Apocalypse When? Decline and Fall (Maybe) January 17, 2011

Michael Collins

For at least ten years the large US banks have been selling a product – the residential home mortgage – with a fatal legal flaw that renders it uncollateralized. Numerian

boston may benot
Apocalypse When? Round Up of Massachusetts Supreme Court Decision on ForeclosureGate, US Bank N.A. v Ibanez - Around 1995, the big bank lenders established their own rules for handling the various steps of issuing a mortgage. They knew well the contract laws of the states in which they operated. But they had bigger plans. They wanted to bundle up thousands of mortgages and sell them as Mortgage Backed Securities (MBS). To do that, they needed an electronic system (MERS) that could bundle mortgages and sell them repeatedly to investors here and overseas. Never mind that state law required specific documentation at every step, including documentation to prove a specific owner of the property. When banks resold the MBS product, as it were, they were interested in churn and more money, not tagging a specific mortgage with the latest MBS owner.

Oops! The big banks screwed up big time. Bankruptcy courts at the state and federal level are used to adherence to contract law and court rulings. Most people in foreclosure struggle to pay for representation if they go to court. Many settle out of court. But the Show Me the Note movement, in and out of court, has a powerful ally - the Ibanez decision.

While many had warned of the significance of the ForeclosureGate controversy, Bloomberg's take stated that "some foreclosures" may be invalidated. That's true if there had been no system in place that systematically violated state law on titles, title ownership, transfers, and required documents. The system put in place in the mid 1990's was uniform, therefore the risk is uniform. The lenders and the rest of them made the same mistakes over and over. There are 55 million US borrowers. Those who borrowed after 1995 face an excellent opportunity, even if their foreclosure is complete.

Bloomberg - Foreclosures May Be Undone by State Ruling on Mortgage Transfer

By Thom Weidlich - Jan 6, 2011:

"A victory for the homeowners may invalidate some foreclosures and force loan originators to buy back mortgages wrongly transferred into loan pools. Such a ruling may also be cited in other state courts handling litigation related to the foreclosure crisis."

Reuters immediately grasped the situation. Bank stocks tanked making an empirical point. Investors are worried. There is still denial and hope that Congress will ride in on a spray painted white horse and save the banks with a retroactive law making their unlawful mortgage process legal. That is up in the air and that's why share prices went down. They'll climb back up, given more denial but the banks are in trouble nevertheless.

Reuters - The Ibanez Decision - What it means for homeowners and investors

By Christopher Whalen - Jan 10, 2011:

"Last week the Massachusetts Supreme Court issued a decision voiding several home foreclosures by US Bancorp and Wells Fargo. The news caused the financial markets to retreat with bank stocks down hard. News reports and some analysts are predicting that the decision in U.S. Bank National Association vs. Antonio Ibanez will mean an apocalypse for commercial banks, especially those involved in issuing residential mortgage backed securities or RMBS. But like most things in life, the reality is a little more subtle."

Bloomberg said the magic word - class action. They referred to Massachusetts but think bigger - a class action like the tobacco class action that goes after the big banks across the country. They could call it The Countrywide Class Action.

Bloomberg - Massachusetts Foreclosure Class Action to Resume

By Thom Weidlich - Jan 10, 2011:

"A statewide class action in which Massachusetts homeowners accuse U.S. Bancorp and Ally Financial Inc. of faulty foreclosures will resume now that the state’s high court ruled in a similar case last week.

"Unwinding of foreclosures may lead to loan workouts with homeowners or force originators to buy back loans that ended up in mortgage-backed securities.

"Teri Charest, a U.S. Bancorp spokeswoman, didn’t have an immediate comment."

Of course, Teri Charest had no comment. Hopefully, she was using the time to look for another job in anticipation of the giant sucking sound of the anticipated too big to fail failures.

Internet commentator Numerian got it right just after the release of the ruling.

Economic Populist - The Arc of Justice - The Ibanez Case Ruling
By Numerian, Jan 7, 2011

"What is beginning to unfold before our eyes is a situation which can only be comprehended with jaw-dropping incredulity. For at least ten years the large US banks have been selling a product – the residential home mortgage – with a fatal legal flaw that renders it uncollateralized. The product should have been priced like any other unsecured consumer loan – at rates at least triple the actual mortgage rate in the US. There are something like $6 trillion of mortgages extant in the US, among over 55 million borrowers."

The Bush and Obama Wall Street bailouts are among the least popular pieces of legislation in the nation's history. That won't stop the banks from doing what they have already announced. They expect Congress to pass a law that makes this "all OK" for them. They believe in perpetual bailouts. Given their abysmal performance on every major task, that belief system makes sense. But believing it's so will not make it so.

