Faces Of Foreclosure

Know Your Rights: The U.S. Constitution: And Fascinating Facts About It

More than 200 families are working with Families Fighting Foreclosure to save their homes in Marin County, California. The sponsoring Group Marin Family Action has just been featured in the beginning of a series from Pulitzer Prize winning newspaper, the Pt. Reyes Light.

One of the strengths of the group is “The Buddy System.” No one goes to court alone when facing opposition from attorneys, lenders, and courtrooms. The group has been shocked at all turns by how sloppy and/or lazy some judges run their courtrooms.

The latest story is of a woman whose husband took out a second on their house without her knowledge. He died shortly thereafter, leaving her confused and about to lose her home from foreclosure. She tried repeatedly to find out what happened, to no avail.

This writer — who has been battling to save her home for 18 months — was in court during one of these legal proceedings (and thinks “illegal proceedings” might be a more appropriate term). The judge pronounced from the bench that “The file is incomplete. I have not reviewed it.” And “It is what it is.” That judge either opened the door for mis-trial, which happened in a round-about way, or she was performing her civic duties in a sloppy manner. It was an appalling view of justice; in fact no justice was going to happen that day if it stayed in the hands of the judge and opposing counsul.

Earlier during the day, that judge told the distressed homeowner that she should prepare to move. She was ready to throw her out of her home of 17 years without knowing any facts and without caring about the facts.

This is being written two weeks after that dreadful Day in Court, and it looks like it is going to have an amazingly happy ending. We’re not at liberty to say yet and the point of this is that you have to be willing to fight or “They” will run over you.

The story about families fighting foreclosure.

Brown Prosecution Sends Phony Foreclosure Consultants To Jail And Recovers Stolen Funds

SANTA ANA – In a clear “warning shot” to unscrupulous loan-modification consultants, Attorney General Edmund G. Brown Jr. today announced that two women have each been sentenced to one year in jail and ordered to repay dozens of homeowners who were charged thousands of dollars in up-front fees for non-existent foreclosure-relief services.

Is your lender in this picture?

Marianne Curtis, 69, of Costa Mesa and Mary Alice Yraceburu, 46, of Riverdale, who operated Fresno and Orange County-based Foreclosure Freedom, pleaded guilty last month to 71 criminal counts, including grand theft, conspiracy and unlawful foreclosure consulting. Both will serve one year in Orange County jail and an additional four years of probation.

“Curtis and Yraceburu shamelessly exploited homeowners desperate to avoid foreclosure, charging up to $1,800 in up-front fees for loan modifications that were never delivered,” Brown said. “Today’s jail sentences send a warning shot to loan-modification consultants: If you swindle homeowners, you face serious time behind bars.”

Brown’s office initiated its investigation into Curtis and Yraceburu in early 2008 after receiving a complaint from the Tulare County District Attorney. Charges were filed in Orange County Superior Court on March 19, 2009, against the defendants, and both pleaded guilty on March 24, 2010.

Brown’s investigation located victims in many California towns and cities: Antelope, Avenal, Bakersfield, Crows Landing, Elk Grove, Fairfield, Fresno, Galt, Hanford, Hayward, Hollister, Kingsburg, Mendota, Modesto, Petaluma, Placerville, Richmond, Ridgecrest, Rio Linda, Sacramento, Salinas, San Leandro, Simi Valley, Stockton, Taft, Vacaville, Vallejo and Ventura.

In addition to today’s jail sentences, Curtis and Yraceburu were ordered to repay 36 victims a total of $32,040. If eligible victims not named in the complaint come forward, the court can order additional repayment throughout the defendants’ probation term. As a condition of today’s sentence, both defendants are also prohibited from any future work in the telemarketing and real estate industries.

Brown’s investigation found that from April 2007 until February 2008, the two women paid for access to foreclosure listings so they could directly solicit hundreds of homeowners underwater on their mortgages with mailers promising relief.

When homeowners called the number on the mailer, they were told their mortgages could be renegotiated to a lower monthly payment. Victims, however, were required to pay up to $1,800 in up-front fees and were instructed not to contact their lenders.

Victims were assured the company had “private lenders and specialists exclusive to their company who are very experienced in the options and methods used to renegotiate home loans,” yet neither of the women who operated the company had real estate licenses, legal training or any experience in the home mortgage market.

Investigators found no evidence they had negotiated any successful loan modifications, and most of the victims were either forced into bankruptcy or lost their homes to foreclosure. Bank account records revealed the defendants took over $120,000 from unsuspecting homeowners.

Both Curtis and Yraceburu pleaded guilty to all 71 criminal counts including:
- 34 counts of unlawful foreclosure consulting
- 29 counts of grand theft
- 7 counts of attempted grand theft
- 1 count of conspiracy

By law, all individuals and businesses offering mortgage-foreclosure consulting or loan-modification and foreclosure-assistance services must register with Brown’s office and post a $100,000 bond. It is also illegal for loan-modification consultants to charge up-front fees for their services.

