Thread: Mortgage Flow Chart

Just When You Thought You Knew Something About Mortgage Securitizations

11/15/2010 15:59 -0500

Dan Edstrom is a guy who is in the right place at the right time.

His profession? He performs securitization audits (Reverse Engineering and Failure Analysis) for a company called DTC-Systems.

The typical audit includes numerous diagrams including the following:

Transaction Parties and Flow (similar to the chart below, but much easier to understand)

Note exchanged for a bond Foreclosure parties

Priority of Payments from the Security Instrument (Mortgage, Deed of Trust, Security Deed or Mortgage Deed)

Priority of Payments from the Pooling and Servicing Agreement

This diagram shows that they are not following the borrowers instructions in the security instrument

Source of Payments for Distributions--This diagram is extremely complex and shows that the miscellaneous proceeds specified in the security instrument (and in the SEC Filings) should be applied to the sums secured by the obligation upon the event of a loss in value of the property, whether or not then due, with the remainder, if any, returned to the borrower. This document combines UCC 3-602(a), UCC 9-315, UCC 9-336, UCC 2-609, and UCC 3-501 together with NY Code Section 4545 and the SEC Filings to show that the miscellaneous proceeds can be applied to the borrowers obligation.

The following flow chart reverse engineers the mortgage on the Ekstrom family residence. It took Dan over one year to take it this far and it clearly demonstrates what happens when there are too many lawyers being manufactured.

Take a look at this chart and then decide how long you think it will take for Barney Frank and Eric Holder to sort everything out. There is a link to an expandable version at the end of this post.

Dan will be lecturing on this subject on December 11, 2010 if you are interested in learning more about who is the holder of your mortgage note. Here is the link to the Seminar:

Securitization Seminar

and here is a link to a LARGE VERSION of the Chart: http://securedocumentresearch.eventbrite.com/

http://www.zerohedge.com/article/just-w ... itizations

during the Senate hearings, no one mentioned the "pool" insurance claims.

VIDEOS at Link. The mortgages were insured so the banks are collecting on the forclosures. Bank of America sued MGIC ( Mortgage Guarantee Insurance CO)in 2009, it seems that when MGIC re-underwrites mortages when they are presented by the bank for payment. This means that MGIC audits the mortgage and checks the guidelines that were in place when the mortgage was initiated.

If the guidelines weren't followed by the bank when they gave the mortgage, MGIC doesn't pay on it. MGIC underwriters have save MGIC millions of dollars by refusing to pay off on loans that had paperwork that did not agree with the guidelines in effect when the mortgage was given. Bank of America's answer is to sue MGIC.

Monday, January 11, 2010
Bank of America Sues MGIC over "Rotten Reviews"

http://www.appraiserlawblog.com/2010/01 ... otten.html

Interesting article and worth reading.
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Sunday November 21, 2010

Watch CBS Videos Online

The Process

While most people just view taking out a mortgage as a simple credit transaction, nothing could be further from the truth. If your mortgage has been securitized, techinically you are actually an issuer of an unregulated security in a highly complex structured financial transaction



In fact, it is my theory that during the period of time roughly covering 2002 - 2007, originating lenders (as well as everyone else in the chain of the securitization process) bet against the borrower to be able to fulfill their obligation. The strategy can be compared to a situation whereby the lender deposited a single dollar bill into a slot machine, the dollar bill would be gone forever, but the slot machine was guaranteed to payoff every single time and return 2, 3 or even 5 dollars . The mechanism for this process was what is known as "credit default swaps" Credit default swaps were (and amazingly still are allowed) a way for entities to bet against (or for) borrowers of home mortgages to be able to continue making payments on loans that were rigged to fail. This fact means that as a result of these "bets", your loan has already been paid off.

Additionally, investors in these securitized trusts that are mortgage backed securities, or collateral debt obligations, were covered by monoline, multiline, or other form of "pool insurance" or mortgage guarantee insurance, which has already indeminfied the securitized trust for a borrower's default. Moreover, these trusts also "overcollateralized" and/or "cross collateralized" certain "tranches" within these securitized trusts that subrogated losses from borrower defaults to other tranches (thus different investors than the ones trying to foreclose on your home), and therefore the investor on your loan may have in fact already been indemnified for any loss from default on your loan.

Even in light of the above, the servicer, and other parties that engineered the securitization that includes your mortgage, seek to collect yet again, by foreclosing on your home. I have credible evidence that suggests that mortgage servicers may be auctioning these homes and not turning the proceeds over to the securitized trust and its investors. Thus the mortgage servicer is keeping the proceeds of these foreclosure auction sales as a financial windfall (another reason why your servicer has absolutely no incentive to work with you on a loan modification).

This issue is now surfacing when homeowners who are attempting to be approved by their mortgage servicer for President Obama's Home Affordable Mortgage Program ("HAMP"). Some applicants are being told that, while technically their loan meets the qualifying criteria of the program, they are being denied because their loan is covered by "pool insurance". Additionally,borrowers generally get the runaround when trying to get their mortgage payments modified. This is so for a number of reasons, but mainly because the mortgage serivcer receives more money for keeping you in foreclosure. Default servicing pays more money. The trust has an escrow account to pay litigation fees to servicers, and the servicer gets to keep all late fees and junk fees paid by the homeowner. This means the servicer is incentivized to default a home loan and its motivation is at odds with its client, the securitized trust. The largest default servicer in the country is based in Jacksonville – Fidelity National Default Solutions (now known as LPS Default Title and Closing). This is essentially a shadow company that makes it’s money through both legitimate and nefarious methods. It has been known to fabricate loan data, create falsified court documents and charge illegal fees to homeowners. FNDS hires the foreclosure lawyers on behalf of the securitized trust and does not permit the lawyers to directly communicate with the trust, even though the trust is the actual plaintiff in the case.

