Investors and Borrowers Unite!

if you peal away the apparent differences you find that there is an inherent joinder of interest investors and borrowers: both were deceived and both lost nearly everything they had by purchasing a financial product that was misrepresented — artificially inflated as to quality and value. And both were subject to the same MO — using third parties to create the appearance of propriety and conformity with the applicable laws, while the real purpose was simply to take the money and run.

Thanks to Dan Edstrom: This is a comment bringing to our attention the lawsuit of the real lenders (the investors) against the intermediaries, pretender lenders and conduits in the securitization process. It of course looks very familiar. They are saying that they were misinformed, led astray and lost money. What is not stated is that they were “qualified investors” who because of their size and sophistication are deemed to have greater access to information and a greater ability to assess risk on their own. And even they got duped. So our point is that the homeowner is the LEAST sophisticated player as a party in interest. Thus the homeowner should be the one to suffer the least amount of damage. As is usually the case with American politics, the current situation is standing on its head. The homeowner generally doesn’t have a clue as to what is really going on with his “loan product,” and even if he had some idea, wouldn’t know what to do with the information. And Yet the brunt of this crisis is falling on the people who were MOST vulnerable.

My solution is for attorneys, particularly class action attorneys, to put their differences aside. One might argue that the investors, as real lenders have an interest that conflicts with the interest of borrowers of their money. Conversely one might argue that borrowers might have claims against the real lenders whose money set this whole process in motion, and counterclaims and affirmative defenses in foreclosure or mortgage litigation (whether the loan is in distress, non-performing, or otherwise). But if you peal away the apparent differences you find that there is an inherent joinder of interest investors and borrowers: both were deceived and both lost nearly everything they had by purchasing a financial product that was misrepresented — artificially inflated as to quality and value. And both were subject to the same MO — using third parties to create the appearance of propriety and conformity with the applicable laws, while the real purpose was simply to take the money and run.

Only the real lenders can actually re-structure these loans. It is true, when all is said and done, that the restructuring alone will only provide them with cover on 10%-35% of their investment. But that is geometrically more than the write-downs currently being imposed by Wall Street and they lay off the risk onto the investors and the taxpayer. But the solution doesn’t end there. A joint claim for damages against the intermediaries who obviously knew they were creating loans to fail so that they could collect on credit default swaps and higher service, fees, would net both the investor and the borrower a hefty judgment. The judgment would either be paid or it would levied against assets of the the losing party(ies). Those assets would include mortgages claimed to be owned by the pretender lenders, unopposed by other borrowers. Hence the early bird here would be able to recover as much as 100% or more of the investment in mortgage backed securities and play a societal role in re-structuring loan products that were brainless and predatory in their conception and execution.

So take a look at the entry below and go looking for other lawsuits from investors against the underwriters who sold mortgage backed securities. They probably have done a lot of your discovery for you. And you might end up with a deal in which the borrowers and the investors come into the same courtroom crying foul against the players in the middle. Then, and only then will they have no place to hide.

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From Dan Edstrom: Things are changing indeed! Check out this investor lawsuit that is the other side of the coin to the borrowers lawsuits against the “pretender lenders”. This is huge and goes to the heart of everything Neil Garfield has been saying. Notice they are not going after the borrowers, but the REAL cause of the failed mortgages.

Excerpt:
The complaint alleges that the Registration Statements omitted and/or misrepresented the fact that the sellers of the underlying mortgages to JP Morgan Acceptance were issuing many of the mortgage loans to borrowers who: (i) did not meet the prudent or maximum debt-to-income ratio purportedly required by the lender; (ii) did not provide adequate documentation to support the income and assets required for the lenders to approve and fund the mortgage loans pursuant to the lenders’ own guidelines; (iii) were steered to stated income/asset and low documentation mortgage loans by lenders, lenders’ correspondents or lenders’ agents, such as mortgage brokers, because the borrowers could not qualify for mortgage loans that required full documentation; and (iv) did not have the income required by the lenders’ own guidelines to afford the required mortgage payments which resulted in a mismatch between the amount loaned to the borrower and the capacity of the borrower.

According to the complaint, by the summer of 2007, the amount of uncollectible mortgage loans securing the Certificates began to be revealed to the public. To avoid scrutiny for their own involvement in the sale of the Certificates, the Rating Agencies began to put negative watch labels on many Certificate classes, ultimately downgrading many. The delinquency and foreclosure rates of the mortgage loans securing the Certificates has grown both faster and in greater quantity than what would be expected for mortgage loans of the types described in the Prospectus Supplements. As an additional result, the Certificates are no longer marketable at prices anywhere near the price paid by plaintiffs and the Class and the holders of the Certificates are exposed to much more risk with respect to both the timing and absolute cash flow to be received than the Registration Statements/Prospectus Supplements represented. [Editor’s Note: Same as the houses]

http://www.csgrr.com/csgrr-cgi-bin/mil?case=jpmorgan&templ=cases/case-pr-print.html

Tags: borrower, countrywide, disclosure, foreclosure defense, foreclosure offense, fraud, inflation, JP Morgan, Lender Liability, predatory lending, securitization, trustee
Posted in bubble, Corruption, Eviction, securities fraud |