Non-profit housing counselors certified by the U.S. Department of Housing and Urban Development provide free help to homeowners. To find a counselor in your area, call 1-800-569-4287.

If you are a homeowner who has been scammed, contact Brown’s office at 1-800-952-5225 or file a complaint online at: www.ag.ca.gov/consumers/general.php.

Brown has sought court orders to shut down more than 30 fraudulent foreclosure-relief companies and has brought criminal charges and obtained lengthy prison sentences for dozens of other deceptive loan-modification consultants. Last month, Brown secured a court judgment that shut down two Orange County-based foreclosure-assistance companies, secured $1 million in restitution for victims and prohibited three individuals from ever working in the real estate industry again.

For more information on Brown’s action against loan-modification fraud visit: http://ag.ca.gov/loanmod.

A copy of the amended complaint, filed in Orange County Superior Court, is attached. # # # You may view the full account of this posting, including possible attachments, in the News & Alerts section of our website at: http://ag.ca.gov/newsalerts/release.php?id=1896

From the Guardian, London, England

Now we know the truth. The financial meltdown wasn’t a mistake. It was a con.

(Editor’s Note: Really? You FINALLY caught on! Where you been?)

Hiding behind the complexities of our financial system, banks and other institutions are being accused of fraud and deception, with Goldman Sachs just the latest in the spotlight. This has become the most pressing election issue of all.

The global financial crisis, it is now clear, was caused not just by the bankers’ colossal mismanagement. No, it was due also to the new financial complexity offering up the opportunity for widespread, systemic fraud. Friday’s announcement that the world’s most famous investment bank, Goldman Sachs, is to face civil charges for fraud brought by the American regulator is but the latest of a series of investigations that have been launched, arrests made and charges made against financial institutions around the world.

Big Finance in the 21st century turns out to have been Big Fraud. Yet Britain, centre of the world financial system, has not yet levelled charges against any bank; all that we’ve seen is the allegation of a high-level insider dealing ring which, embarrassingly, involves a banker advising the government.

We have to live with the fiction that our banks and bankers are whiter than white, and any attempt to investigate them and their institutions will lead to a mass exodus to the mountains of Switzerland. The politicians of the Labour and Tory party alike are Bambis amid the wolves.

Just consider the roll call beyond Goldman Sachs. In Ireland Sean FitzPatrick, the ex-chair of the Anglo Irish bank was arrested last month and questioned over alleged fraud. In Iceland last week a dossier assembled by its parliament on the Icelandic banks huge lenders in Britain was handed to its public prosecution service.

A court-appointed examiner found that collapsed investment bank Lehman knowingly manipulated its balance sheet to make it look stronger than it was accounts originally audited by the British firm Ernst and Young and given the legal green light by the British firm Linklaters.

In Switzerland UBS has been defending itself from the US’s Internal Revenue Service for allegedly running 17,000 offshore accounts to evade tax. Be sure there are more revelations to come except in saintly Britain.

Beneath the complexity, the charges are all rooted in the same phenomenon deception.

Somebody, somewhere, was knowingly fooled by banks and bankers sometimes governments over tax, sometimes regulators and investors over the probity of balance sheets and profits and sometimes, as the Securities and Exchange Commission (SEC) says in Goldman’s case, by creating a scheme to enrich one favoured investor at the expense of others including, via RBS, the British taxpayer. Along the way there is a long list of so-called “entrepreneurs” and “innovators” who were offered loans that should never have been made. Lloyd Blankfein, Goldman’s CEO, remarked only semi-ironically that his bank was doing God’s work. He must wake up every day bitterly regretting the words ever emerged from his mouth.

For the Goldmans case is in some ways the most damaging.

The Icelandic banks, Anglo Irish bank and Lehman were all involved in opaque deals and rank bad lending decisions but Goldman allegedly went one step further, according to the SEC actively creating a financial instrument that transferred wealth to one favoured client from others less favoured. If the Securities and Exchange Commission’s case is proved and it is aggressively rebutted by Goldman the charge is that Goldman’s vice-president Fabrice Tourre created a dud financial instrument packed with valueless sub- prime mortgages at the instruction of hedge fund client Paulson, sold it to investors knowing it was valueless, and then allowed Paulson to profit from the dud financial instrument. Goldman says the buyers were “among the most sophisticated mortgage investors” in the world. But this is a used car salesman flogging a broken car he’s got from some wide-boy pal to some driver who can’t get access to the log-book. Except it was lionised as financial innovation.