Workers and Middle Class Topple Dictator in Tunisia: If democracy emerges in a nation and the US government isn't involved', are the people still free? You bet they are. A remarkable peoples' revolution took place in Tunisia and toppled an authoritarian regime that was failing to deliver anything for the people. Mark Levine, writing for Al Jazeera, summed it up clearly:

"The stakes could not be higher. The Tunisian Scenario could lead either to a greater democratic opening across the Arab world, or it could lead to the situation in Algeria in the early 1990s, where democratization was abruptly halted…But at this moment of such great historical consequence what is the US doing about the situation? … 'We can't take sides.'"

The revolution took hold when workers and middle class Tunisians became fed up with their tin pot dictator of 23 years, Ben Ali, and threw him out. It happened quickly and was reported on Twitter and other social media. Levine called it a "humane revolution," free of strict ideology, including radical Islam. Elections must be held in 60 days and Tunisia will be free whether or not the corporate media covers it and without regard to which side the White House takes. Here's a nice commentary on the US media response or lack thereof.

President Obama in Arizona: "Be Nice" - Bruce Jacobs wrote a wonderful analysis of the Obama eulogy in Arizona. It typifies much of what leaves so many unhappy with his leadership in general. Here's the key point. The column is really first rate:

"Obama would have been better off, I think, had he kept to the personal eulogizing and philosophizing, which he did well, and not tried to expand into civic territory, since he was clearly afraid to address anything of substance in that regard. His basic civics messages seemed to be 1) Don't be a Blamer who looks for specific things to challenge or change as a result of the tragedy (e.g., lax gun laws, gutless economic policy that nurtures bitterness, the disproportionate concentration of lynch-mob politics in particular camps), and 2) Be nice." alias Bruce, January 12


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one sided law enforcement

Mish and (if memory servers) Calculated Risk and many others feel that there is some moral if not legal transgression if people who borrow money don’t pay it back to “investors” and “lenders.”

This same concern about moral and legal transgression don’t seem to apply when it comes to contract and property law which govern lenders and investors. They can’t seem to get themselves to even consider that the lenders and investors violated the law and now are suffering the consequences.

Old saying: “If you can’t do the time, don’t do the crime.”
The time has come for lenders and investors to “do the time.”

You've captured the dilemma

It's one thing to preach at the buyer. But what about the lender, servicers, etc. This is their business, their specialty. When they created procedures parallel to established law, they knew it. When they went in to foreclosure negotiations or hearings in court, they knew that they didn't have the required paper work. When they concluded negotiations out of court lacking required documents to make this legal, they perpetrated fraud.

The moral judgment is on an entire industry - financial services - for skirting the law and crushing people without legal basis and with full knowledge that they could have worked out something where the borrower stayed in the home and the lender recovered some of the mortgage.

You make an outstanding and very telling point about the "moralizers."

Wells Fargo Home Mortgage - Foreclosure

I live in Minnesota how do I go about finding an attorney that will challenge our forelosure? Our home was foreclosed on November 9, 2010 and is currently in the 6 month redemption period, which ends May 9, 2010. PLEASE HELP ME!!! Time is not on my side....
God Bless,

Here are some starters.  Try

Here are some starters.  Try the Hennepin County Bar Association referral service.  It's pretty specific and you can probably find someone to explore and finght a bankruptcy.  If you are in another county, check their Bar Association referral service or try the state bar association web site

When you find an attorney, be sure to give them the link below and also print it out - it shows all the mistakes made in foreclosures, all the things courts and lawyers miss that, if caught, woudl make a huge difference: Ask friends if they've had any experience.  Be sure to go over fees etc. in detail and tell them you are serious about making sure the bank followed all of the legql procedures.

Misbehavior and Mistake in Bankruptcy Mortgage Claims Katherine M. Porter, University of Iowa - College of Law; Harvard Law School

I can't recommend it highly enough.  It's a blue print to protect you in the legal process.

Try the Where's the Note page.  You can request your note from a lender and determine if they actually have it.  Do this after taling to your lawyer. 

You have a right to see what the law is and to make sure that this was followed.  You may or may night find out the answer your want but trying and being a bit pushy increases your odds of success tremendously.


Exactly right: The Lenders Broke the Law - Let them Do the Time

So glad you covered this with clarity.

Mish and the whiners are wrong. Plain and simple.
Sure the people 'borrowed' the money... except that they didn't - they signed a promissory note and the bank cashed it to make the loan - that is new money into the sytem, number one, and number two it is fraud but that's all accepted practice in the debt based currency scheme run by the banksters.
So no money was loaned, and the banks got even greedier and scammed the investors they sold the alleged mortgages to... how nice.
Let them figure out how to solve it.

