How the Banks Played With Investor Money, Made Money and Claimed a Loss

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Editor’s Comment and Analysis: The passage below is taken from the PSA and Prospectus of a Wachovia “securitization” offering. Most of the documentation from most of the investment banks have the same or similar language since the same group of law firms wrote the boiler plate for all of them. I might add that I have a confidential source that some lawyers refused to participate and actually quit their jobs claiming that the scheme was illegal and probably criminal.

This is why Deny and Discover is so powerful. When you dig down you see that things are not as they  appear or are represented and what you thought was true, is not true. Both borrowers and investors in bogus mortgage bonds were the subject of a sting initiated by the banks on the premise that nobody would actually read and analyze these documents before investing and the borrowers being ignorant of the existence of such documents could not possibly pose a threat.

If you read the passages below carefully you can see how the banks took money from investors, made loans with part of the money, kept the rest, and then claimed losses causing insurance companies, credit default swap counterparties and the Federal government to bail out the banks when it was the investors and the borrowers who were the actual parties losing money.

The “seller” of the mortgage is actually given the right to retain title so they will have an insurable interest and something to sell, even though they are actually holding “title” for the investment pool. The passages below reveal the exposure to both investors and borrowers as a result of this practice and how the investors ended up with unenforceable mortgages and notes, and the homeowners ended up with defective title, and the county recorders offices had their system of recording forever corrupted by the illicit practice under cover of hidden disclosures that enabled the banks to pull off the largest economic crime in human history.

INSIDER TRADING: What they have not answered to is whether the bets against the very same bonds they were selling were violations of insider trading. They knew what they were going to do with the bonds and they knew the rate of defaults would skyrocket as the true terms of the fabricated notes started to kick in.

If the securitization plan was actually legal instead of being a lethal scheme, they would not have a statement and the investors, if they had seen it would not have agreed to such terms. The recordation of the mortgages and delivery of the notes would have been required as per the laws of most states. They would not have reserved the right to NOT record the mortgage which by their own admission could result in the investors priority position being diminished to zero, which is exactly what I have been saying for years.

Who in their right mind would agree to turn over $100 million to an investment bank from a managed fund that is required by law to virtually eliminate risk by investing in only the highest grade investments, when the prospectus says “security holders could lose the right to future payments of principal and interest to the extent that those rights are not otherwise enforceable in favor of the indenture trustee under the applicable mortgage documents.?”

PRACTICE HINT: Don’t stop drilling in discovery and make sure you or an analyst reads the documentation. There is a lot of material buried in that stack of print that supports the allegation that the lenders were pretenders and that the loan never made it into the pool. Provisions like the ones below allow the investment banks to trade the loans as if they were their own. Imagine if you bought 100 shares of stock and the broker started trading the stock in his own name — wouldn’t you have something to say about that? Imagine further that the broker borrowed money using the stock and created a loss which he now tells you is your loss.

From a 2002 Wachovia Home Equity 424B5 filing:

Non-Recordation of Assignments; Possession of Mortgages                        

     Subject to the conditions described in the servicing agreement, the seller will not be required to record assignments of the mortgages to the  indenture trustee in the real property records of the states in which the     related mortgaged properties are located. The seller will retain record title to the mortgages on behalf of the indenture trustee and the security holders.     

Although the recordation of the assignments of those mortgages in favor of the indenture trustee is not necessary to effect a transfer of the mortgage loans to the indenture trustee, if the seller were to sell, assign, satisfy or discharge any of those mortgage loans prior to recording the related assignment in favor of the indenture trustee, the other parties to the sale, assignment, satisfaction or discharge may have rights superior to those of the indenture trustee.

In some states, including Florida and Maryland, in the absence of     recordation of the assignments of the mortgages, the transfer to the indenture trustee of the mortgage loans may not be effective against certain creditors or purchasers from the seller or a trustee in bankruptcy thereof. If those other parties, creditors or purchasers have rights to the mortgage loans that are superior to those of the indenture trustee, security holders could lose the right to future payments of principal and interest to the extent that those rights are not otherwise enforceable in favor of the indenture trustee under the applicable mortgage documents.

Tags: ownership of bond, ownership of loan, ownership of note, recordation, Wachovia
Posted in bubble, Corruption, Eviction, securities fraud |