I wanted to follow up on an important article by Abigail Field, in which she did some serious spade work on the mortgage securitizations. Among other things, its shows prominent securitization attorney Larry Platt, who accused judges who interfered with the imperial rights of banks to foreclose of engaging in an “assault on the legal system,” to be a liar. Funny how that type is eager to try to say everyone else is engaged in bad conduct.
There has been an argument running since last fall between mortgage securitization industry participants, led by the industry (really, sell side) lobbying group, the American Securitization Forum, and major securitization law firms like SNR Denton and K&L Gates, versus independent legal experts, like law professor and special counsel to the Congressional Oversight Panel Adam Levitin and foreclosure defense lawyers.
The securitization industry has adopted the very odd legal position that all the complicated transfer procedures they crafted are irrelevant. They’ve also disputed that, as this blog and others have claimed, that the failure of mortgage bond originators and packagers to comply with these complex requirements became widespread if not pervasive, and the shortcomings are so serious that they impair the ability of servicers and trusts to foreclose when challenged. The magnitude of the train wreck in the courts suggests that there might be something to the skeptics’ case.
A Bank of America senior servicing employee, Linda DeMartini, made some damaging admissions under oath, that Countrywide had not conveyed the notes (the borrower IOUs) to the securitization trust. The bank and its mouthpieces immediately started issuing denials. Consider these extracts from an American Banker article, “BofA Disowns Its Own Lawyer’s Argument in Fumbled Mortgage Case“:
In a series of unforced admissions, the B of A manager, Linda DeMartini, and Harold Kaplan, the company’s outside attorney, described how Countrywide had failed to adhere to the most rudimentary of securitization procedures, such as transferring the original promissory note to the trusts that had purchased the loans, as required under the pooling and servicing agreement.
Both DeMartini and Kaplan said it was standard practice for Countrywide to hold onto the original mortgage notes, which were stored in Simi Valley, Calif., despite securitization contracts that require the notes be physically transferred to sponsors, trustees or custodians….
Larry Platt, a partner at the law firm K&L Gates in Washington and an external counsel for B of A, has disowned the DeMartini testimony and Kaplan’s courtroom statements.
Neither of them had personal knowledge of how documents were handled, Platt said. DeMartini, he said, “talked about things outside her job responsibilities.”
“The employee’s job had nothing to do with executing loan documents,” Platt said. “Her testimony as to whether it was the common practice not to deliver the documents was not accurate.”
Contrast Platt’s statements with Field’s findings:
To check DeMartini’s testimony, Fortune examined the foreclosures filed in two New York counties (Westchester and the Bronx) between 2006 and 2010. There were 130 cases where the Bank of New York (BK) was foreclosing on behalf of a Countrywide mortgage-backed security. In 104 of those cases, the loan was originally made by Countrywide; the other 26 were made by other banks and sold to Countrywide for securitization.
None of the 104 Countrywide loans were endorsed by Countrywide – they included only the original borrower’s signature. Two-thirds of the loans made by other banks also lacked bank endorsements. The other third were endorsed either directly on the note or on an allonge, or a rider, accompanying the note.
The lack of Countrywide endorsements, combined with the bank’s representation to the court that these documents are accurate copies of the original notes, calls into question the securitization of these loans, as well as Bank of New York’s right, as trustee, to foreclose on them. These notes ostensibly belong to over 100 different Countrywide securities and worse, they were originally made as long ago as 2002. If the lack of endorsement on these notes is typical — and 104 out of 104 suggests it is — the problem occurs across Countrywide securities and for loans that pre-date the peak-bubble mortgage frenzy.
In other words, DeMartini and the supposedly incompetent were truthful, and the damage control team, including outside counsel, lied. I wonder, given the dive that Bank of America stock has taken, whether Bank of Americas’ misstatements on this topic constitute securities fraud. If so, Platt has not only enabled but participated in it directly.
The reason I am harping on this is the American Securitization Forum, SNR Denton, K&L Gates and others went on a full bore campaign to defend their meal tickets last fall, and their rearguard action is looking increasingly to be an utter fabrication. Yet the media took up their line because they were large recognized players. What is offensive is not only is Platt not about to suffer any reputational consequences, but small firm attorneys like Nick Wooten who are targeting banking industry malfeasance get hit with frivolous sanctions motions and industry mouthpieces like Housing Wire trumpet them as if they are serious.
Yes, Virginia, we have a two tier system of justice in this country. And we need to understand all its ugly manifestations if we are to have any hope of rooting it out.
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Folks;
Off Topic Warning
Please excuse me if I appear naif, but what’s up with this silly little yellow bird whistling while it sweeps up at the bottom of my screen? Very, very anoying while trying to read posts and comments.
Your most humble, obedient, and grumbling servant.
People are still missing the obvious. No one has ever seen the note endorsed to the trust. I would bet all those cases in NY that where reviewed had the note endorsed to Bank of New York as trustee.
That is not good enough.
It has to be “pay to the order ” or it’s not in the pool. Every pooling and service agreement says the same thing in this regard.
