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« Foreclosure fraud class actions pile up against banks | Main | Josh Rosner: "Foreclosure Fraud Nightmare Scenario Could Dwarf The Lehman Weekend" »

Financial Times: "The real danger here for banks is that 'Show me the note' becomes widespread"

An except is printed below.  It's worth reading the whole piece.

Just a reminder:



The MBS mess from the beginning – the deal docs

If the mortgage notes weren’t correctly shifted from the originators to the depositors to the trustees, with the corresponding assignments, the foreclosure process could be held up should anyone actually stop to ask where the mortgage note is, or who holds it. Likewise, if MERS’ authority to foreclose is challenged (more on that here).

There are potentially more insidious reasons behind documentation slips. Fixing the chain of title — if a break is discovered — can be a lengthy and expensive exercise. Fudging over a missing mortgage assignment may be be quicker and cheaper. For a ‘real life’ paperwork story, check out mortgage-blogger Tanta’s experience back in 2007 — which leads rather nicely to the next point.

Improper documentation has existed for as long as the originate-to-distribute system. Katherine Porter at the Ohio University estimated back in 2007 that “a majority” of US foreclosures are made without the right paperwork. And you’ll notice the 2006-date on the Florida case cited in the GSAMP prospectus above.

The danger here is that ’show me the note’ becomes widespread.  Savvy lawyers start demanding the docs (which of course they are legally entitled to do) — foreclosures freeze, lawsuits fly, the RMBS market stagnates, the big banks get hit, and so on.

As a structured finance footnote (because securitisation has a tendency toward irony) we’ll add that GSAMP Trust 2006-FM1’s sister deal — FM2 — was included as a reference entity in the now-infamous Goldman Sachs offering … the Abacus CDO.



New details from the latest lawsuit:



And Felix Salmon has a must-read nightmare scenario:

You thought the foreclosure mess was bad? You’re right about that. But it gets so much worse once you start adding in a whole bunch of parallel messes in the world of mortgage bonds. For instance, as Tracy Alloway says, mortgage-bond documentation generally says that if more than a minuscule proportion of notes in a mortgage pool weren’t properly transferred, then the trustee for the bondholders can force the investment bank who put the deal together to repurchase the mortgages. And it’s looking very much as though none of the notes were properly transferred.

But that’s not even the biggest potential problem facing the investment banks who put these deals together. It also turns out that there’s a pretty strong case that they lied to the investors in many if not most of these deals.

I mentioned this back in September, and I’ve been doing a bit more digging since then. And I’m increasingly convinced that the risk to investment banks isn’t only one of dodgy paperwork; there’s also a serious risk of massive lawsuits from the SEC or other prosecutors, as well as suits from individual mortgage investors.

The key firm here is Clayton Holdings, a company which was hired by various investment banks — Goldman Sachs, Bear Stearns, Citigroup, Merrill Lynch, Lehman Brothers, Morgan Stanley, Deutsche Bank, everyone — to taste-test the mortgage pools they were buying from originators.



And John Carney has good background here:




Our recent coverage:








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Reader Comments (15)

That could be fraud, and if so, the creator of the mortgage pool could be liable. Given that the market for private label RMBS (residential mortgage-backed securities) was $1.5 trillion, the potential liability may be considerable. And while most of the originators of these mortgages are long gone, the securitizers are not.

Oct 14, 2010 at 3:57 PM | Registered CommenterDailyBail
Two giant lenders who said they’re freezing foreclosures nationwide are conducting business as usual at the Lee County Courthouse.

JPMorgan Chase & Co. and Bank of America Corp., along with some smaller lenders, have announced that they were holding off on court-based foreclosures until they could sort out issues with them, such as whether attorneys actually read all the paperwork.

Oct 14, 2010 at 4:04 PM | Registered CommenterDailyBail
“I think it’s safe to say that 95% of the foreclosure cases in Florida involve some form of fraud on the part of the bank,” David Goldman of Apple Law Firm, PLLC told The Daily Caller in a phone interview. “It’s probably closer to 99%. And the court system is helping them get away with it.”

