that they could implement it nationwide and simply force state law to comply. But as the banks have found out, the law is not always so obliging.

Today, Washington State, which is a non-judical foreclosure state, gave MERS a serious setback. Its finding in Bain v. Metropolitan Mortgage, that MERS may not foreclose in Washington, is not as bad as it sounds, since MERS instructed in servicers to stop foreclosing in its name in 2011. But the reasoning of the ruling is far more damaging. And the court has opened up new grounds for litigation against MERS in Washington, in determining that it false claim to be a beneficiary under a deed of trust is a deception under the state’s Consumer Protection Act (whether that can be proven to have led to injury is a separate matter).

The case came before the Washington Supreme court because it was asked by a Federal district court to address three certifying questions:

Is MERS is a lawful beneficiary with the power to appoint trustees within the deed of trust act if it does not hold the promissory notes secured by the deeds of trust? If no, then:

What is the legal effect of Mortgage Electronic Registration Systems, Inc., acting as an unlawful beneficiary under the terms of Washington’s Deed of Trust Act? and

Can consumers claim violations of the state’s Consumer Protection Act based on MERS having incorrectly claimed it was a beneficiary of a deed of trust?

The answer to the overriding question was indeed “no”. The court’s immediate objection was straightforward. MERS claims not merely to be an electronic registry of deeds, but also to be a beneficiary of the deed of trust. However, as the court points out:

Traditionally, the “beneficiary” of a deed of trust is the lender who has loaned money to the homeowner (or other real property owner). The deed of trust protects the lender by giving the lender the power to nominate a trustee and giving that trustee the power to sell the home if the homeowner’s debt is not paid. Lenders, of course, have long been free to sell that secured debt, typically by selling the promissory note signed by the homeowner. Our deed of trust act, chapter 61.24 RCW, recognizes that the beneficiary of a deed of trust at any one time might not be the original lender. The act gives subsequent holders of the debt the benefit of the act by defining “beneficiary” broadly as “the holder of the instrument or document evidencing the obligations secured by the deed of trust.”

These days, that “instrument or document evidencing the obligations secured by the deed of trust” is a promissory note, a borrower IOU. But MERS executives have said consistently in depositions that MERS has nothing to do with the borrower notes. So under Washington law, it can’t be the beneficiary of the deed of trust and hence can’t foreclose.

The court also rejected the idea that MERS could act as an agent of the lender/noteholder:
But Moss also observed that “[w]e have repeatedly held that a prerequisite of an agency is control of the agent by the principal.” Id. at 402 (emphasis added) (citing McCarty v. King County Med. Serv. Corp., 26 Wn.2d 660, 175 P.2d 653 (1946)). While we have no reason to doubt that the lenders and their assigns control MERS, agency requires a specific principal that is accountable for the acts of its agent. If MERS is an agent, its principals in the two cases before us remain unidentified.12 MERS attempts to sidestep this portion of traditional agency law by pointing to the language in the deeds of trust that describe MERS as “acting solely as a nominee for Lender and Lender’s successors and assigns.” Doc. 131-2, at 2 (Bain deed of trust); Doc. 9-1, at 3 (Selkowitz deed of trust.); e.g., Resp. Br. of MERS at 30 (Bain). But MERS offers no authority for the implicit proposition that the lender’s nomination of MERS as a nominee rises to an agency relationship with successor noteholders.13 MERS fails to identify the entities that control and are accountable for its actions. It has not established that it is an agent for a lawful principal.

As an aside, the funniest bit of MERS’s argument was a dressed up “deadbeat borrower” pleading:

MERS argues, strenuously, that as a matter of public policy it should be allowed to act as the beneficiary of a deed of trust because “the Legislature certainly did not intend for home loans in the State of Washington to become unsecured, or to allow defaulting home loan borrowers to avoid non-judicial foreclosure, through manipulation of the defined terms in the [deed of trust] Act.”

The court was not moved and basically said it was the banks’ fault if they got themselves in the position of not being able to foreclose:

One difficulty is that it is not the plaintiffs that manipulated the terms of the act: it was whoever drafted the forms used in these cases.