The whole things was a set up from the get go because the big boys had already passed NAFTA and were well on their way to stripping the economy in the US - now that''s done - and they want more?

too bad for them...


It's an incredibly important subject and it needs to be boiled down to the basics so people can fight back.

I really like your phrase: "debt based currency scheme run by the banksters."

What some people realize at the top is that there's a way to bring the financial fraud perps to their knees, in a serious way. It's not just foreclosures we're talking about. It's every loan made without the legally required paper including a clear pointer to who the debt holder is (MBS 1 - infinity). I have a name for it:

The Countrywide Class Action

Angelo would smile;)

From Across the Pond

ForeclosureGate is something that I think does not get spoken about so much in the UK. Yes, the UK is aware of the situation and the reasons why it has happened but it is largely absent from the mainstream news media. To think that it could eventually result in a huge class action against the banks is something that should be given much more international press. Surely this would have fundamental repercussions for the banking system of America? What do you think?

It will bubble up or blast off soon

Our banks thought they'd invent a new system for making contracts and transferring titles. There are obviously no regulators in place who monitor this ongoing. So the problems with their non legal processes emerge when challenged in foreclosures. Since most foreclosures are settled quietly, it took a while for the challenges to emerge. When they did, lenders were unable to account for their actions. It's not a fast moving process, hence the lack of day to day news coverage. But the justice process is still alive and the judgment is - failure to observe contract law equals an inability to prove ownership on the part of the lenders.

I'm going to try to explain this in more detial in about five days. There will be a reckoning and the banks will take a huge tumble or we will have to abandon centuries of contract law. Quite a match.

Gleaning Common Sense from Mass Ruling

Titan Lenders Corp gleans 3 pieces of guidance for mortgage lenders from the Mass Court ruling that is worth a read

"Admittedly preferring to read the tea leaves versus just drinking the brew, we see guidance from the Massachusetts court that can benefit mortgage lenders of every description.

We see three distinct messages:

* States and their multi-state initiatives have teeth they are ready to use in 2011;
* Best-effort mortgage documentation is just not good enough; and
* Timeliness of lending protocols will be scrutinized...."

For the entire post: http://titanlenderscorp.com/blog/

Thanks for sharing the link

That's a very good article. It's good to see this from inside the industry:

"Although it sounds ludicrous to the average Jane, it appears that neither the banks, nor the servicer used by both, saw anything prohibitive or unusual in the fact that clear title to foreclosed properties had not been established according to state law. This says volumes about how far off the mark our industry can be in understanding the judicial system’s perspective."

Foreclosure no longer an option

What the banks have done is to allow themselves to become unsecured creditors.

They no longer have the option to forclose as the product in question is not a mortgage (backed up by a lien on a property) but rather an unsecured loan. The courts have not said that the banks do not have recourse, they have plenty of recourse. It is just that they will become one of a pool of unsecured creditors and the allowable assets may be split pending the resolution of a bankruptcy hearing.

So instead of getting a property worth 60 - 70% of the outstanding loan amount, they may get 20-30 cents on the dollar. And there is a whole different issue in states that do not allow bankruptcy to touch the principal residence. What a mess.

Couldn't happen to a nicer bunch of incompetents...

Now for the true legal issue...
How many investors that were sold mortgages as investments are going to sue as what they were sold were not in fact mortgages (no security attached to the loan)?

This will be great viewing.

MBS buyers go to court, seek "justice"

That's the big show. How will they create the money to cover the judgments in that one. However...in the long dead tradition of fair and balanced analysis, here's a thought. MBS sellers and purchasers are in court with the purchasers using the argument - we were sold a product steeped in fraud. We want our money back. This defense, and I'd appreciate it were I on a jury, might work. The incarnation of Melvin Belli stands up and says,

'My clients admit that there are problems with titles and other critical contractual matters dating back to the mid 90's. It's a fact that they created an entirely new system of handling titles etc. that was not sanctioned by state law. Furthermore, my clients admit that they found an eminent lawyer to endorse this practice as legal and, that they had serious doubts as the the validity of that opinion. They were entirely focused on creating a new market, particularly after the dot com crash, for large investors. That market was mortgage backed securities (MBS).

Having settled all that, the defense will prove this critical point. The market for MBS consisted of the elite of large investors: pension funds, banks, and those with extraordinary wealth. These investors don't buy on a whim. They are diligent in researching their investments as they proudly proclaim. They knew what my clients knew about the process of registering sales and tracking titles, including all of the shortcomings. If they have the nerve to claim that they didn't know, they should have known. But they knew.