They are ALL bogus.
So if the notes WEREN’T properly securitized, what’s the effect? How does that get unwound at this late date? Does BofA (nee Countrywide) have to “buy” the note back out of the pool at par? What about the payments that WERE made? Why aren’t bond holders pressing for this, since that would push the losses back onto BofA? Surely the potential for profit would be greater for sueing on behalf of bond-holders rather than FBs.
At least part of the calculation has to be how big a fraction one would actually recover from BofA. I feel safe in predicting that BofA is bankrupt if they have to buy back the whole stack of paper. An unsecured creditor — which is what is becoming increasingly likely the current paper holders are — might do very poorly in bankruptcy. Add in that some amount of the paper is now held by the Federal Reserve as part of quantitative easing programs, and the Fed has no interest in seeing BofA fail.
I am the reason why the banks, courts, and regulators need to clean this mess up.
We have owned a house in Upstate New York for over a decade. We refinanced with Countrywide in the early 2000s and took out a HELOC with a separate unrelated entity. The house prices in our area have not gone down but that is because they never went up in the first place. Despite everybody’s best efforts to tank the economy, it means that we are clearly not underwater barring a huge economic collapse bigger than we have had to date. However, the current total equity in the house is not huge, certanly much smaller than the total mortgage amounts.
However, in a handful of years we will be done with putting kids through college. We are going to have wads of cash flow (assuming we are still employed of course) available and should be able to eradicate ALL debt before age 60. We have substantial retirement savings that are growing well and our house value barely figures into our retirement financial planning at all.
Until recently, I had assumed that the prudent action would obviously be to pay off all of the mortgages and own the house free and clear. However, the banking system seems to have screwed up the system so much that it is possible that I could have title defects if they can’t clearly show a paper trailing releasing the lien on the property.
Selling a home is an expensive, time-consuming proposition. It is made triply so if there are title issues. Within a handful of years, the banking and legal system needs to demonstrate that both banks can deliver free and clear title for my house to me when we pay off our mortgage or a strategic default becomes a viable potential financial strategy, which it normally would not be.
At that time, our projected cash flow and assets would be sufficient for us to exist outside the credit world for several years. NY is a one-action state where the bank would have to decide about suing us or foreclosing. Sicne the loan value would be less than the value of the house, it is highly unlikely that they would go after the rest of our assets or cash flow.
A few years ago, it would have been inconceivable to me that the incompetence at the highest levels of our financial and government systems could be so rampant. However, events over the past decade have demonstrated the extent of the incompetence and duplicity of the system that we live in. I tend to downplay the conspiracy theories out there because effective conspiracies require competence and internal trust to pull them off, and it is not clear to me that the people at the top are competent enough to execute a real conspiracy. Instead, it appears that the lies are more to cover their own inability to plan and execute.
Title issues…that is the megalodon in the cesspool isn’t it?
I’m so anxious (pffffft!) to see how this much-touted (by the powers that be) settlement of the mortgage mess will take care of this very annoying, but oh so important detail, called, the title.
Seriously! Anyone has any insight on that? How can several federal agencies and State AGs find common ground (let’s leave aside the trampling of the rule of law for the moment) that could possibly “fix” the titles issues?
I’m not a lawyer, but could the owners of MBS that was sold as secured go after the underlying assets of the Bank (e.g. mortgages?) in lieu of being paid at par in a transaction unwind? Could that result in a lien on bank mortgages thus removal any accumulated equity that a home “owner” may have?
A lawyer, on the side of money unt power, lying. Imagine that! What will be his punishment? Disbarment? Lost career? Lost house? Jail? (Of course not) Here’s Greenwald in a related example, where he takes down the Washington Pot and the machine of the criminal justice system in one nice paragraph:
“The Washington Post Editors work in a city and live in a nation in which huge numbers of poor and minority residents are consigned to cages for petty and trivial transgressions of the criminal law — typically involving drugs — and pursuant to processes that are extremely tilted toward the State. Post Editors virtually never speak out against that, if they ever have. But that all changes — that indifference disappears — when political elites are targeted for prosecution, even for serious crimes.”
Based on the quote above, Platt may have sufficiently protected himself with weasel words. La Martina probably did discuss issues outside her job description even though her actual job description gave her every reason to know the relevant facts. If any minor, irrelevant point of her testimony was inaccurate, he may have cover on the “testimony… was not accurate” claim.
Hi Yves
thanks for the nice mention. While I did do the spadework, looking at every case file and every copy of every note filed in those case files, I didn’t come up with the idea and my work was replicating, albeit expanding, upon a source’s.
A consumer bankruptcy attorney who insisted that under no circumstances could I give him any credit–despite my repeated requests to be allowed to do so–had the idea of looking at the court files, looked at the files, told me what he found, and then I recreated his work and took it a bit further. I don’t understand why he didn’t want any credit, and am deeply uncomfortable with it. Hence this comment.