But the ruling goes further and picks at the foundations of the MERS system, and not just its role in foreclosures. Most state hew to the view of the 1867 Supreme Court decision, Carpenter v. Longan, that the mortgage cannot be separated from the note, that the mortgage is a “mere accessory” of the note and has to travel with it. The Washington Supreme court focuses on the fact that MERS inserts a new party:

As MERS itself acknowledges, its system changes “a traditional three party deed of trust [into] a four party deed of trust, wherein MERS would act as the contractually agreed upon beneficiary for the lender and its successors and assigns.” MERS Resp. Br. at 20 (Bain). As recently as 2004, learned commentators William Stoebuck and John Weaver could confidently write that “[a] general axiom of mortgage law is that obligation and mortgage cannot be split, meaning that the person who can foreclose the mortgage must be the one to whom the obligation is due.”

The court later states that it is not clear whether MERS split the note and the mortgage; if MERS really is the agent for the noteholder, it is likely no separation occurred.

The court also took a dim view of the diffused responsibilities within the MERS system:

While not before us, we note that this is the nub of this and similar litigation and has caused great concern about possible errors in foreclosures, misrepresentation, and fraud. Under the MERS system, questions of authority and accountability arise, and determining who has authority to negotiate loan modifications and who is accountable for misrepresentation and fraud becomes extraordinarily difficult. The MERS system may be inconsistent with our second objective when interpreting the deed of trust act: that “the process should provide an adequate opportunity for interested parties to prevent wrongful foreclosure.”

The Supreme Court effectively punted on the second question, which was what would be the legal effect of MERS being an unlawful beneficiary under the state’s Deed of Trust Act: “…resolution of the question before us depends on what actually occurred with the loans before us and that evidence is not in the record.”

On the final matter, of whether MERS being an unlawful beneficiary would give rise to claims under the state’s consumer protection laws, the court said it could, depending on the facts of the case:

…we answer the question with a qualified “yes,” depending on whether the homeowner can produce evidence on each element required to prove a CPA claim. The fact that MERS claims to be a beneficiary, when under a plain reading of the statute it was not, presumptively meets the deception element of a CPA action.

The Seattle Times amusingly quoted the MERS attorney complaining that the court respected the law:

Douglas Davies, the local attorney who represented MERS, said the court imposed “the literal language of a dated statute,” reaching a decision that didn’t benefit either borrowers or lenders.

“The Supreme Court has created a chaotic situation and essentially left it to a taxed legislature to come up with a solution,” Davies said in an e-mail late Thursday. “The only certainty that will come from this decision is a plethora of lawsuits that will overburden an already burden[ed] judicial system.”

Funny, the state attorney general apparently didn’t think so, since he wrote a brief supporting the borrower.

Perhaps most interesting is that MERS has taken to settling cases where it gets wind the court might rule against it, deliberately skewing the record to create the impression that its procedures and legal structure enjoy more acceptance from courts than they actually do. Given its recent conservatism, I wonder what led them to hazard a high profile loss. It might be that Washington’s deed of trust is distinctive enough that they thought they could take the chance, in that they could take the position that its implications for other states are very limited. We’ll see soon enough if that assumption is valid.


Mass Inflation Ahead — Save Your Nickels!

By James Wesley, Rawles -- Editor of

Updated, June 15, 2012


I've often mused about how fun it would be to have a time machine and travel back to the early 1960s, and go on a pre-inflation shopping spree. In that era, most used cars were less than $800, and a new-in-the box Colt .45 Automatic sold for $60. In particular, it would be great to go back and get a huge pile of rolls of then-circulating US silver dimes, quarters, and half dollars at face value. (With silver presently around $30 per ounce, the US 90% silver (1964 and earlier) coinage is selling wholesale at 22 times face value--that is $22,000 for a $1,000 face value bag.)

The disappearance of 90% silver coins from circulation in the US in the mid-1960s beautifully illustrated Gresham's Law: "Bad Money Drives Out Good." People quickly realized that the debased copper sandwich coins were bogus, so anyone with half a brain saved every pre-'65 (90% silver) coin that they could find. (This resulted in a coin shortage from 1965 to 1967, while the mint frantically played catch up, producing millions of cupronickel "clad" coins. This production was so hurried that they even skipped putting mint marks on coins from 1965 to 1967.)

Alas, there are no time machines. But what if I were to tell you that there is a similar, albeit smaller-scale opportunity? Consider the lowly US five cent piece--the "nickel."

Unlike US dimes and quarters, which stopped being made of 90% silver after 1964, the composition of a nickel has essentially been unchanged since the end of World War II. It is still a 5 gram coin that is an alloy of 75% copper and 25% nickel. (An aside: Some 1942 to 1945 five cent coins were made with 35% silver, because nickel was badly-needed for wartime industrial use. Those "War Nickels" have long since been culled from circulation, by collectors.)

