Bank of Arrogance Claims Insurer Knew What It Was Getting Into

WHERE ARE THE TRIALS?

Editor’s Analysis: There are only two choices here: either the insurer knew that the loans were bad or was misled into thinking the loans were good. Or to be more specific, it knew that the mortgage BONDS were bad or it was misled into thinking the BONDS were as GOOD as represented.

It’s not hard to envision a grand conspiracy in which the insurers were paid extra money to issue contracts on pools knowing full well they might fail and that the government would bail them out.

That actually might be the case, but either way they paid and that means the principal and interest due back to the investors should be reduced. If the principal and interest due to the creditor is reduced it is simple logic that the principal and interest due from the debtor would be correspondingly reduced. The creditor is only entitled to repayment, not multiple payments.

Multiple payments would lead to the conclusion that there was an overpayment and they owe the money back to the homeowner; like it or not, if the homeowner’s aunt made the payment there would be no question that the creditor could not still make the claim. It should not be any different if the Aunt turns out to be an insurance company.

But it seems more likely that the convoluted style with which the securitization scheme was drafted and pitched to investors, rating agencies and insurers, as well as Fannie and Freddie pretty much leads to the conclusion that the banks were at least probably consistent: they lied.

BofA attorneys are getting creative and blaming the victims starting with the homeowner right up to the insurance company. Soon they will blame the regulatory agencies and then the government itself for forcing them to underwrite bad loans, divert the paperwork from the REMIC, cheat the investor out of an enforceable loan and then steal the money too. That is in fact more or less the claim when blame is laid at the doorstep of Fannie and Freddie. And there is more truth to that since the executives at the GSE’s were in bed with Wall Street.

Still I find it more likely that Fannie and Freddie did not know how bad this situation was, that the ratings were a complete farce and the insurance was issued under false pretenses.

If the mortgages were really valid liens, if the notes were really valid evidence of the obligation and matched up with the creditor’s expectation of repayment, if the mortgage bonds were real, if the REMICs were actually funded, then there would have been a few actual trials instead of settlements. What bank would settle such cases if it had done everything right? Where are the trials?

The entire foreclosure controversy would be over if there were real trials with real evidence and real witnesses with real personal knowledge providing the foundation for real documents with proof of payment and the current status of the loan.

10-20 such trials would have ended the controversy —– the banks would be right and the borrowers all deadbeats. Instead, when trial approaches the banks all settle every case.

Why would they do that unless they were afraid of losing a very simple case where the facts were not in doubt? The answer is simple: the lawyers won’t go so far as to go to trial because they won’t  subject themselves to discipline and criminal charges for fraud, forgery, and perjury.

 

Lawyers for Bank of America ($9.32 0.11%) claim insurer MBIA knew what it was getting when it agreed to insure mortgage bonds containing subprime loans originated by Countrywide.

The whole concept behind MBIA’s major suit against Countrywide and BofA, which acquired Countrywide in 2008, is that the lender was fraudulent in representing the quality of loans that the insurer ended up facing losses on by agreeing to insure the mortgages in case of default.

In a motion for the court to rule in favor of Countrywide, BofA alleges that MBIA once had a practice of performing due diligence on mortgage loans, but failed to do so in this case.

“[D]espite its own past practices, and the well-known risks associated with the underlying loans, MBIA made a business decision to stop conducting any loan-level due diligence prior to insuring the securitizations,” Countrywide (BofA) said in its motion.

BofA also claims that MBIA never took note of input from third-party due diligence providers.

MBIA, on the other hand, asked the court for summary judgment in its favor and says the test of whether BofA has to repurchase Countrywide loans is based on whether it can be proven “there was a material and adverse impact on MBIA’s interests.”

MBIA says this should be the standard used whether or not the loans actually defaulted or became delinquent.

“Defendant Countrywide Home Loans breached representations and warranties with respect to at least 56% of the loans in the 15 securitizations of residential mortgages at issue in this action and that such breaches had a material and adverse impact on MBIA’s interests in the affected mortgage loans,” MBIA said in its own motion with the court.

In both motions, the parties are asking the court to rule in their favor on fraud claims, breach of contract and indemnification claims originally filed against Countrywide by MBIA.

kpanchuk@housingwire.com

Tags: BofA, countrywide, MBIA, TRIIALS
Posted in bubble, Corruption, Eviction, securities fraud |