Why Are Modifications So Sluggish? Tonight on the Neil Garfield Show 6pm EDT

Jul 30, 2015

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This is not legal advice on your case. Consult a lawyer who is licensed in the jurisdiction in which the transaction and /or property is located.

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Everyone has the same question in the back of their minds. The loans should be worked out rather than foreclosed. That is what is done with commercial loans, that is what was done in residential loans and it is still done with credit cards and other consumer loans. So why are we having problems with workouts and modifications?

The answer is simple: we are not dealing with the creditor. We are dealing with an intermediary whose instructions are to get the loan into foreclosure. So they tell borrowers that they can’t qualify for a redo of their loan unless they stop paying, they say and do a lot of things that encourage the borrowers to do things that make them look like deadbeats when the case goes to foreclosure judgments. The borrowers are not deadbeats. They are victims just as the investors are victims. But we never hear from the investors because they don’t know that anything is wrong with their investments — because they are getting paid regardless of whether the “borrower” pays or not.

Many judges have been asking two questions for years even as they give the banks the benefit of the doubt:

(1) why is the modification process so enigmatic and random (and why are there not more workouts like it used to be in civil courts and bankruptcy courts) and

(2) why are we seeing this shell game with first some bank or other entity claiming it is the owner of the loan, denying even the existence of the REMIC Trust, then they admit the existence of the Trust and claim the loan is owned by the Trusts, then they say the servicers have the right to foreclose and not the trusts or the investors, and then they keep switching servicers and trustees? To the Judges that ask these questions, it looks like a shell game but without appropriate pleading and evidence they can’t rule on it — or get the answers to their questions.

The truth has emerged in many cases where it was determined that the trust never owned the subject loan — or any loan. The trust never comes to court. The self-appointed servicer shows up with a robo-witness. Many cases decided in favor of the borrower (and there are thousands of them) show that the “servicer” is (a) not a servicer because it neither accepts nor pays money in connection with “processing the loan,” and (b) not authorized to act as a servicer even with fabricated powers of attorney introduced in court.

All this has everything to do with the modification process. The alleged “servicers” are the only parties that will talk to the homeowner about a workout– modification. But they actually have no power to do so. And what this “servicer” wants is a foreclosure judgment and sale not a modification which of course means they have a conflict of interest with the investors. The “servicer” who is really an enforcer to put up another layer of corporate shield against the borrower, is really doing the bidding of the Master Servicer. The Master Servicer is ordering all cases into foreclosure judgment and sale and to minimize the modifications (but not eliminate them because that would look bad for the banks).

The reason why the Master Servicer orders all cases to be on foreclosure track and a minimum number set for modification is simple: they have been paying the investors to make the investors think that their bonds are performing perfectly when in fact they are not. The bonds the investors have on their statements are worthless because they were issued by a trust that never received the proceeds of sale from the sale of their mortgage backed securities.

In fact the issuing Trust never even started business, much less ended it during the mandatory 90 day period. It never had any money and never even had a bank account. SO it couldn’t have purchased the loan. The lawyers come to court with the “servicer” because they can’t come to court with the owner of the loan (investors). If they came to court with the investors or any representatives of the investors, the investors would say that they have no default because they have been paid. THAT would mean there is no default and that would mean the volunteer payments from the servicer would never be recovered. So they absolutely need the foreclosure and absolutely remain committed to minimizing modifications.

And the enforcer or pretends to be a “Servicer” gets paid to act as a barrier against any inquiry into the inner workings of the fraud practiced on the borrower, the courts, and the investors. The investors end up taking a loss which in the case of pension funds has meant that the funds do not have the resources to maintain the pensions of retired workers. As a result of their reduced income they end up on the bad end of a foreclosure — in some cases by a trust whose investors include the same pension fund that lost money because of the fraudulent issuance of the mortgage backed securities that were never mortgage backed and never issued by an operated entity (Trust) under any theory.

And the whole scheme is to hide the real profits made by the banks in (a) stealing money from the investors and (b) paying themselves unauthorized fees and profits from illusory trades that are booked only at their trading desk and (c) immediately betting against the worthless bonds. .

It is the investment banks that pay the so-called “servicer advances” from a slush fund that is actually disclosed in the prospectus issued to investors. They pay that money as long as it (a) encourages the investors to buy more bonds (b) discourages the investors from suing the investment banks and exposing the entire toxic criminal scheme and (c) they can control the court actions such that most of them end up with a foreclosure judgment or the nonjudicial sale exercised by a power of sale in the nonjudicial states.

If the investment Banks allowed more modifications in would require them to continue making payments as “servicer advances” indefinitely. But even more sinister is the fact that while they could stop paying servicer advances then a whole lot of investors would come to know that their bonds were inf act worthless and the loans were never acquired and the loans were mostly nonperforming and that the foreclosures pressed by the enforcer/servicer is actually costing the investor most of their investment.

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