According to, the 1946-2011 Nickel (with a 5 cent face value) had a base metal value of $0.0733 in February, 2011. That was 146.7% of its face value. Because of the global recession and the fact that both nickel and copper are primarily industrial metals, the melt value of a nickel declined to just $0.0498 in June, 2012. But I predict that as inflation resumes--most likely beginning in 2013--the base metal value of nickels will rise substantially, regardless of the weakness in the industrial economy.

The Root of the Problem

It is inevitable that any country that issues a continually-inflated fiat paper currency will run into the problem of their coinage eventually having its base metal value exceed its face value. When this happens, it is one of those embarrassing "emperor's new clothes" moments. Unless a government takes the drastic step of lopping off a zero or two from their currency, this coinage problem is inevitable. In essence, we were robbed by our own government when silver coins were replaced with copper sandwich coins in the 1960s. I predict that essentially the same thing will soon to happen with nickels.

Helicopter Ben Bernanke will inflate his way out of the current liquidity crisis. through artificial lowering of interest rates, massive injections of liquidity, and monetization of the Federal debt. That can only spell one thing: inflation, and plenty of it. Mass inflation will mean much higher commodities prices (at least from the perspective of the US currency.)

Starting in 2009, I began warning my readers that a nickel debasement was coming. But since then, I've pleasantly surprised to see that the government moved at a snail's pace, in implementing the change. In February, 2010 it was announced that the Obama administration had endorsed a change in the metal composition of pennies and nickels. And then, in November 2010, President Obama signed "The Coin Modernization, Oversight, and Continuity Act of 2010". Then, in late 2011 came news of the introduction of H.R. 3694 (the Saving Taxpayer Expenditures by Employing Less Imported Nickel ACT -- aka the "STEEL Nickel Act". It now appears likely that the STEEL Nickel Act the will be signed into law in 2012 and the U.S. mint will begin producing debased steel nickels in 2013.

In January, 2012 this was reported: Mint begins trial strikes in composition tests. The good news is that the trials strikes are part of a two year study. (The contract runs through June 30, 2013.) So we may have some extra time to stockpile nickels before the debasement. Once this change is implemented, you will then have to manually sort the "old" from the "new" debased nickels! But for now, there is still an open window of opportunity, during which time SurvivalBlog readers can salt away countless rolls, bags, and boxes of nickels. I am grateful for the delay in the nickel debasement, but this window of opportunity is likely to close in 2013. Act accordingly.

Within just a few years, the base metal value of a nickel is likely to exceed two times ("2X") its face value. (10 cents each.) The nickel will then begin to disappear from circulation. (Gresham's Law is unavoidable.) Unlike the mid-1960s experience, the missing nickels will not cause a crisis, since pennies will suffice for making small change, and most vending machines now use dimes as their smallest purchase increment. Meanwhile, most bridge tolls and toll roads have inflated so that tolls are in 10 or 25 cent increments. The demise of the nickel will hardly cause a ripple in the news.

Unless the Treasury decides to drop the issuance of nickels entirely, the US Mint will within the next three years be forced to introduce a "new" nickel with a debased composition. It will possibly be stainless steel, zinc (flashed with silver) or possibly even aluminum.

Why Not Pennies?

You may ask, why not accumulate 95% copper (pre-1982 mint date) pennies? They already seen a spike in their base metal value to 2.2 cents each. But unfortunately, pennies have two problems: confusion and bulk. They are confusing, because 95% copper pennies are now circulating side-by-side with 97.5% zinc pennies. They are also about four times as bulky (per dollar of face value) as nickels.

With nickels you won't have to spend time sorting out pre-1982 varieties. At present, visually date sorting pennies simply isn't worth your time. Although Ryedale Coin makes an automated density-measuring penny sorting machine, it is still very time consuming, and unless you have a lot of pennies to sort, it would take a long time for the machine to pay for itself. As background: The pre-1982 pennies recently had a base metal value of about $0.0295 each.) Starting in mid-1982, the mint switched to 97.5% zinc pennies that are just flashed with copper. Those presently have a base metal value of only about $0.0067 each.

Pennies are absurdly bulky and heavy to store. Nickels are also quite bulky, but are at least more manageable than pennies for a small investor's storage. (Storing pennies would take a tremendous amount of space and constitute a huge weight per dollar invested.)

