Don't Spook the Banks?

COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary

see also Fraud or Inaccuracies? VIDEO

OK, let’s assume that the “paperwork mess” can be seen as isolated in a vacuum — that it wasn’t caused by the absence of assets conforming to the requirements of the securitization documents. Let’s further assume that we waive a magic wand and allow the assignments and endorsements to be done now. The empty pools fill with all the notes and mortgages that were ever represented or claimed to be there (or are we just picking the ones that are performing?).  Let’s even assume that the magic of the wand extends back for 5 years. Does that fix the problem?

Unfortunately not. Here are the problems that would still remain:

• What do we say to investors who purchased mortgage bonds that NOW the empty pools are filled and the “assets” from which their mortgage bonds allegedly derived their value are filled with receivables from mortgages, many of which have no value or are in default and have far less value than what was offered in the prospectus?
• What do we do with property laws that require recording transfers in the public records of the county in which the property is located?
• What will be the effective date of this magical fix? What happens to transactions before and after that?
• What happens to the taxes, fees, interest and penalties that are now due from the REMICS, securitization players and investors which remain uncollected and if collected would substantially reduce or eliminate most federal and state deficits?
• How will anyone identify the creditor on the obligations to investors?
• How will anyone identify the creditor on the obligations from borrowers?
• What do we do with people who already have had foreclosures dismissed and judgments entered in their favor?
• What happens to all the cases that were based upon documents previously submitted under the old regime, whether they are concluded or not?

• How do we account for the bailouts and insurance payments?
• What do we do with the people who made money on the bets they made having seen the defects that existed?
  
• How do we cover the people who will now lose money having made the bets based upon the defects?
• What do we do with all those assets whose value derived from the bets (i.e., credit default swaps etc.)?
• How do the banks avoid liability to the mortgage bond investors for violating basic underwriting standards?
• How do the banks avoid liability to the homeowner borrowers for violating basic underwriting standards?
• What do we do about the massive appraisal fraud that occurred when the securities were given AAA ratings?
• What do we do about the massive appraisal fraud that occurred when the property was dishonestly valued higher than the loan principal?
• Who is liable for predatory lending practices?
• Even assuming all 50 states want to pass laws that would retroactively and prospectively change the property and contract laws of the state to accommodate the “needs” of the securitization players, under what theory of law, constitutional or otherwise, can that be validated?

The truth is that when fraud is committed, regardless of the scale of the fraud, there is no way out. When forgery is committed, there is no way out. When documents are counterfeited, there is no way out. These illegal things were and are being done because the fundamentals of the assets were defective in addition to the procedural aspects of processing them. It’s painful. But unless you are going down the rabbit hole, you can’t start saying lead is now gold, or that nothing is something. The capital structure of the mega banks is fatally flawed by the inclusion of illusory assets and like the emperor’s new clothes, everyone seems to know it but few are willing to say anything about it for fear of sparking a panic. I hold no illusion of the chaotic implications of accepting the truth here, but we have made it through such periods before and we can do it again.

Posted in bubble, Corruption, Eviction, securities fraud |