This begs the question, "if my loan is covered by pool insurance" (and has been indemnified), where is the loss to the investor bringing the foreclosure action? And more importantly "why the heck am I still making mortgage payments to an entity that has already been paid off on my obligation, and has no legal right to foreclose on my home?"

Federal Securities Law


If your mortgage was securitized, it is subject to the securities and exchange commission and its rules and regulations as well federal laws governing securities (acts of 1933 and 1934).

One of the main requirements under federal securities law is that a prospectus be provided to investors in mortgage backed securites. If your mortgage has been securitized, theoretically your mortgage loan ended up in a securitized trust as part of the securities sold to large institutional investors. Under federal securities law the prospectus determines the roles of all of the parties to the transaction, and sets forth the requirments enabling the trust to qualify as a federally regulated security.

Another source of authority is the "pooling and servicing agreement", which is the contract

Theoretically these trusts were set up to be "bankruptcy remote". So what generally happens is that a financial institution creates many sub-corporations in order to create a chain of "absolute sales" of the trust assets, leading to the final transfer into the securitized trust. Generally these are the requirements and parties involved in the process:

Cut Off Date - The date that all of the mortgaage loans must be identified, which will be forming the asset pool of the securitized trust.


Closing Date - The date that the identified mortgage pool assets (Mortgage File that includes the borrowers mortgage note endorsed in blank and the security interest in recordable form, for each mortgage) must be transferred to the "Custodian"


Originator or Responsible Party - The Bank, Mortgage company (or broker) who sold you your mortgage


Sponsor or Seller - A sub-corporation (Special Purpose Entity [SPE]) formed by the financial institution creating the securitized trust, that aquires (by "absolute sale") and holds the loans (including yours) originated by the "Originator".


Depositor - A sub-corporation formed by the financial institution creating the securitized trust, (or other party) that aquires the loans from the "Sponsor" (by absolute sale") Usally the "Depositor" will not have any business operations other than "securitizing" the mortgage asssets received from the "Sponsor" As part of the "securitization" process, the "Depositor" issues "certificates" that theoretically become the representation of the mortgage assets in the securitized trust asset pool. These certificates are generally in the form of Bonds sold to Investors. The Depositor generally is the only entity authorized by the prospectus to transfer the mortgage assets into the securitized trust.


Issuing Entity - A sub-corporation formed by the financial institution creating the securitized trust that is formed on the "closing date" pursuant to the "pooling and sevicing agreement". This is the sub-corporation that forms part of the very long name of the entity bringing the forecloaure action against you. This SPE creates trusts to be sold to investors, including the individual trust that your loan is in (usually the last part of the very long name of the entity foreclosing).


Trustee - Generally a National Bank (Predominately Deutsche Bank National Trust) theoretically represents the interest of the securitized trust investors of the specific trusts..This is the party that generally brings the foreclosure action in its name "as trustee" against the borrower.


Servicer - Generally a company hired by the securitized trust responsible for the billing, maintenance, and foreclosing of the mortgage loan pool contained within the trust.
Therefore, taking into consideration the above; if you get a notice of foreclosure that states that an entity is bringing a foreclosure action against you is named:

DEUTSCHE BANK NATIONAL TRUST COMPANY as TRUSTEE UNDER POOLING AND SERVICING
AGREEMENT DATED AS OF NOVEMBER 1, 2006, SECURITIZED ASSET BACKED RECEIVABLES
LLC TRUST, 2006-WM3 MORTGAGE PASS- THROUGH CERTIFICATES SERIES 2006-WM3.

Deutsche Bank is the Trustee acting on behalf of the trust


The pooling and servicing agreement date represents the cut-off date for the mortgage pool assets to have been identified to the your specific trust.


Securitized Asset Backed Receivables, LLC Trust, is the Issuing Entity


2006-WM3 Mortgage Pass-Through Certificates Series 2006-WM3 is the specific trust containing your mortgage that was created by the "Issuing Entity".
Securitized mortgage backed securities prospectuses generally require that the mortgage assets (your mortgage note and mortgage), be transferred by absolute sale from the Originator to the Sponsor to the Depositor (who is the only party authorized to deposit the mortgage assets directly into the securitized trust asset pool) then to the specific securitized trust.

This is a supposed A to B to C to D transfer of assets to the securitized trust. The reason this is set forth in the prospectus is to keep the mortgage asset pool bankruptcy remote (referring to the other entities in the chain of transfer), as well as to qualify these securities as Real Estate Mortgage Investment Conduit ("REMIC").

Pooling and Servicing Agreement (*"PSA")

The PSA is the "glue" that binds all of the players in the securitization process together and is typically filed with the Securities and Exchange Commission, although you might have to dig a bit to find the one that governs the securitized trust that owns your loan.

The PSA requires that all promissory notes must be endorsed by the originator and delivered to the trustee shortly after the creation of the trust. Similarly, an Assignment of Mortgage must accompany each note. In reality, this NEVER happens, and the consequences of this failure are potentially catastrophic for the trust. I surmise that the mortgage-backed securities market was so white-hot that actual delivery of these critical documents just got in the way of an “efficientâ€