The biggest advantage of nickels over pennies is that there is no date/composition confusion. At least for now, a nickel is a nickel. Even the newly-minted "large portrait" nickels have the same 75/25 cupronickel composition. But that is likely to change within just a couple of years. The US Mint cannot go on minting nickels at a loss much longer. My advice: start filling military surplus ammo cans with $2 (40 coin) rolls of nickels.

The standard U.S. military surplus .30 caliber size can is the perfect size for rolls of nickels. They will hold $188 of rolled nickels per can. Any larger containers would be difficult to move easily. (Avoid back strain!) Cardboard boxes are fragile, and lack a carry handle. But ammo cans are very sturdy, have an integral handle, and they are relatively cheap and plentiful. They are available at military surplus stores and gun shows. The current difference between a nickel's base metal value and its face value is fairly small, but trust me, it will grow! Someday, when nickels are worth 4X to 8X their face value, your children will thank you for it. Consider it an investment in your children's future.

In December of 2006, the US congress passed a law making it illegal to bulk export or melt down pennies and nickels. But once the old composition pennies and nickels have been driven out of circulation, that is likely to change. In fact, a bill now before congress would remove pre-1982 pennies from the melting ban. In any case, once the base metal value exceeds face value by about 3X, an investor's market will develop, regardless of whether or not melting is re-legalized. Count on it.

What if Uncle Sam Decides to Drop a Zero?

As previously noted in SurvivalBlog, inflation of the US dollar has been chronic, cumulative, and insidious. So much so that turns of phrase from old movies like "penny candy" and "its your nickel" (to describe the cost of a call on a pay phone) now seem quaint and outdated. When inflation goes on long enough, the number of digits required to express a price grows too large. (As has been seen with the Italian lira, the Zimbabwean dollar, and countless other currencies. One whitewash solution to chronic inflation that several other nations have chosen is dropping one, two, or even three zeros from their currency, in an overnight revaluation, with a mandatory paper currency exchange. The history of the past century has shown that when doing so, most governments re-issue only new paper currency, but leave the old coinage in circulation, at the same face value. This is because the sheer logistics of a coinage swap would be daunting. Typically, this leaves the holders of coinage as the unexpected beneficiaries of a 10X, 100X.or even 1,000X gain of the purchasing power of their coins. Governments just assume that most citizens just have a couple of pocketfuls of coins at any given time. So if a currency swap were to happen while you are sitting on a big pile of nickels, then you would make a handsome profit. To "cash in", you could merely spend your saved nickels in the new currency regime.

How To Build Your Pile of Nickels

How can you amass a big pile-o-nickels? Obviously just saving the few that you normally receive as pocket change is insufficient. Here are some possibilities:

1.) If you live in a state with nickel slot machine gambling (such as Nevada or New Jersey), or near an Indian tribal casino with nickel slots, go to a casino frequently and buy $50 in nickels at a time. Do your best to look like a gambler when doing so, by carrying a plastic change bucket with a few nickels in the bottom.

2.) Obtain nickels in rolls from your friendly local bank teller. Most "retail" banks are already accustomed to handing over rolls of coins to private depositors because of collector demand for statehood commemorative quarters and the new presidential dollar coins. Ask for $20 or $30 of nickels in rolls each time that you visit to do your normal banking deposits or withdrawals. It is best to ask for new "wrapped" (fresh Federal Reserve Bank issue) rolls. This way, you might have the chance of getting rolls with valuable minting errors--such as "double die" strikes. These are usually noticed and publicized a few months after the fact, and can be quite valuable. You will also be assured that you are getting full 40 coin rolls. (Getting shorted with 38 or 39 coin rolls is possible with hand-rolled coins.) If the tellers ask why you want so many, you can honestly tell them: "I'm working on a collection for my children." (You need not tell them how large a collection it is!)

