Another Kind of Dual Tracking: Loan Origination Fraud

NOTE: Dual tracking and loan origination fraud by the banks will be a prime topic explained in detail by Neil Garfield, Dan Edstrom and Jim Macklin at the upcoming seminars.

At the Sign Up for Full Day Seminar in Emeryville (San Francisco), a specialist from Nevada will present the issues in mediation and forcing the true decision makers and owners of the loan to step forward. We will also present this important material in the Anaheim seminars. One is for homeowners Sign up for 1/2 day Homeowners Seminar and the other is a CLE seminar for lawyers, paralegals and other real estate professionals Sign Up for Full Day Seminar in Anaheim. Participants will get discounts on the purchase of our forms library and workbooks. Call 520-405-1688 for details.

People ask me why I don’t write an ordinary book for layman instead of the manuals we sell. Well, I have written two and dumped them in the trash because they were just the kind of rehash you keep seeing new authors expounding upon the dead Norse that has already been expounded.

My book would therefore really be very short. It would start with the plain and simple and ingenious process that lies at the heart of the securitization fraud.

It is called dual tracking. And the reason for this name is that Wall Street didn’t name it. Wall Street would have named it something like synthetic collateralized real estate closings deriving their value from the dual process of lending of money to a homeowner or buyer and the parallel process of signing closing documents for trading. That sounds better than dual tracking doesn’t it? Because it doesn’t tell anyone what they were doing.

What we are left with is a chain of documents without value and a chain of money without documents. The third phenomenon arises from Wall Street’s ignoring its promises to depositors (investor-lenders) and promises made to homeowners who are buyers or refinancing existing homes they own.

Imagine that I loaned you $100. You would owe it to me even if we never wrote one word on paper. Now if I forged a note signed by you, or had it robo-signed, you would still owe me the $100. If I tried to use the forged instrument in a legal proceeding I would be subject to contempt of court, fraud charges and sanctions but you would still owe me the $100.  And THAT is the reason why most pro se litigants are losing. The lawyers are making the same mistake.

Back to dual tracking. Now let’s imagine that I did loan you the $100 but I did it by writing a Check using my bank as the intermediary. Nothing has changed, right? You have the check, you cashed it and you owe me the $100. Simple as that. But here is where lawyers, judges and policy makers are missing the genius of invention by Wall Street.

When I write a check on my bank to you, my bank and your bank are intermediaries. We depend upon the normal relationship of a customer and his bank. I expect my bank to pay your bank and I expect and you expect that your bank will pay you the money. And if that is what happens, then you still owe the $100.

Even if you deposit the check, which adds another bank intermediary to the story, nobody considers the banks to be anything other than providing services to you and me for access to the extensive grid that makes it possible to move money from me to you. Here again is where lawyers, judges and Policy makers get lost.

The presence of the banks is factually irrelevant because I could have lent a single crisp $100 bill to you without any banks being involved. Doing it by checks puts the nation’s payment processing grid to work — which makes it essential that you and I trust that the banks will do as we have instructed, which, after all, is governed by our contracts with our respective banks. It would never occur to either of us that the banks would make any claim to or about our private loan. And on the books and records of the intermediary banks there would be no loan receivable because such an entry would only be in my books and records. The loan receivable is mine because I loaned the money. It’s common sense.

In savings or investment accounts I maintain at the bank, the bank becomes both an intermediary holding my money safely and a borrower to the extent that the bank has agreed to pay me interest for leaving the money in the bank. Thus if my check to you was drawn on a money market account the amount withdrawn would only be the amount written on my check ($100). If the bank took part of the $100 and then forwarded to to your bank you would justifiably say the debt has been reduced because you didn’t get $100, you got less.

Now imagine that I wrote the check to XYZ investment bank for deposit. At that point they are still just an intermediary in the role of accepting deposits and not in processing transactions. They are awaiting further instructions from me as to what to do with the money I sent them. If the money was deposited into savings account, I sent them the money because they promised me interest of 5%.

As things get more sophisticated, I might deposit my money into an account to make loans to you and others like you for the same 5% interest or perhaps a little more in interest. But if they loaned you the money at 10%. as the depositor I understand that banks make money loaning out money on deposit. But I was expecting interest of 5% not 10% which is obviously a much riskier loan than I had agreed with the investment bank.

Why did the bank not follow my instructions and our agreement? The fact is they should have but they didn’t. Since I was loaning $100 and expecting 5% interest, I was expecting a $5 payment per year in interest. I expected the bank to get me a borrower whose credit rating was unassailable and safe or not to make the loan at all.

The bank violated my agreement, my trust and my instructions when they chose to insert themselves as a principal in the transaction. Both you and the banks became co-obligors. The bank would owe me money for whatever they took out contrary to contract and you would owe me money for the loan. The amount they took out of my account was much more than what you had actually borrowed.

The Bank’s obligation was to pay me back my principal with 5% interest. But they wanted more fees than customary so they found a less credit worthy borrower and loaned him the money. That borrower is you in many cases. And you agreed to the 10% interest because you knew you had bad credit.

