FHA Loan Sales Good News and Bad News

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Editor’s Comment:

With the Federal reserve and FHA and soon other agencies selling off their loans it is true that the homeowners will be getting calls inviting them to accept new mortgages at much lower rates and principal owed. But the reason is that the Banks have figured out is that if you can just get a signature from the homeowner who is getting screwed in foreclosure, the Bank’s potential liability for all their illegal activities is greatly diminished.

And the fact that the signature of the homeowner does absolutely nothing to clear up title in most cases. The payoff on the old loan was inevitably to a party picked at random from the list of participants in the securitization chains that were created on paper and then totally ignored. When the homeowner gouges to sell or refi his home in a few years, we will have another crisis on our hands because the title won’t be clear by any conventional standards of title analysis.

So this “opportunity” is much like the settlements that suddenly appear when the Master Servicer (not the sub-servicer with whom the borrower has transacted business) is ordered to open up its books. The fact is that they used Master Servicer or investment banking escrow accounts where the money from all investors was intermingled in a superFund account where the Wall Street banks kept the money on a tight leash and once again, as they do every 20-30 years or so, totally screw up the paperwork. The difference is that this time the paperwork was screwed up not only between themselves but with the consumers and government agencies.

This time, internal sources are telling me independently of one another, that the securitization chain was and is a paper tiger.  There never was  and is not currently anyting in the pools or trusts. In fact, the only thing on paper going into the trusts are bad loans already declared in default and they are going in years after the cutoff date allowed by law and the terms of the pooling and servicing agreement and prospectus. Pension funds are getting a shorter end of the stick than the homeowners, if that is possible. They bought and advanced funds for good loans and all they are getting in return are bad loans that never did conform to the restrictions in the PSA.

It isn’t just a technical matter that there was no acceptance of the offer of the assignment. That is a given. who would want a loan that was already declared in default unless they had some other way of satisfying the loan balance in some other way through a co-obligor — like a sub-servicer whose sole action to recover from the homeowner is through a cause of action called “contribution.” That obligation is clearly NOT secured. That action arises out of a contract between the lender and the sub-servicer. There is no contract, note or mortgage between the sub-servicer and the borrower.

The question remains in these sales is “what are they really selling.” What is it that the agency “acquired?” What warranties are they giving on the sale of the loans? From whom did they acquire the loans and what due diligence was performed besides taking the bank’s word for it that they owned the loan? Here is the truth: with the REMICs totally disregarded by CDO managers and all the money being in a co-mingled Superfund account it is virtually impossible to determine the indentity of the the “partners” in the loan from the SuperFund because it is impossible to determine the relative amounts of money advanced by pension funds and other investors at the moment the funding took place. What we DO know is that the the loans were sold forward but the loans that were sold forward were based upon paperwork that recited transactions that didn’t exist and never did and never would (thus making the forward sale a civil or criminal fraud). We do know that the claims of ownership from the banks and servicers were at best claims of conveience without substance. So what did the agencies buy and why did they not do their due diligence? Why are we doing the investigation that the FHA and Federal Reserve shold be doing? Why is the burden on the homeowner to discover facts that are readily available to the agencies and law enforcement? When will homeowners stop getting screwed?

If none of the elements of a perfected mortgage lien are present, why are we pretending they are there? If removing the illegal mortgage lien and leaving the parties to fight it out or settle the amounts due would revive the economy, why are we not doing that?

Why are we substituting new rules of evidence and civil procedure that are created by each judge for the long-standing laws, rules and procedures developed over hundreds of years of common law? How long will we let banks run the system?

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Tags: cause of action, contribution, FHA, Master Servicer, securitization chain, sub servicer, Superfund
Posted in bubble, Corruption, Eviction, securities fraud |