A 95% rate of fraud sounds preposterous, but the number was repeated by a paralegal familiar with the case, Lisa Beasely, as well as Michael Redman, who was prompted to create a website called 4closurefraud.org after enduring personal experiences with the matter. There’s a reason for them to say so—they take and report on a lot of foreclosure fraud cases—but there’s also a reason they devote so much of their time to these cases, just like there’s a reason that multiple states are suing major banks for the same type of fraud

Read this one...
Oct 14, 2010 at 4:05 PM | Registered CommenterDailyBail
Ha Ha - NOW CNBS Reports On The Underlying SCAM?

Oct 14, 2010 at 4:06 PM | Registered CommenterDailyBail
(Reuters) - Federal Reserve Chairman Ben Bernanke pledged to pursue "appropriate remedies" to address potential problems with home foreclosure documents, a low-income housing advocacy group said on Wednesday.

Oct 14, 2010 at 4:07 PM | Registered CommenterDailyBail
JPMorgan CEO: Foreclosure probes may hurt housing


brand new comments...
Oct 14, 2010 at 4:09 PM | Registered CommenterDailyBail
I love the bank's and their cronies position that a moratorium on foreclosures would hurt housing. I'm a real estate broker, and I'm having trouble selling "real" houses because the market is full of foreclosures that can be purchased more cheaply. Further, the real problem in housing is that we have an inventory problem, an inventory problem created by these aggressive banks and foreclosure mills.
If logic matters, in a simple supply/demand mindset; it would seem to me that fewer foreclosures on the market would stimulate the housing market. It also would help stabilize property values resulting in less loss of homeowner's equity.
Oct 14, 2010 at 5:19 PM | Unregistered CommenterDan Tolman
Thanks for giving us your perspective, Dan. I think the market will find its own level one way or another, but you're probably right about the short-term effects. In any case, when the TBTF bankers speak, there's a good chance they're lying.
Oct 14, 2010 at 6:00 PM | Registered CommenterDr. Pitchfork
This is bigger than that little leak we had in the Gulf...this sh-t is SERIOUS...and WAY to BIG to paper over or wish away....BET ON IT....and that SIR.....Ain't No BS.......AB
Oct 14, 2010 at 6:24 PM | Unregistered CommenterAint Bullshittin'
by the way.......less foreclosures has no effect on the fact that title cannot be verified....Who in their right mind would buy a home where the court can rule tomorrow that your new REO purchase was not lawfully theirs (AKA the BANKS) to sell?.....and by the way 25%+/- of all home sales in the past 12 months were REO's........just a little sumthin' to think bout before it hits the fan in real time........AB
Oct 14, 2010 at 6:27 PM | Unregistered CommenterAint Bullshittin'
"Ya'll gona want to see this little Gem"........................I found today ?

Foreclosure Fraud: 6 Things You Need To Know About The Crisis That Could Potentially Rip The U.S. Economy To Shreds


The "Holly-Shit" is about to hit the fan !
Oct 14, 2010 at 11:42 PM | Unregistered CommenterTexas Dar
good point ab...
Oct 15, 2010 at 2:11 AM | Registered CommenterDailyBail
And just think what this mess will look like come April. Things should be in a full blowen "Come-a-Part" mode. May flowers may be "Black Roses" ?
Oct 15, 2010 at 2:44 PM | Unregistered CommenterTexas Dar
Nah T. Dar, after Congress flips, suddenly the deficit will be manageable, the bailouts will have been good, corruption will not exist, and a never ending corporate welfare state will be better than apple pie.

Just ignore the homeless camps on your way to the store, and hold onto your wallet, for it will be under constant attack by a government that will know how to take care of you better than you, "for a nominal fee"..

And expect the first thing they do is give themselves a raise again.
Oct 15, 2010 at 7:03 PM | Unregistered CommenterS. Gompers
Everyone please take a break, I can't keep up.
May 26, 2011 at 9:20 PM | Unregistered CommenterTR

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