The investors who bought the collateralised debt obligation (CDO) were not complete innocents. They had asked for the bond to be validated by an independent expert into residential mortgage-backed securities a company called ACA management. ACA gave the bond the thumbs-up on the understanding from Fabrice Tourre that the hedge fund Paulson were investing in it. But the SEC says Tourre misled them, a pivotal claim that Goldman denies. The reality was that Paulson was frantically buying credit default swaps in the CDO that would go up in price the more valueless it became a trade that would make more than $1 billion. Worse, Paulson had identified some of the dud sub-prime mortgages that he wanted Tourre to put into the CDO. If the SEC case is true, this was a scam nothing more, nothing less.

Tourre could see what was coming. In one email in January 2007 he wrote: “More and more leverage in the system. The whole building is about to collapse anytime now only potential survivor, the fabulous Fab[rice Tourre] . . . standing in the middle of all these complex highly leveraged exotic trades he created without necessarily understanding all of the implications of those monstrosities”. Fabulous Fab, like his boss, will not be feeling very fab today.

(Editor’s Note: I can’t wait to see THAT movie!)

The cases not only have a lot in common using financial complexity allegedly to deceive and then using so-called independent experts to validate the deception (lawyers, accountants, credit rating agencies, “portfolio selection agents,” etc., etc.) but they also show how interconnected the financial system is. In Iceland Citigroup and Deutsche Bank covered the margin calls of distressed Icelandic business borrowers, deepening the crisis. Lehman uses the lightly regulated London markets and two independent British experts to validate that their “Repo 105s” were “genuine” trades and not their own in-house liability. The American authorities pursued a Swiss bank over aiding and abetting US nationals to evade tax.

Bankers will complain these cases all involve one or two misguided individuals, but that most banking is above board and was just the victim of irrational exuberance, misguided belief in free market economics and faulty risk management techniques. Obviously that is true but, sadly, there is much more to the crisis. Andrew Haldane, executive director of the Bank of England, highlights the remarkable reduction in the risk weighting of bank assets between 1997 and 2007.

Put simply, Europe’s and the US’s large banks exploited the weak international agreement on bank capital requirements in the so-called Basel agreement in 2004 to reclassify the risk of their loans and trading instruments. They did not just reduce the risk by 5 or 10%.

Breathtakingly, they claimed their new risk management techniques were so wonderful that the riskiness of their assets was up to half of what it had been despite property and share prices cresting to new all-time highs.

Brutally, the banks knowingly gamed the system to grow their balance sheets ever faster and with even less capital underpinning them in the full knowledge that everything rested on the bogus claim that their lending was now much less risky. That was not all they were doing. As Michael Lewis describes in The Big Short, credit default swaps had been deliberately created as an asset class by the big investment banks to allow hedge funds to speculate against collateralised debt obligations.

The banks were gaming the regulators and investors alike and they knew full well what they were doing. Simon Johnson’s 13 Bankers shows how the major American banks deployed vast political lobbying power and money to create the relaxed regulatory environment in which all this could take place. In Britain no money changed hands. Gordon Brown offered light-touch regulation for free egged on by the Tories, who wanted to go further.

This was the context in which Goldman’s Fabulous Fab created the disputed CDOs, Sean FitzPatrick allegedly moved loans between banks and Lehman created its Repo 105s along with the entire “debt mule” structure revealed this weekend of inter-related companies to shuffle debt around its empire. London and New York had become the centre of an international financial system in which the purpose of banking became making money from money and where the complexity of the “innovations” allowed extensive fraud and deception.

Now it has all collapsed, to be bailed out by western taxpayers.

The banks are resisting reform and want to cling on to the business practices and business model that has so appallingly failed.

The politicians tread carefully, only proposing what the bankers say is congruent with their definition of what banking should be. Labour and Tories alike are united in opposing improved EU regulation of hedge funds, buying the propaganda those operations had nothing to do with the crisis. Perhaps Paulson’s trades at Goldman, and the hedge funds’ appetite for speculating in credit default swaps, may disabuse them.

It is time to reframe the question. Banks and financial institutions should do what economy and society want them to do: support enterprise, direct credit to where it is needed and be part of the system that generates investment and innovation.

Andrew Haldane and the governor of the Bank of England are right. We need to break up our banks, limit their capacity to speculate and bring them back to earth.

Britain should also launch an official investigation into what went wrong–and hand the findings to the Serious Fraud Office. This needs to become this election campaign’s number one issue not one which either a compromised Labour party or a temporising Conservative party will relish. The Lib Dems, the fiercest critics of the banks, have begun to get very lucky.

Crisis timetable

(Editor’s Note: This is a bizarre timetable given that banks have been conducting business outside of any ethics for decades. A recently uncovered story indicates that Wells Fargo cut a deal with Pancho Villa, one of America’s famous outlaws, in the early 1900s.)