3.) If you live in or near an urban area and you operate a business, you can effectively "buy" rolled coinage at face value from your commercial bank. (They generally will not do any business with anyone unless they have an account.) It might be worth your while to on paper start a side business with "Vending Service" in its name, and have business cards and stationary printed up in that name. Have that "DBA" business entity name added to your commercial bank account. At a high-volume commercial bank you could conceivably buy hundreds or even thousands of dollars worth of nickels on the pretense of stocking change for a vending business. Depending on your relationship with the bank, they may waive any fees if you ask for a few rolls of coins. Be advised, however, that if you ask for any significant quantity at one time, they will probably charge you a premium. (Down in the small print of your account contract, there is probably wording something like this: "Coin Issued - Per Roll: .03 Currency Issued - Per $ 100: .08" Before you cry "foul", be aware that the Federal Reserve actually charges your bank a small premium when they obtain wrapped rolls of coins. (Most folks have held to the convenient fiction that a paper dollar was the same as a dollar in change. Obviously, it isn't.) In effect, your commercial banker will just be passing along this cost to you. Unless they charge you a heavy fee, then don't worry about it. Ten years from now, when a $2 roll of nickel is worth $16, you'll be laughing about how you obtained $4,000 face value in nickels at just a small fraction over their face value.

4.) If you know someone that has a machine vending business, offer to buy all of their excess nickels once every month or two, by offering a small premium.

5.) If you operate a "mom and pop" retail business with a walk-in clientele, put up a small sign next to your cash register that reads: "WANTED: Rolls of nickels for my collection. I pay $2.25 per 40 coin ($2) roll, regardless of year!" Once the nickel shortage develops (as it inevitably will), you should raise you premium gradually, to keep a steady stream of coin rolls coming in.

An Aside: Nickel Logistics

Nickels are heavy! Storing and transporting them can be a challenge.

In October, 2011, it was reported that Texas hedge fund manager Kyle Bass had invested $1 million to buy 20 million nickels. It was not reported where and how he had them stored. That is a lot of weight!

Some SurvivalBlog readers and I have done some tests:

$300 face value (150 rolls @$2 face value per roll) fits easily fit in a standard U.S. Postal Service Medium Flat Rate Box (This is the USPS "FRB1", with dimensions 11" x 8-1/2" x 5-1/2"). Full of Nickels, it weighs about 68 pounds. They can be mailed from coast to coast for less than $25. Doing so will take a bit of reinforcement. Given enough wraps of strapping tape, a corrugated box will securely transport $300 worth of Nickels. At ULINE you can get a corrugated to fit inside the corrugated Medium Flat Rate Box, to reinforce it. It is item #S-4517. It measures 10"x8"x5". These boxes presently cost 54 cents each in lots of 25.

The standard US .30 caliber ammo can works perfectly for storing rolls of Nickels at home. Each can will hold $188 of nickels in rolls. You can stack the nickel rolls vertically (on end, standing up) four to a row across the width of the ammo can.  (Think of it like stacking one shotgun shell on top of another.) Each of the two layers takes 11 rows of 4, plus one odd row of 3.  That makes 47 rolls per layer equaling 94 rolls total.  This makes for $188 of coins per can.  I've read that others have fit as much as $192 in rolled nickels (96 rolls) in a .30 caliber can, by carefully positioning horizontal rows, but this takes a bit more time for precise positioning.

The larger .50 caliber cans also work for storing nickels, but when full of coins they are too heavy to carry easily.

If you buy more than a few hundred dollars worth of nickels, do not over-stress your house. Do not store them upstairs or in an attic. Storing the boxes or ammo cans on a concrete slab floor is ideal.


I've already had some ridicule, with e-mails accusing me of "hoarding." So be it. Let me preemptively state that I realize that money tied up in coins will not benefit from the interest that a bank deposit would earn. But foregoing interest is not a major concern. Why? Because I think that it is a fairly safe bet that commodity price inflation will outstrip the prevailing interest rates for at least the next five years. In five years, the circulating nickel as we now know it, will be history, and it will be treated with nearly the same reverence that we now give to pre-'65 silver coinage.

We saw what happened when clad copper dimes, quarters and half dollars were introduced in 1965. We should learn from history. Something comparable will very likely soon to happen with nickels. You, as a reader, are now armed with that knowledge. You can and should benefit from it, before Uncle Sugar performs his next sleight of hand trick and starts passing off silver-plated steel tokens as "nickels".

Addendum: Canadian Nickels

The situation with Canadian nickels is much more complicated than with U.S. nickels. You'll have a lot of sorting to do, since the composition of those five cent pieces varied widely! Here is a summary:

1922 - 1942 Canadian Nickels were 99.9% nickel.

1942 - 1943 Canadian Nickels were made of "Tombac" brass (88% copper, 12% zinc) and have a melt value of less than a penny.

1944 - 1945 Canadian Nickels were made of chrome-plated steel and have a melt value of less than a penny.