A few things that got left out of the final version for space constraints: I interviewed NY’s Chief Judge Jonathan Lippmann and the Chief of Staff to the Chief Administrative Judge, sharing my findings with them first. I don’t know what action if any they will take based on the findings, but NY’s judiciary at the highest level is at least now aware of the routine failure to demonstrate standing in foreclosures.
Both judges refused to comment on the propriety of the foreclosures. The Chief of Staff pointed out it’s an issue for defense attorneys to raise, outside the judge’s role, and the Chief Justice just talked big picture about the need for representation for homeowners and a pilot program the judiciary’s launching to provide representation for at least the first court step of the process.
Another thing that was too technical to make it in was that in a handful of cases the foreclosing trust wasn’t always named; it would be “Bank of New York, trustee”, even on the (almost always) backdated assignment of mortgage. It’s my understanding that the failure to name the trust is also a fatal flaw in the case.
And of course the files were littered with robo-signed documents.
too much info here about Ms Field’s source. You may want to edit, Yves.
I agree with mitchw, when a source gives a reporter information on deep background* (“under no circumstances could I give him any credit”), its unethical for the reporter to identify him, even in broad terms (i.e. a male consumer bankruptcy attorney). If the reporter now feels “deeply uncomfortable” with the arrangement, she shouldn’t have written the story in the first place. Who knows his reasons for staying on the down low, but he doesn’t have to give a reason.
*”Deep Background—The information can be used in or to inform a story and it can lead a journalist to other sources for confirmation. Nonetheless, the source providing information on Deep Background may not be identified in any way. Nor can the reporter say how the information was obtained.”
http://www.normanpearlstine.com/guidelines.html
I leave it to you Yves re deleting, I certainly didn’t mean to be unethical in saying what I did. I just felt I was getting undeserved credit and wasn’t harming the source with such a broad stroke description. Frankly I don’t know the correct contours for such things.
No, there’s a difference between an interview being on background v. simply refusing to answer certain questions. This looks OK to me.
Hi
Another thing worth mentioning is that I verified that at least half of these foreclosures went to final judgment and either were sold or the final judgment still stands. The other half either went to final judgment that was later vacated on other grounds–e.g. the loan was reinstated or paid off–or were not completed for whatever reason. For those that sold, whatever damage that has been done to those properties’ titles is done.
“There need be no rules we did not create.” – The Banksters.
Yves,
Can you parse what this recent directive from Fannie Mae means for potential investors who are concerned about clouded titles in MBS? Thank you in advance.
This item, in particular, seems odd:
” * By delivering the MIN, the lender warrants that the mortgage is properly registered in MERS and names the lender as the investor.”
Mortgage-Backed Securities
Fannie Mae Makes Updates Regarding MERS-Registered Mortgages
On May 24, 2011, Fannie Mae published an announcement that makes several updates related to MERS-registered mortgages. Fannie Mae requires lenders to report the valid registered MERS Mortgage Identification Number (MIN) for mortgages originated with MERS as the nominee for the mortgagee or assigned to MERS. The announcement makes the following clarifications:
* Document custodians must be able to identify MERS-registered mortgages
* Lenders must have controls to readily identify MERS-registered mortgages
* MERS cannot be named as the insured or loss payee on title and property insurance policies
* By delivering the MIN, the lender warrants that the mortgage is properly registered in MERS and names the lender as the investor.
Investors should consult the announcement for specific details pertaining to this update to its servicing policy.
Investors may also contact our Fixed-Income Securities Helpline at 1-800-BEST-MBS (1-800-237-8627) if they have additional questions.
Originally Published: May 25, 2011
“What is offensive is not only is Platt not about to suffer any reputational consequences”
How can you be so sure of that? The only thing needed is the judge on a case starting to ask very pointed questions in a relentless manner. If Platt of minions want to bullshit the judge (remember “but your Honor…you don’t understand”?), start heating the popcorn because that could turn into a fun show.
As for Counselor Platt’s character, I believe the Motley Crüe most aptly describe the personage.
http://www.youtube.com/watch?v=Rv9HXRmn14k
“Yes, Virginia, we have a two tier system of justice in this country. And we need to understand all its ugly manifestations if we are to have any hope of rooting it out.”
The bottom line: Money wins, lawyers and bankers are protected by special privilege and special law, borrowers and workers lose.
Per Abigail, “in a handful of cases the foreclosing trust wasn’t always named; it would be “Bank of New York, trustee”. Quite likely, no trust was named, because they couldn’t trace the loan to a specific trust, given the incompetent record keeping? The servicer of my mortgage cannot or will not provide the name of the specific Freddie Mac sponsored trust that allegedly now owns my mortgage. Could the real issue here be that our government, as the proud owners of Freddie Mac and Fannie Mae, in many cases have the same problem as B of A, only bigger?
So let me see if I understand: I own a condo that was financed by a storefront originator and assigned to Countrywide at closing, and names MERS as the Mortgagee. It later gets foreclosed by BoA. BoA files a deficiency suit against me. What instruments do I need to discover to establish whether BoA has legal standing to recover a deficiency? Is the wet-ink note supposed to be endorsed/assigned on the allonge? If not endorsed, then does the originator still own the note?