• September 2007: Funding problems at Northern Rock triggers the first run on a British bank. It is nationalised in February 2008.
• April 2008: Bear Stern faces bankruptcy after a run on the company wipes out cash reserves in less than two days. Backed by the Federal Reserve, JPMorgan buys up shares at far below market value.
• September 2008: Lehman Brothers files for bankruptcy protection, becoming the first major bank to collapse since the start of the credit crisis.
• December 2008: Bernard Madoff arrested for operating the largest Ponzi scheme in history.
• January 2009: The Bank of England launches £200bn quantitative easing.
• March 2010: Former chairman of Anglo Irish bank Sean Fitzpatrick is arrested in Dublin after failing to disclose details of loans worth millions from the bank.
• April 2010: Northern Rock former directors, David Baker and Richard Barclay, are fined £504,000 and £140,000 for deliberately misleading analysts prior to nationalisation.
• April 2010: The US Securities and Exchange Commission accuses Goldman Sachs of “defrauding investors by misstating and omitting key facts”.

SEC Charges Goldman Sachs with Fraud
April 16th, 2010

The Securities and Exchange Commission (SEC) has filed a civil complaint against Goldman Sachs alleging that the financial giant worked with one of its key clients to create collateralized debt obligations (CDOs) consisting of subprime mortgage-backed securities. Goldman Sachs then sold the CDOs to investors knowing that the client was betting heavily against the very same product.

The SEC’s complaint says that Goldman Sachs vice-president Fabrice Tourre, who was personally charged in the complaint, put the plan into operation in 2007, bragging in an email to a friend that he was “the fabulous Fab standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstrosities!!!” Fabrice Tourre has since been promoted to executive director of Goldman Sachs International in London. Mr. Tourre also has a profile on LinkedIn.

John Paulson, the hedge fund manager of Paulson & Co. was involved in choosing which securities would be part of the portfolio, according to the SEC’s complaint, but neither he nor Paulson & Co. have been charged with any crime. The SEC also alleged that Paulson took a short position against its ABACUS 2007-AC1 CDO in a bet that its value would fall spectacularly. Here is Paulson & Co.’s response to the SEC’s civil complaint.

More than $1 billion was lost by ABN Amro and IKB Deutsche Industriebank AG, two of the European banks that bought these toxic securities. According to the report in Yahoo News, John Paulson’s hedge fund ended up with the profits from those two banks’ losses.

Informed readers know that Goldman Sachs, which earned a staggering $4.79 billion in 4th quarter 2009, was one of the top recipients of corporate welfare at the largesse of taxpayers through the generosity of the Bush and Obama administrations. Rolling Stone writer Matt Taibbi, in his 2009 expose of Goldman Sachs, refers to the firm as “a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.”

And derivatives expert and Huffington Post blogger Janet Tavakoli, who also is the founder of Tavakoli Structured Finance, accuses Goldman Sachs of “malicious mischief” and of creating “bad securities”. Further, “the SEC itself has shirked its responsibilities in these matters for years” she said, adding that the SEC’s “hands have been forced by public voices” rather than its regulatory mandate to protect investors.

Read more on Yahoo and MSN. You can also read the SEC’s complaint against Goldman Sachs here.

This article was also published in Examiner.com by Monique Bryher.

Grand jury indicts 3 in loan modification scam
April 19th, 2010

Three people have been charged in an 83-count indictment by a Santa Clara County grand jury for loan modification fraud. The crimes that are alleged include enticing homeowners in foreclosure by promising them principal reduction that involved selling the homeowners’ loans to investors (or straw buyers) and then reselling the home at a lower price back to the original homeowners.

Prosecutors allege that San Jose residents Rene Alvarez and Mariano Ortega, and Cydney Sanchez of Los Angeles, were part of a seven state scam that involved 400 homeowners and the theft of more than $2 million.

The district attorney’s office states that Alvarez and Ortega owned and operated M&R Contemporary Solutions Inc., a Campbell-based “foreclosure consulting” company from 2008 to 2009. Sanchez was the owner/operator of West Coast Mortgage and Horizon Property Holdings in Beverly Hills.

The only good news in this story is that M&R’s bank accounts were frozen so that the victims could receive restitution if the defendants are found to be guilty.

SEC’s Goldman charges may be just the beginning

By Greg Gordon
McClatchy Newspapers

WASHINGTON — Goldman Sachs, whose tactics exiting the collapsing subprime mortgage market have been under government scrutiny for months, now faces federal fraud charges that it duped investors into losing $1 billion on a rigged offshore deal pegged to dicey home loans.

The suit, brought Friday by the Securities and Exchange Commission, accuses Goldman and one of its vice presidents, 31-year-old Fabrice Tourre, of allowing a Wall Street hedge fund to secretly select many of the securities in the deal.

