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The inevitable conclusion, in my opinion, is that where the investment banks have set up a structure where the real lender is deprived of the evidence (i.e., the promissory note) of the loan (which they didn’t want) and the borrower is deprived of information and good faith in a table funded loan with multiple layers of conduits, is that the identity of both the investors and the borrowers is being systematically stolen, misused and causing losses and financial damage to both sets of victims. That is precisely what TILA and Reg Z are aiming at when they describe such loans as “predatory per se.” Isn’t that unclean hands per se?
The usual charges of identity theft are against individuals who poach identities and then use it get credit, cash or goods and services using the name and credit reputation of the victim. The penalties in civil and criminal law are pretty severe. But when you look at the “securitization” farce or “securitization fail” as Adam Levitin puts it, you can see that the banks are the perpetrators and the investors and borrowers are victims.
The banks used the identities of the borrowers to trade, profit, get credit, insurance proceeds, loss sharing payments, and proceeds from guarantees and hedge products all to the the eventual detriment of the debtors and real creditors. If the transactions were above board, the borrower would know the identity of the lender. The borrower would have a choice as to whether to do business with that lender. The borrower would also have an opportunity to see how many layers of fees were actually involved in all the conduits that were being used without permission from either the investors who put up the money and without permission, consent or knowledge by the alleged borrower.
There is plenty of good law to use that covers this and it might get traction now that the courts are wondering if any of this crap is real. From the start, the identity of the borrower was stolen or converted to the use of parties who had no actual privity with the borrower or rights to claim anything in the alleged loan transaction. By not making the actual loan and then engaging in a pattern of behavior in which the “loan” was said to be represented on the note and mortgage, then selling that paper, insuring it, getting guarantees on it etc, they were using the paper in ways that were never contemplated by the borrower who had no notice because this was a table funded loan (predatory per se) to begin with. Because that revenue was obtained without permission of either the borrower or the investor, it might well be that the borrower is entitled to bring a claim for those “profits”.
The identity of the real source of funds was withheld by using several layers of conduits. But the money, indisputably, came from the investors who bought bonds in an IPO offering from a REMIC Trust. What the investors didn’t know (and probably still don’t know) is that their money was diverted from the REMIC trust directly to closing tables around the country. As the creditor the investors were entitled to be named as payee on the note — but more importantly, they were entitled to not have their money used for that loan. The money from investors were obtained under false pretenses. If the money had been deposited into an account of the “Trustee” for teh REMIC Trust, the investment banks could not have creaed the alleged “proprietary trading profits” that theya re claiming now and which accounts for them declaring dividends even while they pay billions in fines and penalties for their misbehavior.
So the identity theft allegation is one of the core causes of action that ought to be looked at carefully. If successful it busts open the paper cocoon that the banks are hiding within. The paper is not worth the ink on it because it is all based upon stolen money, stolen identity, and forged, fabricated documents being hidden by a pattern of conduct in creating loans that had to fail and wrongful foreclosures, without notice to the investors, that multiple possible settlements and modifications might have mitigated the loss or eliminated it entirely. Taken as a whole, it is highly likely that the percentage of wrongful foreclosures over the past 7 years is around 94%. Out of more than 6 million foreclosures (and another 5-6 million to come) only 360,000 (estimated) would be valid.
This theft of household wealth has resulted in an economy that is and will continue to be struggling for equilibrium until the housing and mortgage issue is addressed in accordance with the true facts and existing applicable law. But judges first must dispel any bias about deadbeat borrowers trying to get out of a legitimate loan or debt. There is no legitimate loan and as to the people who are seeking to enforce the debt, there is no debt. The owners of the debt don’t know they own it because they are still laboring under the misapprehension that the money and the loans were funneled through the REMIC Trust. it wasn’t.
The government has been complicit in this scheme, afraid that if they cut the big banks off at the knees that the primary credit markets will collapse. That can be ameliorated using the existing infrastructure,but perhaps modifying the roles of the Federal Reserve and other agencies that are quasi public and quasi private. Any other approach means that we are transferring regulatory power over the banks, finance and the economy in general to the banks who caused the problem in the first place.
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