The Mortgage Securitization Scam

Housing-Market / US Housing Oct 23, 2010 - 06:59 AM
By: Bob_Chapman

The foreclosure crisis has set its sights on MERS, the Mortgage Electronic Registration Systems, which files almost all of the foreclosure actions in behalf of lenders. The problem never anticipated by lenders is that the company has no legal standing to do such things. In addition they broke the law by not requiring a notarized document of transfer of title signed by the seller and buyer. That is because they did not own the loans.

Only the owner of the loan can file. Thus, many of the titles are now subject to fraudulent conveyance. This means that foreclosure proceedings could be subject to legal challenge. Another question is could the foreclosures done since 2007 be nullified? How could a settlement be arrived at in a few months when there are millions of homeowners involved. The banks, which obviously deliberately broke the laws, will be responsible for fines and settlement with injured parties could cost them more than $10 billion. While this scenario moves forward the banks still are acting like goons and violating laws, to get people out of homes.

The question is who has the loan paper and that is the note-holder. He or they are the only ones with legal standing to request a court to foreclose and evict. That all changed with the coming of MBS, mortgage backed securities. Loans were bundled into tranches or REMIC’s, a vehicle designed to hold the loans for tax purposes. These mortgages were cut into bits and pieces to satisfy the different tastes and needs of investors. During this process the note was not signed over to the bondholders, because the mortgage may have been split into pieces and no one could know which part would default first. Therefore the MBS held the note.

The MERS system was a bridge and repository for these mortgages, a shadow holder owned by lenders and Fanny Mae and Freddie Mac. The system located mortgages and was involved in the altering of mortgages. The upshot was a broken chain of title. When that happens the mortgage note is no longer valid. The borrower does not know who to pay and so pays no one. Then come the foreclosure mills and that led to falsification of documents to assist the lender, which is fraud. These actions expedited foreclosures and evictions and that was all the lenders were interested in.

There is no question a massive fraud took place. It was identified by the title insurance companies who the lenders are trying to blame this criminality on. The result was the banks went around the title insurance companies and used foreclosure mills, when the title companies wouldn’t play ball.

The banks terrified that they had gotten caught tried to ram through Congress the Interstate Recognition of Notarizations Act to protect themselves and their criminal acts. The scum in the Senate and House used voice votes to pass the bill and because of the massive complaints the President pocket vetoed the measure. He also knew the bill would have been identified as unconstitutional.

The bottom line is the banks had no legal right to foreclose and evict. That means the evicted can get their homes back. The new buyers are screwed because they have no legal standing because the banks sold them a house they did not own. The fraud committed by the foreclosure mills, at the behest of the banks, puts all foreclosures into question and even the status of those homeowners who are currently paying mortgages. That means if homeowners all stop paying their mortgages, they could end up owning their homes.

This is a mega crisis far bigger than Bear Stearns and Lehman, but not as big as what we will see in the future when the CFTC, LBMA, Comex, GLD and SLV are taken down in their gold and silver scam.

The heart of these criminal acts is anchored in securitization and the scam that it was. We have been demanding criminal action for three years and no one will listen. It was only recently that civil suits have been entered into. We don’t get it. Do we still have a legal system?

This problem can only worsen the problems in the housing sector. About half of homebuyers really qualify to own homes. False appraisals on about 50% of homes littered the landscape just two years ago. Half of the first-time homebuyers didn’t even buy homes, which cost the taxpayers about $15 billion. Inventory over hang is now in the realm of years not months, as homebuilders continue to increase new homes at the rate of 600,000 a year. What can they be thinking of with a further 20% correction ahead? Foreclosures are now 1 in 12 of all mortgages. Four years ago it was 1 in 100. For sure home prices have not bottomed.

It could be the mortgage market is dead and all the bondholders are sunk. If that is the case the financial structure is close to collapse.

We were in the brokerage industry for years and we never saw such criminality. The banks that pulled this off are virtually unregulated.

Some writers believe there will be hundreds of billions in losses and they are correct, unless the government and the Fed bail them out.

Then there are the subprime and ALT-A loans issued over the past two years that are beginning to be reset. Half will go under and Fannie and Freddie guaranteed those loans. This will put further downward pressure on housing prices.

All in all it looks terrible and we see no easy way out. Is it any wonder investors are buying gold and silver bullion, coins and shares.

You cannot tell the players without a program. That fits perfectly in all endeavors, particularly journalism. Last week in the FT Martin Wolf wrote apiece titled “why America is going to win the global currency battle.â€