The hedge fund, Paulson & Co., then bet that those subprime mortgage securities would fail. When they did, Paulson made a $1 billion profit and investors lost more than $1 billion, nearly all their money, the complaint charges.

In an e-mail to a friend in January 2007, the complaint says, Tourre remarked that, “The whole building is about to collapse anytime now” — an apparent allusion to a plunge in the housing market that would depress the value of the mortgage securities.

The case suggests that a reinvigorated SEC, after a long lull, is pressing to hold Wall Street accountable for its role in the worst financial crisis since the Great Depression. People familiar with the SEC investigation of Goldman said it could expand, and a special Senate investigations panel is preparing to hold a hearing that will put Goldman under yet another magnifying glass.

Elizabeth Nowicki, a former SEC attorney who’s a visiting law professor at Boston University, called the SEC’s fraud suit “a political case as much as it is a case that they needed to bring to stop this sort of favoritism.”

“The SEC wanted to convey the message that no, they’re not sitting back on their heels,” she said. “This is going after Goldman Sachs. You can’t really go after anybody bigger than that . . . . The SEC has the stomach to follow this out, absolutely, and they’ve got a bigger incentive now that they are clearly perceived as shamed and disempowered.”

It’s still unclear whether Goldman also could face legal exposure for failing to disclose to investors in 2006 and 2007 that it had secretly bet that the housing market would collapse when it sold off more than $40 billion in securities backed by subprime mortgages. McClatchy Newspapers described those dealings in a series of articles in November and December 2009, including Goldman’s role in betting on a housing downtown in at least a dozen offshore deals that it marketed.

The company, in a terse statement, denounced the charges as “completely unfounded in law and fact,” and vowed to “vigorously contest them and defend the firm and its reputation.”

Underscoring Goldman’s stature as the world’s most prestigious investment bank, the enforcement action triggered a 126-point drop in the Dow Jones index on Wall Street. Shares of Goldman led the way, plummeting nearly 13 percent.

After the market closed, Goldman issued a second statement, saying that it lost $90 million on the transaction and that all of the involved parties were “sophisticated” investors that were well aware of the risks.

Goldman said the largest investor, ACA Capital Management, selected the securities “after a series discussions, including with Paulson & Co.” Goldman called the exchange “entirely typical.”

Sylvain Raynes, a New York expert in structured securities of the type described in the SEC charges, said the stakes are huge for Goldman.

“To lose its reputation,” he said, “Goldman does not need to be found guilty many times. They only need one instance.”

Besides naming the company as a defendant, the civil complaint accuses Tourre of concealing Paulson’s role from investors in a synthetic securities deal known as ABACUS, 2007-AC1 — one in which investors didn’t actually buy any securities.

Instead, they effectively bet that a specified bundle of home loans to marginally qualified borrowers would perform well, while Paulson took “short” positions, meaning it bet that those bonds would founder.

Paulson profited grandly from the nation’s economic collapse, taking in a total of $3.7 billion from its bets. The SEC complaint says the firm paid Goldman $15 million to assemble the deal, which Tourre was principally responsible for structuring.

The marketing materials for the investment, known as a collateralized debt obligation, told investors that ACA Management LLC, an independent third party, selected the mortgage-backed securities. The Paulson firm wasn’t mentioned.

“The product was new and complex, but the deception and conflicts are old and simple,” SEC enforcement chief Robert Khuzami said in a statement. “Goldman wrongly permitted a client that was betting against the mortgage market to heavily influence which mortgage securities to include in an investment portfolio, while telling other investors that the securities were selected by an independent, objective third party.”

The deal, one of about two dozen similar bundles in the ABACUS series, closed on April 26, 2007. Within six months, 83 percent of the mortgage-backed securities in the bundle had been downgraded and 27 percent were placed on negative watch by Wall Street ratings agencies, the complaint says.

By the following Jan. 29, it says, 99 percent of the portfolio had been downgraded, costing investors more than $1 billion.

Khuzami said that the Paulson firm, which isn’t affiliated with former Treasury Secretary Henry Paulson, wasn’t charged because it didn’t mislead investors.

However, the complaint charges that Goldman and Tourre “knew that it would be difficult, if not impossible,” to find investors for a synthetic CDO if they disclosed that a short player, such as Paulson, had a significant role in selecting the securities. Thus, they sought a third party for that role and approached ACA, calling it “important that we can use ACA’s branding” in an internal e-mail.

The complaint quoted Tourre, then 28, as saying in a Jan. 27, 2007 e-mail to a friend that was written in French and English: “More and more leverage in the system, The whole building is about to collapse anytime now . . . . Only potential survivor, the fabulous Fab(rice Tourre) . . . standing in the middle of all of these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstruosities (sic)!!!”

A Feb. 11, 2007 e-mail to Tourre from the unidentified head of Goldman’s structured product correlation trading desk said, “the cdo biz is dead we don’t have a lot of time left,” according to the complaint.