1946 - 1950 12-sided Canadian Nickels were 99.9% nickel and according to are as of this writing worth $0.076 each

1951 - 1954 Canadian Nickels were made of chrome-plated steel and have a melt value of less than a penny.

1955 - 1962 12-sided Canadian Nickels were 99.9% nickel and according to are as of this writing worth $0.076 each

1963 - 1981 Canadian Nickels were 99.9% nickel and as of this writing are worth $0.076 each

1982 - 2001 Canadian Nickels were 75% copper, 25% nickel and as of this writing are worth $0.045 each

2000 - present Canadian Nickels are 94.5% steel, 3.5% copper, and 2% nickel (the outer plating) and have a melt value of less than a penny.


- James Wesley, Rawles -- Editor of

Permission to forward, repost, or reprint this article is granted, but only in its entirely with attribution and links intact.


Copyright 2009-2012. All Rights Reserved by James Wesley, Rawles - Permission to reprint, repost or forward this article in full is granted, but only if it is not edited or excerpted.

About the Author:
James Wesley, Rawles is a former U.S. Army Intelligence officer and a noted author and lecturer on survival and preparedness topics. He is the author of "Patriots: A Novel of Survival in the Coming Collapse" and is the editor of very popular daily web journal for prepared individuals living in uncertain times.


Internal Documents Show Fannie Mae Believed Principal Reduction Would Save Taxpayers Money Posted on01


Cummings and Tierney Question DeMarco’s Statements to Congress; Request Direct Interviews with Fannie Officials

Washington, DC (May 1, 2012) – Today, Rep. Elijah E. Cummings, Ranking Member of the House Committee on Oversight and Government Reform, and Committee Member John F. Tierney sent a letterto Edward DeMarco, the Acting Director of the Federal Housing Finance Agency (FHFA), regarding internal documents showing that Fannie Mae officials concluded as far back as 2009 that reducing principal on mortgages backed by Fannie Mae could save U.S. taxpayers money by avoiding foreclosures, directly contradicting DeMarco’s testimony to Congress in November 2011.

“Contrary to your testimony, we have now obtained a wide range of internal documents demonstrating that Fannie Mae officials conducted detailed, substantive analyses and concluded years ago that principal reduction programs have enormous potential to save U.S. taxpayers significant amounts of money by reducing overall losses from foreclosures following default,” Cummings and Tierney wrote.

The Congressmen obtained documents from a former Fannie official labeled “confidential,” “proprietary,” and “internal” that DeMarco apparently has been withholding from Congress. They also obtained additional documents from DeMarco in response to a request they first made last November.

Together, the internal documents describe nearly a year of work by Fannie Mae and Citibank to develop a “shared equity” pilot program to prevent foreclosures, avoid losses to U.S. taxpayers, help the overall housing market, and mitigate the risk of “moral hazard” by requiring homeowners to share part of any future appreciation with the government. The program was mysteriously terminated in July 2010 due to unspecified “operational” challenges.

“Based on the documents we have obtained, it appears that the shared equity principal reduction pilot program should have been implemented years ago, and the failure to do so may have resulted in unnecessary losses to U.S. taxpayers,” they added. “This was not merely a missed opportunity, but a conscious choice that appears to have been based on ideology rather than Fannie Mae’s own data and analyses.”

Among the documents described in their letter is a November 2009 presentation to Fannie Mae’s Risk
Subcommittee which concluded that “[t]he business case for shared equity is strong” and that “underwater borrowers will perform better on a modification that reestablishes equity.”

In December 2009, a Business Case for the program concluded that “there are high negative impacts to not implementing” the program, and that it “will have some positive impact on the industry.” It estimated that implementing the program would cost about $1.7 million, while the benefits could total more than $410 million.

A series of internal e-mails show how the program was approved internally after many months of study and analysis. In response to a request for approval, Fannie Mae’s Risk Officer for the Credit Portfolio responded: “I approve.” When the program was canceled, however, Citibank officials were taken aback and demanded to know what changed at the “11th hour.”

“Despite the clear conclusion reached by Fannie Mae officials that principal reduction would reduce losses to the taxpayer, this pilot program was prevented from ever getting off the ground,” Cummings and Tierney wrote. “It remains unclear why you failed to mention this in your testimony and why you failed to disclose this principal reduction program.”

8/3/12 Internal Documents Show Fannie Mae Believed Principal Reduction Would Save Taxpayers Money.

