Securitization and TILA Audits: You Can't Do One without the Other

Article below submitted From the desk of Brad Keiser:

Editor’s note: This is a perfect example of why ignoring the complexities of securitization leaves all the red meat on the table. The commingling of funds that is cited in the article below is exactly what I have I have been talking about , exactly why the pretender lenders balk at a full accounting, and exactly why a full forensic analysis (like the one Brad will be presenting later this  month) is essential if you are going to battle.

see: Brad Keiser\’s Forensic Analysis Workshop

It is not enough to know about securitization. You must understand what effect it had on the transaction. It sounds counter-intuitive to say that when you know the homeowner has not made a  payment, the obligation might still be considered performing and NOT in default because the payments were made to the creditor.

This does not automatically  mean that you get a free house. But it does mean that the real creditor who has advanced the money, the creditor that the debtor owes money to, is the real party in interest and they might no longer be secured depending upon the nature of the payment and the handling of the accounts — which is why I think that accountants would be ideal candidates for Brad’s workshop.

Securitized loans are not a separate animal from the discrepancies that are revealed in TILA audits. They impact the TILA audit in a way that dwarfs all other factors. Like the fact that the $5,000 yield spread premium paid to the mortgage broker is just a small fraction of the yield spread pocketed by the investment banking crowd behind the curtain.

And what about the very significant impact of those spreads and premiums combined with the impact of a reset on the life of the loan, and the false appraisal? The APR is misstated in virtually every securitized loan not by small amounts or fractions but by multiples of more than 100% of the loan principal in some cases.

Moody’s warns on GMAC mortgage bond servicing
Thu Mar 4, 2010 3:07pm EST
Related News

* Moody’s upgrades GMAC on US Tsy capital infusion
Fri, Feb 5 2010

NEW YORK, March 4 (Reuters) – Moody’s Investors Service on Thursday said it may downgrade portions of 125 residential mortgage bonds based on unusual “cash management arrangements” of GMAC Mortgage LLC, which services loans in the securities.

The rating company said GMAC commingled cash flows from multiple bonds in a single custodial account, Moody’s said in a statement. This allowed GMAC to use cash from loans in one bond for principal and interest payments on another, it said.

By allowing the commingling, it “increases the likelihood that some RMBS deals may not be able to recover the amounts ‘borrowed’ by the servicer to fund advances or another RMBS deal if a servicer bankruptcy were to occur,” Moody’s said.

This could give rise to competing claims in a bankruptcy proceeding, the rater said.

Downgrades based on mortgage servicing, rather than credit, may add to concerns of bond investors who have been long accustomed to harsh rating cuts as delinquencies and foreclosures increase losses.

GMAC Mortgage is a unit of Residential Capital LLC. Residential Capital is owned by GMAC Inc.

For some commentary see this link:
http://market-ticker.denninger.net/

Brad Keiser

(513)289-5353

Tags: affordability, APR, resets, securitized transactions, TILA audit, yield, yield spread, yield spread premium
Posted in bubble, Corruption, Eviction, securities fraud |