Paulson said in a statement that, while it bought credit protection from Goldman via the ABACUS deals, “We were not involved in the marketing of any ABACUS products.”

It said that ACA “had sole authority over the selection” of all securities in the deal, noting that two Wall Street ratings agencies — Moody’s Investors Service and Standard & Poor’s — gave them Triple A grades, the highest investment rating.

Both Moody’s and S&P have suffered tremendous damage to their reputations as a result of issuing favorable ratings to pools of U.S. mortgages that turned out to be junk.

The SEC said the only other investor in the ABACUS deal, IKB, a commercial bank in Dusseldorf, Germany, lost nearly all of the $150 million it invested. Goldman said the largest investor, ACA Capital Management, put up $951 million. ACA lost nearly all the money.

Friday’s charges were the first to be filed by the SEC’s Structured and New Products Unit, formed to pursue abuses in highly sophisticated deals.

Many of these deals are sliced according to risk, with investors who take the greatest risk receiving the highest yield. In deals that were partially or entirely synthetic, Goldman or some of its clients would profit if the securities soured.

Gary Kopff, an expert in mortgage securities who’s studied Goldman’s role in betting against investors in deals it marketed though the Cayman Islands, said that, “They manifest, in my opinion, the same misconduct that the SEC asserts occurred in the ABACUS deal.”

Goldman created a structured product correlation trading desk in late 2004 or early 2005. A memo describing the ABACUS 2007-AC1 transaction to the company’s Mortgage Capital Committee on March 12, 2007, said that the “ability to structure and execute complicated transactions to meet multiple clients’ needs and objectives is key for our franchise,” the SEC complaint says.

Executing the deal “and others like it helps position Goldman to compete more aggressively in the growing market for synthetics written on structured products,” the e-mail said.

According to the complaint, Paulson came to believe that the underlying securities in the ABACUS 2007-AC1 deal “would become worthless.”

In late 2006 and early 2007, it charges, Paulson identified more than 100 mortgage bonds that it expected to collapse, favoring those backed by loans to borrowers with low credit scores, adjustable rate mortgages and located in overheated real estate markets such as Arizona, California, Florida and Nevada.

In early January, Tourre forwarded a list of 123 mortgage-backed bonds under the heading “Paulson Portfolio,” leading to negotiations among Paulson, Goldman and ACA over the final portfolio, which included a sizable number of those selected by Paulson.

Read more: Read More . . .

Oregon Targets Piggyback Lenders To Stop Foreclosures

By Peter G. Miller

While many efforts to encourage mortgage modifications have been tried during the past three years, the state of Oregon has come up with something original and unique: It’s moving forward with an idea that costs taxpayers nothing and will, er, motivate many lenders to write down loans.

Passed in the Oregon house by a vote of 58 to 0, and in the state senate by unanimous consent, HB 3656 doesn’t fool around with cash payments to lenders or other niceties. Instead, the deal is very simple: In a foreclosure action the right of a piggyback second lender to sue for a deficiency judgment is eliminated.

In practical terms here’s what Oregon is getting at.

In 2006 the Todds bought a home for $500,000. On the advice of their lender, and with approval of the lender’s underwriters, they financed the property with a piggyback loan that included a $400,000 first lien and a $100,000 simultaneous second loan.

The result of the Todds’ piggyback loan was this:

• It allowed the Todds to buy property with no money down, a property which they otherwise could not afford
• It allowed the lender to originate a conventional first loan equal to 80 percent of the purchase price. Because it’s 80 percent financing, this mortgage was instantly sold to Wall Street banks and brokers, packaged with other loans, and used to create a mortgage-backed security. Having sold the loan, the lender could use the cash it received to fund additional mortgages and generate new fees.
• While the first loan was a conventional mortgage and easy to sell, the second loan was more risky and not-so-easy to market. It may have been sold separately from the first loan to produce cash, or in some cases it may have been retained by the originating lender to generate interest income.
• Because the piggyback financing had an 80 percent first loan there was no need for the Todds to buy private mortgage insurance (PMI). This reduced their monthly cost of ownership.

The lender got to originate two loans instead of one and thereby pocketed more fees and charges.

Higher Prices For All
One result of the creative financing offered to the Todds and many other buyers was that they could bid more for real estate. This forced other purchasers to also raise their bids even if they were buying for cash. Artificially increasing the pool of potential buyers with “nontraditional” financing was one reason home prices rose so quickly for several years — and then collapsed so quickly when such mortgages were no longer available.

Let’s now move ahead to 2010. Mr. Todd has lost his job and the first lender agrees to modified mortgage terms under the federal government’s Making Home Affordable program. However, the second lender doesn’t agree to a modification, and that forces the property into foreclosure — even though the second lender will get nothing from a foreclosure.