A former Fannie Mae employee informed Cummings and Tierney that the principal reduction pilot program could have been the model for a much larger program that would have saved taxpayers even more. He stated: “I believe that we could be saving tens of billions of dollars while also helping stabilize housing prices and stimulating economic growth.”

On November 16, 2011, DeMarco testifiedbefore the Oversight Committee that he had examined data and analyses from Fannie Mae and Freddie Mac and concluded that principal reduction “is not going to be the leastcost approach for the taxpayer.”

Since then, Cummings and Tierney have been seeking the documents pertaining to DeMarco’s decision to forbid Fannie Mae and Freddie Mac from reducing principle of loans they back, as requested in letters to FHFA on November 30, 2011, and February 8, 2012. Their letter today requests direct interviews with Fannie Mae officials whose names appear in the documents, as well as all drafts of DeMarco’s previous responses to Congress.

FHFA (Ed DeMarco) Rejects U.S. Treasury Request for Mortgage Debt Writedowns


Fannie Mae (FNMA) and Freddie Mac won’t forgive principal on delinquent mortgages they guarantee even as the U.S. Treasury Department is offering incentive payments for writedowns, the companies’ regulator said today.
Months of analysis showed there would be no clear benefit to taxpayers if the Federal Housing Finance Agency were to change its longstanding policy barring the government-owned mortgage-finance companies from loan modifications that include debt writedowns, Edward J. DeMarco, the agency’s acting director, said today said at a briefing with reporters. “We concluded the potential benefit was too small and uncertain relative to unknown costs and risks,”
DeMarco said.

To What Extent Can You Litigate Title Issues In The Unlawful Detainer In Calfornia?

Original blog posted at Law Offices of Kenny Tan:

Posted by: Kenny Tan
February 13, 2011
Topic: Foreclosure

After a trustee's sale, the successful bidder will receive a document that says it is now the title owner of the property - Trustee's Deed Upon Sale. Almost invariably you'll see a recital on the deed that says essentially the trustee's sale had been conducted in compliance with Civil Code 2924.


The significance of the recital is that it creates a presumption - in the absence of fraud - that the trustee's sale has been conducted in compliance with Civil Code 2924 - which means all the "i"s and "T"s have been properly dotted and crossed. If the successful bidder was a bona fide purchaser, the presumption is conclusive and the sale can only be invalidated with a showing of actual fraud. But if it is the beneficiary who receives the Trustee's Deed Upon Sale because no one outbids it, the presumption is only rebuttable - which means you can present evidence to prove that there was irregularity in the trustee's sale.

But exactly what issues can you litigate?

Code of Civil Procedure 1161a limits the unlawful detainer litigation to compliance or non-compliance with Civil Code 2924 and whether title has been duly perfected. The plaintiff (usually the beneficiary who successfully bid for the property) wants to limit the litigation to only the Notice of Default and Notice of Trustee's Sale.

However, even under Cheney v. Trauzettel, the California Supreme Court case, the scope is broader than just litigation of the proper preparation and service of these notices. Generally speaking, general issue of title relating to fraud in the acquisition of the note and deed of trust cannot be litigated in the unlawful detainer.

What about the conduct of the sale? If the criteria is whether the issue involves compliance with Civil Code 2924, irregularity involving conduct of sale should be permitted to be litigated in the unlawful detainer. For instance, if the contention is that there's irregularity in the sale because the purchaser didn't pay the required money to obtain title, then that issue may touch upon compliance with Civil Code 2924 which requires money to be paid in a certain manner. Only a beneficiary may submit credit bid, i.e., beneficiary doesn't have to bring the cash but may submit a credit bid up to the amount of the debt owed. What if there's a dispute over whether the entity that submitted the credit bid is the true beneficiary under that note? Should that issue be within the scope of issues permitted in the unlawful detainer.

What about substitution of trustee? Civil Code 2934a states that unless the Notice of Sale contains the name, street address and telephone number of the substituted trustee, any subsequent sale conducted by the substituted trustee is void. Certainly since Civil Code 2934a states a sale concluded with this deficiency is void, you would expect the court to allow this issue to be litigated in the unlawful detainer.

There's only a handful of California cases that deal with the scope of the litigating title issues in the unlawful detainer. Many if not all of them were pre-MERS era.

1300 Clay Street, Suite 600
Oakland, California 94612
Phone: (510) 622-7715
Fax: (800) 301-8290