What Is a Real Estate Mortgage Investment Conduit? Insights from a Foreclosure Defense Attorney
A real estate mortgage investment conduit, often called a REMIC trust, is a type of legal structure created to bundle and sell groups of mortgages to investors. It was designed to make mortgage investing easier and more tax-efficient.
Here’s How it’s Supposed to Work
Banks or lenders group many home loans together and place them into a REMIC. That REMIC then issues mortgage-backed securities to investors, who receive income from the payments homeowners make on those loans.
The idea behind a real estate mortgage investment conduit was to create a safe, predictable way for investors to earn money while freeing up banks to issue more loans. But for a REMIC to be valid, the trust must actually receive the loans and the cash that funds them.
If the REMIC trust never received real mortgages or wasn’t properly activated, it fails to meet its legal purpose — leaving investors with worthless bonds and homeowners caught in a confusing system.
Ever since the 2008 implosion that was created by the TBTF banks, investors have awakened to the fact that the mortgage bonds in their portfolio are worthless. They are worthless because they were issued by a nonexistent REMIC Trust that has never been activated by the receipt of cash from the sale of those securities.
So the Trusts were unable to fulfill their one basic function — acquisition of high-grade mortgages. Instead the money was used or originate mortgages without the use of the Trust as Real Estate Mortgage Investment Conduit (REMIC). And the mortgages that were originated were mostly fatally flawed in their underwriting and fatally flawed in their execution.
Caught with their giant hands in the largest cookie jar ever imagined, the banks negotiated with investors who still don’t want to tell their pensioners or investors that there isn’t enough money in the fund to pay for the retirement benefits that were promised. In some cases they offered cash payouts, but those were limited to a mere fraction of the money that was taken by the banks in the false securitization scheme.
So by late 2008, the standard operating procedure was to offer the investors a replacement for their worthless mortgage backed securities. The process is called “RE-REMIC.” The banks create new proprietary entities (REMIC Trusts on paper) that issue new mortgage bonds. The investors give up their claims to the worthless mortgage backed securities. SO the investors in the original REMIC are no longer investors in that REMIC. They are investors in a new REMIC. Both the old REMIC and the new REMIC are fictional entities that are proprietary to the investment bank that created the illusion of their existence.
What Is The Legal Question?
The legal question is the status of the mortgages that were allegedly purchased by the old REMIC. There is no evidence in any RE-REMIC deal that there was even the pretense of transferring those over to the new REMIC. But there is also zero evidence that any REMIC, old or new, has actually entered into a purchase transaction where it paid any amount of money for any pool of mortgage loans. The absence of a cash payment from investors in the Second REMIC (RE-REMIC) process is corroboration that they were finally (perhaps) getting the benefit of the bargain they were supposed to get in the first REMIC.
And THAT is corroboration that the first REMIC was never funded and explains why the first REMIC never had a bank account or even any financial statement, because there was nothing to put on the financial statement — there was no business — even for the 90 days in which the REMIC could have acquired mortgage loans, if only they had the money.
This leaves borrowers with a trial narrative that sounds like a fairy tale but is nonetheless true. The trust never made any purchase of any of loans not because it didn’t want to but because it was never intended to make that purchase. THAT is why the exhibit with the mortgage loan schedule (MLS) is missing on virtually all Pooling and Servicing Agreements. Like the magical assignments, endorsements and powers of attorney that pop up shortly before trial, the mortgage loan schedule is not created until long after the so-called REMIC Trust was partially created on paper.
To make matters worse, the RE-REMIC process leaves the playing field with no trust, no investors and no creditor. And the really odd thing about this, as if it was not odd enough already, is that it leaves the homeowner battling ghosts who frankly don’t care what happens in their foreclosure — except for the investment bank who appointed itself “Master Servicer” and then “recovered” money from liquidation of the property to satisfy its false claim that it had paid the investors “servicer advances” which actually came from a dark pool consisting entirely of money from the same investors, along with thousands of others,
So the real basis for foreclosure is that the investment bank, masquerading as the “Master Servicer” wants to get its hands on money that should actually go back to the investors. The continuing foreclosures are actually the investment bank leveraging the fact that there is no real party in interest in the foreclosure because there was no loan contract at origination — since the origination of the loans was accomplished through the use of funds that were due to the REMIC but never made it there.
Perhaps this might help explain why the Trustees don’t know or care anything about the outcome of the foreclosure process. The Trustees simply have nothing to do. And it explains why every modification or settlement is done in the name of a subservicer working for the Master servicer with no signature from anyone representing the REMIC Trustee or the REMIC Trust.
The article below demonstrates a JPMorgan RE-REMIC:
http://www.nationalmortgagenews.com/news/secondary/jpmorgan-revives-the-re-remic-cmbs-style-1087036-1.html
JPMorgan is dipping into its toolbox for a type of financial engineering rarely seen these days: “re-REMIC,” or a securitization of real estate mortgage investment conduits.
The $485 million JPMCC 2016-FLRR is a securitization of the senior notes issued in other recent commercial mortgage securitizations: JPMCC 2016-FL8 and JPMCC 2016-H2FL.
In the aftermath of the financial crisis, re-REMICs were used to make soured securities look better, allowing the banks and insurers that held them to achieve better capital treatment.
Mortgage bonds that had been sharply downgraded were bundled into collateral for new bonds that were tranched according to their payment priority. Those bonds first in line to receive cash from the underlying collateral received investment grade credit ratings.
This transaction is also achieving a rating uplift. They were rated BBB- (the lowest investment grade rating) by Standard & Poor’s at issuance in March, but KBRA expects to assign an AAA rating to the senior tranche of the re-REMIC. It is not rating the four subordinate tranches.
The JPMCC 2016-FL8 class A certificates have a stated annual coupon of one-month Libor plus 222 basis points and the JPMCC 2016-H2FL class A certificates have a stated annual coupon of Libor plus 210 basis points. Each of these classes of securities, in turn, are backed by five first-lien commercial mortgages that are also index to Libor.
All of the underlying loans were originated between November 2014 and December 2015 and were structured with an initial loan term of two years with three 12-month extension options.
The 36 underlying properties are located in 11 states with four state exposures that each exceeds 10% of the resecuritization trust balance: Texas (22.4%), Virginia (14.1%), California (12.8%) and Massachusetts (10.9%). The underlying loan pool has exposure to four property types: office (43.8%), lodging (34.5%), retail (13.5%) and industrial (8.2%).
Foreclosure Defense is not a simple area of the law anywhere in the USA. Contact us for help on how to preserve every right you have in the foreclosure process, anywhere in the USA. We are a national foreclosure defense practice having specialized in this for over 20 years. Call us today. 844.583.5339
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