Here’s why the second lender will get nothing.

In a foreclosure sale lenders are paid in order: The first lender receives all the money from a foreclosure sale until its claim is entirely satisfied. Any money left over is paid to the second lien holder. In the case of the Todd property, it might sell for $375,000 at foreclosure so the first lender would get back most of its money while the second lender will get nothing.

In this situation, the second lender opposes the loan modification because it thinks it can get money by suing the Todds for a deficiency judgment after the foreclosure. If it wins, the second lender can then bankrupt the Todds and take their few remaining assets.

The Oregon Approach
Oregon bill HB 3656 says this is nonsense. Specifically, a House summary of the bill explains that “in cases where a second loan was created as part of the same purchase or repurchase transaction as the one on which the foreclosure action was taken, and when it was owed to or originated by the beneficiary of the foreclosure or its affiliate, the holder of the second loan cannot sue for restitution.” Translation: Holders of simultaneous second loans cannot get a deficiency judgment after a foreclosure, so they may as well try to get what they can through the modification process.

“The targeted legislation seen in Oregon is simply a state-sponsored mortgage modification program,” says Jim Saccacio, chief executive officer of RealtyTrac.com, the leading online marketplace for foreclosure properties and data. “It effectively changes the terms of many second loans in a way which gives more leverage to troubled borrowers and first mortgage investors. At the same time, it doesn’t impact all second mortgages, only those which were part of the piggyback lending process.”

You can see where this is going. One can easily imagine lawmakers in other states introducing similar bills. Or, they can start taking a targeted approach to other aspects of the lending process.

For instance, there could be legislation which prohibits deficiency claims for any mortgage which allows negative interest. Or legislation which extends the foreclosure process by six months for any mortgage with a pre-payment penalty. The angry mood of the country is beginning to make such rules at the state level more feasible if not probable — just look at the votes in the Oregon legislature.

Second loans represent a lot of risk which is why lenders get higher interest rates for making them. The Oregon proposal makes that financial exposure real, a reckoning many would argue is only fair and appropriate.

U.S. Probes Foreclosure-Data Provider
Lender Processing Services Unit Draws Inquiry Over the Steps That Led to Faulty Bank Paperwork

April 3, 2010
Amir Efrati and Carrick Mollenkamp
The Wall Street Journal

Read The Full Article

A subsidiary of a company that is a top provider of the documentation used by banks in the foreclosure process is under investigation by federal prosecutors.

The prosecutors are “reviewing the business processes” of the subsidiary of Lender Processing Services Inc., based in Jacksonville, Fla., according to the company’s annual securities filing released in February. People familiar with the matter say the probe is criminal in nature.

Michelle Kersch, an LPS spokeswoman, said the subsidiary being investigated is Docx LLC. Docx processes and sometimes produces documents needed by banks to prove they own the mortgages. LPS’s annual report said that the processes under review have been “terminated,” and that the company has expressed its willingness to cooperate. Ms. Kersch declined to comment further on the probe.

A spokesman for the U.S. attorney’s office for the middle district of Florida, which the annual report says is handling the matter, declined to comment.

The case follows on the dismissal of numerous foreclosure cases in which judges across the U.S. have found that the materials banks had submitted to support their claims were wrong. Faulty bank paperwork has been an issue in foreclosure proceedings since the housing crisis took hold a few years ago. It is often difficult to pin down who the real owner of a mortgage is, thanks to the complexity of the mortgage market.

During the housing boom, mortgages were originated by lenders, quickly sold to Wall Street firms that bundled them into debt pools and then sold to investors as securities. The loans were supposed to change hands but the documents and contracts between borrowers and lenders often weren’t altered to show changes in ownership, judges have ruled.

That has made it hard for banks, which act on behalf of mortgage-securities investors in most foreclosure cases, to prove they own the loans in some instances.

LPS has said its software is used by banks to track the majority of U.S. residential mortgages from the time they are originated until the debt is satisfied or a borrower defaults. When a borrower defaults and a bank needs to foreclose, LPS helps process paperwork the bank uses in court.

LPS was recently referenced in a bankruptcy case involving Sylvia Nuer, a Bronx, N.Y., homeowner who had filed for protection from creditors in 2008.

Diana Adams, a U.S. government lawyer who monitors bankruptcy courts, argued in a brief filed earlier this year in the Nuer case that an LPS employee signed a document that wrongly said J.P. Morgan Chase & Co. had owned Ms. Nuer’s loan.

Documents related to the loan were “patently false or misleading,” according to Ms. Adams’s court papers. J.P. Morgan Chase, which has withdrawn its request to foreclose, declined to comment.

Linda Tirelli, a lawyer for Ms. Nuer, declined to comment directly on the case.