Therefore, their claims are built on a foundation of deception. They were not innocent and naive investors. They were our partners in crime. The law does not allow, common sense does not allow, someone who participated in a crime to seek damages from their partner in crime based on the facts of the crime. We call on the plaintiffs to come to their senses, admit their knowledge of the defective products purchased, and withdraw their suit.'

That would be worth the price of admission.

Two Points about MERS

I would like the following points regarding MERS to be clear to all:

1) It's not a PAPERWORK issue - it's an OWNERSHIP issue. Whenever we see the word 'paperwork' describing the MERS scam, we should know that the correct word is 'ownership'.

'Paperwork' is defined as: written or clerical work, as records or reports, forming a necessary but often a routine and secondary part of some work or job.

That is not the issue with MERS. The issue is one of fundamental ownership - which is determined by signed and recorded paper.

2) The most significant and basic nature of the MERS scam has not been discussed. It is, quite simply, that the obfuscatory nature of the MERS system allows the originating lender to sell the initial mortgage MORE THAN ONE TIME. I will demonstrate the implications with a simple example.

Now, it may never be possible to prove that the same mortgages were sold repeatedly. In fact, because of the very nature of MERS, it is likely that it would not be possible to show clear evidence. The point is, however, that by flaunting the existing, centuries-old state property laws, MERS allows for this to happen. It does not guarantee that it happened but it allows for it to happen. It may well be the real reason the chain of titles were broken and the 'paperwork' has all gone missing.

An example of the situation MERS allows and the financial implications:

Consider a pre-MERS/pre-securitization scenario for a real estate loan. Bank A originates a $500,000 loan. The $500,000 is used to pay the seller of the house. In exchange, Bank A will receive monthly payments for the next 30 years at (for example) 6 percent. If Bank A decides that it does not want to collect small amounts each month, then it may sell the rights to the bank that will pay them the highest price, Bank B. For whatever reason (its own belief on what constitutes a 'good interest rate') - Bank B may pay $525,000 for this loan. The assignment of the loan is done based on the stable, ancient property laws of the state, and Bank A has then made $25,000 profit on this transaction. Bank B then owns the loan and there is no ambiguity.

It would be hard to imagine Bank A being tempted to then sell the exact same loan to Bank C. The reason is that there is very clear evidence at the county recorder's office that the loan was already sold to Bank B.

Now consider the same situation with the MERS system in place.

Bank A makes the same original loan for $500,000 which is used to pay the seller of the house. Now, when it is interested in selling this loan to the highest bidder, Bank A realizes that because the way things operate now (regardless of state laws), it will not be selling the loan directly to another bank (Bank B above). Instead, it has become customary for Bank A to 'bundle' hundreds of loans together and sell them all to 'investors' who are probably made up of entities such as mutual funds, city governments, foreign governments, etc. Each of these entities likely represents many people's money - none of whom really have any idea of which individual loans they are purchasing.

Well, after all the bundling and selling to entities and stuff, it may turn out that, on average, Bank A gets $525,000 for each loan - and so in that way it made the same profit.

In this scenario it is not at all hard to imagine Bank A being tempted to sell this same loan again. Unlike before, when there was 'Bank B' and 'Bank C' and very clear records at the county recorder's office, there is no 'Bank B' but only a mish-mash of bundled loans sold to investors/entities who do not know which loans they have bought --- and by the way --- the documents have been 'lost'. In this scenario, it is all too tempting to sell this same loan to the securitized version of 'Bank C' - which is the same loan bundled with hundreds of other loans - sold to vague entities who do not know what they have really bought.

Comparing the two scenarios, one might think that Bank A has just doubled its profit. It has just sold the loan twice after all. Wrong! In the second scenario, Bank A has made more than 20 times its profit. In the original scenario, Bank A's profit is ($525,000 - $500,000) = $25,000. Of course, if the loan is fraudulently sold a second time, then all of the $525,000 from that sale would be (illegal) profit because there would be no transfer of $500,000 to the original seller of the house, as was done with the initial loan. Therefore, Bank A's profit would be ($25,000 + $525,000) = $550,000.

Bank A has increased its profit by 22 times simply by bundling/schmundling. Is that possible to prove? Probably not, given the destruction of so many documents and the entire system of banks/lawyers/politiicans/lobbyists, etc. But it is not necessary to prove any of this. It is only necessary to realize that the system allows for this, it encourages it, and it is likely the key driving dynamic to all we are seeing unfold. It is far more likely than the latest explanations in the media that banks "wanted to evade fees at the county recorders' offices".

It explains why we are where we are. The remedy, of course, is to adhere strictly to the state property laws which have been the same for centuries. These laws require clear, recorded, signed documents which do not allow the above confusion to exist. The courts must simply enforce these laws and let the chips fall where they may. If past foreclosures need to be voided, then so be it.

Fred Smith