Why "REMIC" Certificates Are Not Mortgage Backed

Aug 19, 2019

One of the things tying the SEC and the IRS in knots is that the securitization scheme was a scam that is now institutionalized. The Certificates pr “bonds” are not mortgage backed and that means the so-called REMIC trusts are not REMICs.

In answer to a question addressed to Bill Paatalo and myself about that I wrote the following:

The answer to the question is that the investors buy a certificate which is a contract, much like a promissory note. The certificate promises to pay certain money (a varying stream of revenue) based upon an index to several events outside the scope of the contract (certificate).

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The certificate is unsecured in that it grants no right of enforcement against any collateral. While the indexing system includes the behavior of residential mortgage loans, the investor is merely advised of the way in which a computation of his payments will be made.

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The investor never receives any right, title or interest to those loans and never receives any right to enforce the terms of the debt, note or mortgage. The investor has not purchased the debt from which the loan agreements were drafted and thus would be barred by law from attempting to enforce a mortgage or deed of trust.

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But investors are further barred by the indenture to the certificate which normally expressly waives any right, title or interest to the debt note or mortgage on any loan. Even if the indenture does not contain such an express waiver the investors are barred by the other restrictions contained in the Prospectus offering the Certificates to qualified investors. Thus the phrase “mortgage-backed” is merely a tag line that creates an illusion.

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For all of these reasons the judges in tax cases have determined that the holders of REMIC certificates or “bonds” are not the holders of any secured obligation. The fact that the words “mortgage-backed” are used does not make the certificates backed by mortgages. They are not. But simply asserting that they are and naming them as such is sufficient to raise questions of fact that must be determined by courts.

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This is particularly important in foreclosure cases where the case is asserted to be on behalf of the holders of the certificates. Since the holders have no right to foreclose it is obvious that anyone representing the holders would have no more power than the actual holders of the certificates.

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If you want further analysis and the development of strategy or tactics for a particular situation, the you must retain me to do and probably Bill as well. Since he can provide the actual exhibits and other evidence that would prove the analysis contained in this email.

I would add to that answer that the banks are succeeding procedurally where they cannot succeed substantively. First they make it appear that it is the banks who are foreclosing when it is the “trust.” So judges grant them more credibility than the debtor or borrower.

Second, the complexity of the securitization scheme is such that it takes a great deal of time for a lawyer, much less a judge to be convinced of what is written in this article. Once they do the work they know it and believe it. But they don’t do that work if they are not paid to do it, and most homeowners are unwilling to unable to pay for the education of the lawyer, who must then embark on educating the judge.

Hence you get what you pay for. The lawyer, ill-prepared to argue or reveal the complex points merely inserts stalling tactics seeking a modification, because that is all that the homeowner is willing or able to pay for. Judges, seeing this, are the led to believe that there are no real defenses to these foreclosures and that the foreclosure will end up paying the debt, which they don’t.

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