Ms. Kersch said LPS didn’t actually create the document and that the company’s “sole connection to this case is that our technology and services were utilized by J.P. Morgan Chase and its counsel.”

While the majority of foreclosures go unchallenged, some homeowners have won the right to keep their homes by proving the bank couldn’t show, on paper, that it owned the mortgage.

Some lawyers representing homeowners have claimed that banks routinely file erroneous paperwork showing they have a right to foreclose when they don’t.

Firms that process the paperwork are either “producing so many documents per day that nobody is reviewing anything, even to make sure they have the names right, or you’ve got some massive software problem,” said O. Max Gardner, a consumer-bankruptcy attorney in Shelby N.C., who has defended clients against foreclosure actions.

The wave of foreclosures and housing crisis appears to have helped LPS. According to the annual securities filing, foreclosure-related revenue was $1.1 billion last year compared with $473 million in 2007.

LPS has acknowledged problems in its paperwork. In its annual securities filing, in which it disclosed the federal probe, the company said it had found “an error” in how Docx handled notarization of some documents. Docx also has processed documents used in courts that incorrectly claimed an entity called “Bogus Assignee” was the owner of the loan, according to documents reviewed by The Wall Street Journal.

Ms. Kersch said the “bogus” phrase was used as a placeholder. “Unfortunately, on a few occasions, the document was inadvertently recorded before the field was updated,” she said.

Court Upholds Sanctions Against Chase

Excerpted from Sovereign Society’s newsletter:

. . . Banks are deadbeats on assets they acquire through foreclosure. And that’s not even counting the properties banks should be foreclosing on for non-payments, but aren’t.
It’s an ugly picture for real estate, with or without federal stimulus.

Banks are in the business of lending, and only want to seize these properties when the borrower defaults. They’re not in the business of owning, managing, or maintaining real estate. But some banks have been pretty aggressive about foreclosing . . .

But what you might not realize is that once banks do foreclose, they often don’t do anything with the property. This is a huge problem for condominiums or other communities that are dependent on an HOA (Home Owners Association) for common area maintenance, utilities, and the like.

Nevertheless, some banks have been so derelict in paying HOA fees on properties they’ve foreclosed on, that the HOA themselves have then had to foreclose on the property for failure to pay their HOA fees (so if you’re thinking of skipping on your mortgage but still want to live in your house, be sure to pay the HOA).

And it’s not just homeowners facing problems.

Consider the city of Atlanta, who had problems with illegal tire dumping on a property.

After looking at the books, they determined that J.P. Morgan Chase owned the property through one of their subsidiaries, and tried to take them to court for failure to pay fines. The bank never showed up. So here’s where it gets crazy…

The city issued an arrest warrant for CEO Jamie Dimon for illegal dumping. Of course, running the bank through New York means Dimon was nowhere near Atlanta . . . but that got the bank’s attention, and a judge cancelled the arrest warrant.

Nevertheless, as banks foreclose on properties, they’ll have to learn to take responsibility for them, lest the properties further decline in value due to the bank’s negligence.

Markets, however, are rewarding banks for refusing to lend, as well as refusing to maintain foreclosed properties. That will change . . . but until it does, expect the bank stocks to continue rallying (which will make put options cheaper).

So, is there anything banks can do competently?

After all, they’re not doing much in the way of lending . . . yield spreads make it a better option for banks to borrow nearly for free from the Fed, then buy riskless assets like Treasuries. They know how to drag defaulting borrowers to court, but then prove worthless at managing properties themselves.

Banks are looking overvalued to me based on their inability to act like a bank . . . and markets will reach that conclusion eventually too.

This is a followup eMail re this post: 545 vs. 300,000,000.

To all 535 voting members of the Legislature,

It is now official: You are ALL corrupt morons:

• The U.S. Post Service was established in 1775. You have had 234 years to get it right and it is broke.
• Social Security was established in 1935. You have had 74 years to get it right and it is broke.
• Fannie Mae was established in 1938. You have had 71 years to get it right and it is broke.
• War on Poverty started in 1964. You have had 45 years to get it right; $1 trillion of our money is confiscated each year and transferred to “the poor” and they only want more. You owe me is their attitude. Get off of your sick asses an do something, like WORK.
• Medicare and Medicaid were established in 1965. You have had 44 years to get it right and they are broke.
• Freddie Mac was established in 1970. You have had 39 years to get it right and it is broke.
• The Department of Energy was created in 1977 to lessen our dependence on foreign oil. It has ballooned to 16,000 employees with a budget of $24 billion a year and we import more oil than ever before. You had 32 years to get it right and it is an abysmal failure.

You have FAILED in every “government service” you have shoved down our throats while overspending our tax dollars

This should be read and understood by all Americans
Democrats, Republicans, EVERYONE!!
To all 535 voting members of the Legislature,