If you do nothing else this weekend – PLEASE read this post.
If you are a Legislator –
this is imperative to your better understanding of the current foreclosure crisis
and why your Attorney General should NOT sign the servicer settlement agreement
Yes, it’s long – it’s factual, hang in there and you’ll learn what you need to know.
BY ABIGAIL CAPLOVITZ FIELD | FEBRUARY 2, 2012
WARNING: Attention homeowners: Do not read this post as legal advice. Although the information in this post is true, securitization fail, even of your loan, will not typically prevent the bank from foreclosing on you, unless you have a good lawyer. Even then, realistic end game is a sustainable modification, not a free house. More after the post.
The criminal securities fraud at the heart of the financial crisis has onevery under-reported aspect: “securitization fail.” Once you understand the securitization fail concept, you can instantly, with tremendous clarity, see the scale of the fraud the Bailed Out Banks and Wall Street firms committed and commit every day. Get securitization fail, and the bankers’ crimes stand out like a vast herd of bison on the South Dakota prairie, a herd much bigger than this one.
Perhaps the most critical insight that flows from understanding securitization fail, however, is that the crimes will continue so long as we are processing foreclosures. When you understand securitization fail, you understand the scale of liability the Bailed Out Bankers created for themselves, and why foreclosure fraud is their preferred escape route. In fact, you’ll understand why the banks will continue to commit foreclosure fraud regardless of signing the settlement with law enforcers. Get securitization fail and you understand that a thorough investigation could straightforwardly document it, and create so much leverage for law enforcement that it could essentially dictate terms of settlement.
Caving on Securitization Fail
So that’s the multi-billion dollar question about the servicer “settlement” being foisted on the states by the big banks and the feds: is any attorney general who signs up for it is giving up any claims related to securitization fail and all the leverage that flows from them? Based on Nevada AG Masto’s letter, it sure looks like the AGs are. I only phrase it as a question because the actual settlement language isn’t public yet, and it runs counter to all the messaging that only post-securities conduct is covered by the settlement. Not that I think the messaging on the settlement is remotely credible as a general matter.
For reasons explained near the end of this post, only two AGs really have securitization fail claims: New York and Delaware. And DE AG Beau Biden has rejected the settlement, but NY AG Eric Schneiderman is flirting with joining in. Given the likely release of securitization fail, Eric Schneiderman’s signing the deal would be a profound betrayal of New Yorkers, and frankly, all Americans.
Ok. To really understand the stakes, you need to understand securitization fail. Before you can understand securitization fail, you have to understand securitization.
The Securitization Idea
Imagine I come to you and say:
hey, have I got a great investment opportunity for you! Give me $100, and you’ll get $106 at the end of the year. Don’t worry, it’s virtually a sure thing. See, I’m going to take your hundred–and a lot of other investors’ $100s, and I’m going to buy the mortgages on houses all over town. And those homeowners’ payments are going to fund $106 to each of you.
But wait–it gets better. We can set this investment opportunity up to give you the lowest possible federal income tax bill. And at the same time, we’ll protect your $106 from my creditors–just in case I go broke. What’s the magic at the heart of the deal that lets us get those extra features, you ask? Simple! Our middleman.
I sell the mortgage loans to the middleman, who buys them with your money. Then the middleman gives you a piece of paper that says he’ll pay you $106 from the mortgage payments, if he can. That’s all it takes!
Well, really, it’s a teeny bit more complicated than that, but not much. There’s really two middlemen, neither human. One is a little paper entity and the other a gigantic Bailed Out Bank.
The little entity is the Trust. The Trust has no human component; it’s essentially a safe-deposit box in the heart of a vault. The Trust owns the mortgage loans for your benefit, gives you the piece of paper saying you get $106 if possible, and otherwise functions like a bank account. That is, mortgage payments are deposited into the trust and then paid out to investors according to the pieces of paper you all have.
The Bailed Out Bank is the Trustee. It’s the Trustee’s job to take care of the Trust. Which really means the Trustee’s job is to make sure you get all the money you were promised, or as close to it as possible, including managing the bank account that is the Trust. So, that’s it: one middleman to own the loans and play bank account (the Trust), and one to take care of the money (the Trustee).
What do I mean that the Trustee has to take care of the money? Just a couple of basic things–it’s not like the Trustee collects mortgage payments or anything. A company called a mortgage servicer does that, “services” the mortgages. Then the servicer gives the money to the Trust, and the Trustee dishes it out. Before any mortgage payments come in, however, the Trustee has one crucial, basic job: make sure the Trust really owns the loans I promise I’m going to sell it.
If the Trust doesn’t really own the loans, you see, our deal blows up. If the Trust doesn’t own the loans, the Trust doesn’t have a right to collect and give out the mortgage payments to you. The Trust also doesn’t have the right to foreclose on the homeowners. And any money the Trust pays you becomes subject to more tax and could be taken by my creditors. So really, my promises to give the Trust clear title to the mortgage loans are the most important promises I make to you; that’s why they’re not only in the contract, but we have the Trustee check to make sure I kept my word. With something so important, it’s like President Reagan said: Trust, but verify.
So that’s the pitch. And as long as I keep my promises in the contracts, and the Trustee double checks, it’s a good deal.
Seeing Securitization Fail
But here’s the thing: buying home mortgage loans isn’t like buying groceries. Special rules apply. Transferring ownership involves …[PLEASE Continue reading on Reality Check]
By Deadly Clear
Our lives have drastically changed due to the banksters’ fraud and understanding the issues will help you hold our Representatives in the state and federal governments more accountable for their actions. Please take the time this weekend to thoroughly read and discuss Abigail Field’s post. Our futures hinge on how we handle the banksters’ heist.
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