Why Are We Still Dealing with Aurora and Lehman?

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Aurora was “employed” by Lehman who had merely used money on deposit from investors to fund the loans. Lehman was theoretically then the party who owned the debt by reason of having paid for it. In turn, according to the certificates purchased by investors, Lehman owed a stream of revenue payable to investors that was indexed on a changing portfolio of loans that were poorly underwritten because nobody cared whether they performed or not.

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By selling its own promise to pay in lieu of the borrower’s promise to pay they secured the funds to fund what appeared to be a loan. The profit incentive was in other transactions, whether real or fake, that produced enormous profits far exceeding the loan. And yet millions of foreclosure actions have been filed “on behalf of certificate holders.” The holders of the certificates are never identified and the certificates are never described because there is no conveyance of any right, title or interest in any loan. 

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The borrower thought this was a loan transaction for good reason. But, as I have carefully alluded in the past, the loan was not actually a loan from the Lehman perspective. The money for the “loan” was merely a cost of doing business to make money in the securitization markets. All attempts to enforce the loan through foreclosure were veiled attempts at receiving more revenue, since Lehman, within 30 days of funding the loan, had pocketed far more than the principal amount of the loan from several tiers of investors.

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So in dealing with Aurora or Lehman keep in mind that that neither of them has the loan or the servicing rights on their bankruptcy schedules. Lawyers simply use inferences and legal presumptions to create an illusion despite the fact that neither of them has any present right, title or interest in any particular loan.

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Thus practitioners and pro se litigants should at all times object to any such implied ownership or administrative rights since none are supported by actual facts.

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For more information on the amount of money taken in by Lehman (and other brokerage houses) use the search engine on this blog. But you can start with the second  tier yield spread premium (YSP). In oversimplified terms, Lehman was promising a 5% return to investors on the amount they invested while originating “loan” transactions at a much higher rate to borrowers. In this example the blended rate signed for by “borrowers” is 10%.

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Hence Lehman could take in $1,000 from an investor and only lend out $500, pocketing the difference. In dollars, 5% of $1,000 is the same as 10% of $500. The end result is that Lehman immediately gets paid all of the loan amount plus the amount as as profit. The difference is shown as a “trading profit.” On its own books of account the loan ceases to be carried as an asset subject to a reserve for bad debt. The net legal and actual result is that neither Lehman nor its investors are owners of the debt. The debt has legally vanished.

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The courts won’t accept this fact. So they allow into evidence fictitious documents reciting nonexistent facts about transactions that never happened in order to allow the brokerage firms to use conduits to reconstitute the apparent existence of the debt and their right to enforce it — all without ever alleging or proving that without such enforcement any of them would have lost any money.

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The fine paid on behalf of Aurora, which has virtually no assets left, is based upon allegations of misconduct all associated with “underwriting” loans for the purpose of making the loans, not getting repaid by the borrower.

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Only Aurora and Lehman knew that repayment was irrelevant except as corroboration of the lie they had told investors — that this was entirely a diversification of risk strategy for conventional and well-underwritten loans in accordance with industry standards.

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And of course there was the lie they told borrowers through their conduit “originators” — that the lender had a risk of loss and therefore would not lend money that couldn’t or wouldn’t get repaid.

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As long as most borrowers kept making payments to people that were not entitled to collect such payments they were tacitly admitting to the fact that they owed payments to such parties even though they didn’t. The strategy was brilliant even if perfidious.

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The reason the fine was paid on behalf of Aurora is that it corroborates the false narrative that Aurora or Lehman were the true owners of the debt and that any actions taken to enforce the “loan” were valid and authorized. They weren’t authorized. And the proceeds of such collection and enforcement schemes never went to investors who had actually supplied the capital required to originate or acquire the loan. All such schemes were merely disguised efforts to obtain more revenue. This left the investors and the borrowers holding the proverbial bag.

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Unfortunately the political decision from the top down was to protect the banks rather than the investors and homeowners. But aggressive and persistent defense of foreclosure actions in court usually results in a satisfactory result for the homeowner.