Modification Scam by Banks and Servicers

NOTICE: IN ANSWER TO INQUIRIES RECEIVED FROM CITIES AND COUNTIES, YES EMINENT DOMAIN IS A GOOD IDEA BUT NOT BECAUSE OF THE REASONS STATED THUS FAR. IT IS A GOOD IDEA BECAUSE THE PARTIES CLAIMING TO BE INJURED BY THE SEIZURE WOULD BE REQUIRED TO SHOW THAT THEY WERE INJURED IN REAL DOLLARS AND REAL WIRE TRANSFERS, CANCELLED CHECKS AND WITNESSES. THEY CAN’T DO THAT. INITIATION OF EMINENT DOMAIN WOULD BE THE ULTIMATE DISCOVERY TOOL THAT WOULD END FORECLOSURES ANYWHERE IT IS INVOKED. AND IT WOULDN’T COST A DIME.

And see end of this article where the federal government could recoup $2.5 trillion right now and at the same time provide a $10 trillion stimulus to the economy without spending one dime.

Modification Scam by Banks and Servicers

The above link will tell you a lot about what is happening in the industry — but it still assumes that the loans were bundled and sold when they were not. So far as I can tell in 6 years of analysis and study by myself, my team and the published reports in the public domain, there is no evidence of bundling, no evidence the “pools” or “trusts” were ever funded by either money or loans.

To understand WHY and HOW modifications would be turned into a scam by the banks you must understand their motivation for intentionally taking less in a “foreclosure sale” than they can get in the secondary market for selling a new mortgage, modified mortgage or refinanced mortgage. As Reynaldo Reyes from Deutsch Bank put it — “it is all very counter-intuitive.” In other words, a big fat lie on a scale unparallelled in human history.

The motivation lies in the fact that everything is already paid. The money from insurance, credit default swaps and federal bailouts, together with multiple resales of the same portfolio and hence the multiple sales of each loan going into the pocket of each banker. Anytime a loan goes into foreclosure, it seals the deal — allowing the banks to keep their ill-gotten gains that could amount to as much as 40 times the principal due under the loan.

So they don’t want your $400,000 even if you have it, because it endangers the $16 million they received and might mean they must pay it back. And THAT is a contingent liability not shown on any of the mega bank financial statements. If it was, they would be declared insolvent, which is exactly the case — unless they can get all the loans into foreclosure with the exception of a few modifications or settlements done for PR, expediency or other reasons.

Hence the quote from one employee of a servicer that when he asked why a perfectly valid modification proposal was being rejected the answer from his boss was “we are in the foreclosure business, not the modification business.” Unfortunately the media report ended there. I always ask for something more, however. If they consider themselves in any business, as a “servicer” why would that not be simply to process the receipts and disbursements and correspondence with the borrower and the creditor? Why would they care one way or the other whether the loan was modified, settled, refinanced, paid through short-sale or regular sale? Why indeed.

The answer lies in the fact that the subservicers and Master Servicers are the real people handling the actual money and hiding the movement of the money, while they are forced to fabricate, forge and perjure themselves in millions of recorded documents to cover up the fact that the original loan documents were a sham.

If they did the original loan right, which would take no more effort than doing it wrong, then we wouldn’t have this mess. That would be because loan origination would return to the right business proposition — loaning money with the intention of getting repaid.

But here, because of the tricks and maneuvering of the investment banks, the goal was to fund loans that (a) would not and could not be repaid and (b) even if they were repaid, would be labelled as being devalued in a non-existent pool over which the Master Servicer had the exclusive right in its sole discretion to say that the portfolio had failed and the mortgage bonds had to be written down or written off.

It’s like buying 40 different policies of life insurance on your partner and then killing him. Without a conscience, you would be looking for lots of partners even as the grieving families buried the dead, their hopes and dreams forever changed.

Modification has never been about modification. It has always been about foreclosure, which puts the state stamp of approval that the loan failed. Everything LOOKS right, so the Judges rubber stamp them, because, as stated by thousands of Judges, these securitization arguments sound like a gimmick to get out of a legitimate debt. After all would a Bank with 150 year old gold plated reputation put itself in the position where all of its managers and executives could go to jail along with the legions of lawyers representing them? Of course not. But they did.

