Abigail Field Finds Smoking Gun on BofA Securitization Fraud

Jun 3, 2011 by

HUD Secretary Shaun Donovan told the LA Times today that a settlement between top banks and state and federal regulators on foreclosure fraud would be inked in “a matter of weeks.” HUD has been pretty close to the settlement talks, so I don’t totally doubt him, though I’m wondering exactly how many Attorneys General they expect to sign on to a deal, with Republican AGs distancing themselves and Democratic AGs undertaking their own investigations. Interestingly, Tom Miller’s chief spokesman contradicted Donovan quickly after the LAT published, saying “While we certainly hope we can reach a settlement in a matter of weeks, we don’t know how long it will take.”

Donovan said flatly that the banks’ offer of $5 billion in penalties for robo-signing and other fraudulent practices was “unacceptable,” but made no attempt to give a more acceptable figure (regulators reportedly made a $25-$30 billion offer initially, and told banks last week they would be on the hook for $17 billion in civil lawsuits if they didn’t settle). And how could he offer a figure? There hasn’t been enough investigation to determine the extent of the abuses. Heck, Abigail Field did more investigation by herself into Bank of America’s faulty mortgage docs than probably anyone in the foreclosure fraud working group negotiating with the banks.

Are Countrywide mortgage-backed securities really mortgage-backed? Do banks even have the legal right to foreclose on certain homes?

These are just a few of the questions raised since the foreclosure crisis revealed shoddy mortgage servicing practices at many of the big banks – practices that have led to countless investigations and lawsuits. Court testimony by a former Countrywide employee added to the intrigue last fall, because she confessed that many loans there weren’t properly handled, bringing into doubt the validity of Countrywide’s securitization process. Bank of America, which owns Countrywide, quickly silenced the discussion with firm denials.

But Fortune has examined dozens of court records that corroborate the employee’s testimony. And if Countrywide’s mortgage securitizations systematically failed as it appears they did, Bank of America’s potential liability dwarfs its shareholder equity, as the Congressional Oversight Panel points out.

Field is referencing Countrywide v. Kemp, and the sworn testimony of Linda DeMartini, a top official at BofA. She acknowledged on the record in a deposition that Countrywide never conveyed the mortgages to the trusts, and that Countrywide notes “weren’t endorsed except on a case-by-case basis generally long after securitization ostensibly occurred.” This would mean that the mortgage-backed securities composed of Countrywide loans are, in fact, non-mortgage-backed securities. And Field did the grunt work of looking at the court records, which back up DeMartini’s claim. None of the 104 Countrywide notes she looked at in two New York counties were endorsed originally. Read the whole story, it’s a good one.

This is a bombshell. If the regulators were in any way competent, DeMartini’s testimony would have stopped them cold. They would have engaged in the same analysis as Field, and presented to BofA the stark truth that they have no ability to foreclose on Countrywide loans that were securitized, which would lead to all kinds of charges from both homeowners facing foreclosure, and from investors who were scammed when they purchased the securities. They would have signaled to the other banks, who did little different during the bubble, that they had the goods on them as well. The underlying exposure is massive. That would be the kind of ammunition needed to force compliance from BofA. But none of this has been done.

The Obama Administration knows that housing is among the biggest, if not the biggest, problems with the economy right now. The President said it in a meeting with House Democrats yesterday. I liked this side note: “The President said housing was the main thing dragging down the economy, with Geithner nodding solemnly like they’d done everything humanly possible for the last 27 months to fix the housing market.”

If the President or Treasury actually wanted to fix the housing market, the ability to do so is lying in all those court records, which show the systematic failure of securitization and the massive exposure the banks hold as a result. This would really help the economy – foreclosure problems are seen to add 1.25 points to the unemployment rate, according to one survey. But instead, they’ve allowed the banks to pick and choose at their discretion who gets a modification. They’ve allowed the banks to use HAMP as a predatory lending scheme, to squeeze a few extra payments out of borrowers they planned to evict anyway. They’ve even allowed banks to continue to screw even their customers who they gave a modification.

And this “settlement,” whatever it offers, won’t change that fact.

By: David Dayen Friday June 3, 2011 12:58 pm

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  1. George

    Years back the banks began to turn a mortgage into a commodity, with good paying mortgages, then they saw they were running out of this commodity, so the big banks, including Fannie & Freddie started approving loans to almost anyone and everyone, not so much to just give that person a home to have, but they were more concerned about creating more of the commodity. More securities to sell to investors. They even knew some home owners would not last several years or several months, as long as they could say to investors, “Hey, we have more mortgage backed securities to sell”.

    Now, to sell all these securities, they would have to create a mortgage assignment which is normally recorded with the county land recorders office for a fee. Physically, that would take up too much time and money, so the big banks invented and created MERS,(Mortgage Electronic Registration System). This electronic service was only created to track mortgages sold and bought in the secondary securities market. MERS legally has no invested interest in the mortgage, so they truly are not able to transfer or assign the mortgage acting as a nominee of the loan. But they are! Wrong. The chain of title of the mortgage is broken right here at this very early stage. The mortgage/note has to be assigned from one owning entity to the next owning entity. MERS never owns the loan, but they are creating and are listed on assignments at the local land recorders office. Now that the mortgage was bundled, sold and bought back and forth with investors, no continuing assignments are recorded with the county recorders office. By not recording these documents, Fannie & Freddie & and all your Big Mortgage Servicing banks are saving millions-billions on recording fees, and possible taxes, etc.

    What I have found was that the Servicer of the mortgage is listed with the county recorders office as if they own the mortgage, while Fannie & Freddie or other Big Banks are selling the bundled mortgages as securities. Kind of like a Pizza shop cooking pizza legitimately up front, and a mobster selling off investments in the back. (Racketeering). The Servicer up front really is not the owner of the loan, and they tell you this. They also admit that your loan is owned by Freddy or Fannie, or the Investors. So when the Servicer now tries to foreclose on a homeowner, they are not truly the owner of the loan, and you have to own the loan to foreclose!!! Many never even question the Servicer and walk away from their home. Now to foreclose as quick as they can, that’s where the robosigners come in. These people do not review anything in the foreclosure paperwork about the loan, but only sign a name on the affidavit page on thousands of mortgages to get the foreclosure going before any homeowners begin to catch on.

    You see, its a matter of a quick process the Servicing banks want to achieve in order to get the property in their possession, only to sell it. The crazy thing is, when the originating bank gives the loan, then sells it to the 2nd bank which mostly ends up being the servicer, they again sell it to the 2 major players (Freddie & Fannie) and they sell the mortgage back securities to investors. So the servicing bank gets paid for the mortgage and still collects payments toward the mortgage and a percentage goes to the Servicer, Fannie & Freddie and the Investor. So they are all making money. Then the Servicing bank comes to foreclose and if they are allowed to foreclose they get the home without true ownership, even though the loan is actually sold off into bits and pieces to investors. I can go on further, but to conclude, if this were a murder case, I would call this act of the banks premeditated, not an accident. This was all planned out in order to reach the highest profit they could using the mortgage backed securities as a commodity, and have total disregard, deliberately, intentionally ruining the lives of millions of homeowners.

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