But only on Wall Street would they take the extra interest charged to you using my money on deposit. They took it for themselves because they didn’t want to explain to me why they had funded a loan that violated the limits on risk that were expressed in my agreement with the bank. They lied to me and told me they had loaned $100 to you at 5%.  In fact they had only loaned $50 at 10%. By doing that they created a liability for the Bank which still owed me $100 even though they only loaned $50.

But wait. If the bank loaned the money out at 10% then the interest was being paid at $10 per year instead of five, right? Wrong! In order to get what I wanted, which was $5 per year, they only had to lend out $50 at 10%, which yields $5 per year. But I don’t know they did this because they reported that my money was being used as instructed when in fact they stopped being intermediaries and started being borrowers from me because now they had loaned you only $50 and they had taken $50 more from me. Remember I gave them $100, not $50.

If they were being truthful they would have said they couldn’t find a good borrower so they found one who wasn’t so highly rated. they should have given me the choice of whether or not to engage in that loan and I would have said no because I was interested in the safety of my money not the aggressive possibility of growth. And if they made the 10% loan anyway they would have reported to me at the end of the month in my end of month statement, that I had $50 still on deposit tom them in addition to the $50 I loaned you despite my instructions. So my statement would have two line items: one would be the loan receivable to me and the other would be the $50 they didn’t loan out which would be shown as cash on deposit with them, whom I trusted to keep my money safe.

But imagine now that they didn’t issue that report and instead issued a report that $100 had been removed to make loans to you and others, from which they had taken” customary fees”. Oops that would be a lie. They were using the other $50 for themselves, having sold your $50 loan to my account for $100, netting them as much in fees as had actually been used for my loan to you.

Back to dual tracking. Now imagine that the XYZ investment bank had to go looking for borrowers with higher credit risks in order to take that extra $50 out of my $100 investment. They find you. And they want you to sign the usual and customary paperwork associated with a loan, which of course is made payable to me, right? After all I was the lender, the source of funds and the creditor. But the XYZ investment bank when they took my $100 promised to pay me back $100 even though they were only lending out half. Just like any other deposit, where the bank will give you your money when it is due to you as a demand deposit, CD or in this case a loan to you.

Back to dual tracking. They couldn’t put my name on the loan documents because that would lead the borrower straight to me.  We would find out together that they loaned only half of the money I deposited with the bank and that the bank took the rest as “fees” and trading profits.

Enter the straw man also known as the nominee. The XYZ bank hires a mortgage broker who hires a loan originator who lies to you and tells you they are lending you the money. since you expected a $50 loan and you received the $50 loan neither you nor I was the wiser. We couldn’t compare notes or accounts because neither of us knew the identity of the other and I didn’t even know the transaction had occurred and that the terms of the transaction were so different from what I had agreed as a lender, should be the terms.

So you are asked to sign papers to some company called First Freedom Easy Mortgages, who your mortgage broker has told you is the lender. But we know now that First Freedom Easy Mortgage was not the lender. It was a hired actor in a play. You signed loan documents including a promissory note to a payee with whom you absolutely had no financial transaction and you still owe me the money. You owe me the money because it came from me, regardless of what paper you signed to anyone else. And you don’t owe the money to someone else just because you signed paperwork, but never received any money from them.

First freedom Easy Mortgage was a creature created by the banks, not me. They did that because they wanted to “borrow” the loan, claim it as their own, and sell it multiple times to multiple investors. This was all orchestrated by XYZ investment bank who not only sold and resold the loan as if it was their own, but they also bought insurance. They told me it was insured but they failed to tell me that they were the beneficiary who would receive the proceeds of the insurance — not as my agents, my depository institution, but for themselves.

When your loan went into default, according to the paperwork First Freedom Easy Mortgage was the payee on the note. And the only documents of your loan transaction are between you and First Freedom Easy Mortgage so that is the only thing that people look at and believe. But you still owe me $50 because the $50 you received was my $50.

Back to dual tracking. We have the money transaction in which I loaned you $50. And we have another $50 loan transaction that is fully documented but where no money was received by you. That was cover for the extra money the bank took for itself without using it to lend money and make interest income for me. According to the paperwork you owe $50 to First Freedom Easy Mortgage because that is what the documents say AND you still owe me my $50. So you owe twice the amount you borrowed. You know what we call that? Usury. It’s a crime.

If the signed documents have no value because no value was exchanged between those parties, then that mortgage is securing the faithful performance of the terms of a note in which there was no value (no loan was received by you from the documented transaction. So we are left with a document trail (securitization) with no value and in which all conventions and provisions were routinely ignored AND a money trail which leaves no documents at all (no footprints in the sand). That is dual tracking.

And that is why in discovery you need to press hard on the actual financial transactions to force them to show the actual flow of money. AND THAT is why they will most likely settle with you if it looks like you are getting too close for comfort.

Tags: debt, dual tracking, intermediaries, intermediation, loan origination, principal and agent
Posted in bubble, Corruption, Eviction, securities fraud |