If you look closely at modification just as I have looked closely at the loan origination, you will see that like the original documents you are left with a holographic image of an empty paper bag.

The documents don’t track the movement of money which is to say that the payee and lender and the beneficiary had already agreed never to touch the money going in or coming out of the deal. Hence the note, which is a contract, and the mortgage or deed of trust, which is a contract was never funded. Those contracts may be in writing but they are useless pieces of paper that can’t ever be worth a dime without the signature of the homeowner on new documents connecting the dots to the the real lender and allowing the non-disclosure of the real lender to stand.

All of that is presumptively cured by the appearance of a deed on foreclosure arising out of a credit bid which we all know was not from a creditor and which the auctioneer and the trustee and the stated mortgagee and the stated substituted trustee, and the lawyers using it all know is a big fat lie. Since no cash was paid at auction, and the credit bid was invalid, the sale never occurred. Bu the issuance of the deed anyway creates the presumption that the sale did in fact occur.

Now we can look at how the modifications are a total scam just like the origination of false notes and mortgages followed by false assignments, endorsements and allonges.

Probably half the “foreclosures” (I put that in quotes because someday, I hope the homes will be returned to their rightful owner) result from the servicers telling the first lie: “stop paying your mortgage payments, because we can’t consider your offer of modification without you being delinquent.” Once again, borrowers are duped because they are hearing music in the ears. Stop paying? And it is the BANK that is telling us to stop paying? What could be better?

Then the games start. You might remember that in 2007 Katherine Ann Porter did a ground-breaking study that blew the lid off of this gigantic fraud not in theory but in a scientific study which found that no less than 40% of the notes signed by borrowers were INTENTIONALLY lost or destroyed. Once again, that is an interesting fact but I asked why a bank would take a valuable piece of paper and shred it. The answer is simple: if they showed it to the investors and others, they would be in obvious breach if not accused of Madoff or Drier type fraud and Ponzi schemes. So better to claim they can’t find it and make up the rest, than to show the actual notes, many of which were not signed by borrowers ever, but whose signature was photo-shopped onto the document.

Why mention that again? Because 80% and perhaps more, of the modification proposals are claimed as not received, lost or accidentally destroyed while month after month the homeowner gets deeper and deeper in debt on missed payments (that are actually not due at all, but that is another story). So the strategy is simple. Make sure people stop paying, make sure you can declare the default and acceleration of the full amount due, and then either foreclose or tell them their proposal for modification is rejected by the investor after consideration required by HAMP.

The homeowner is faced with 9-18 months of missed payments, plus fees and costs to reinstate the loans and some of them do just that. But most people have spent at least part of the money and are unable to reinstate the loan with this “creditor” who never funded nor purchased the loan and who is the servicer for a party that never funded or purchased the loan. Wall Street wins. Half of the people who were foreclosed were losing their homes not only to fraudulent tricky documents, but because the Bank had manipulated them into going into de fault when they were not in default, even assuming the loan origination documents were actually valid and enforceable (which of course they are not).

Sprinkle a little guilt and moral dilemma into the soup and you have the perfect scenario for Wall Street to foreclose on millions of homes, thus sealing the deal on profits that were multiples of the entire funding of the mortgages but which probably never reached the investors.

Here is something to think about: $13 Trillion in loans were written, $2.6 trillion went into “default” on which the loss was around $1.3 trillion because of the residual value of the house, and last but best of all, Wall Street has received no less than $17 Trillion more than the principal of all the loans written during the mortgage meltdown.

Is there any reason anyone should be making payments on their mortgage? If so, it should be to the federal government not the banks. If the homeowners were “given”their homes free and clear, they could be taxed on the windfall since it would not be forgiveness of debt of rather avoidance of debt through third party payment.

The tax liability would be a small fraction of the original mortgage which of course is invalid, but the loan proceeds were still received by or on behalf of the borrower so an obligation does exist (albeit without documentation like a note or mortgage) and its extinguishment is a taxable benefit to homeowners. The tax liability would be around $2.5 trillion, which means that the average liability of the household would be reduced by around 80% as it relates to the house. Everyone wins except the Banks who still will come out ahead because we all know that it never happens that the scam artist doesn’t have some of the money stashed away.

Tags: eminent domain, fraud, modification, perjury, scam, taxes
Posted in bubble, Corruption, Eviction |