Posted by kevin on November 23, 2013 under Foreclosure Blog | 
Periodically, we have been tuning in to the negotiations between the Justice Dept and JP Morgan Chase (“JPMC”). It is clear that JPMC wanted to settle to put a cap on its liabilities and to probably also to keep from the public damaging information about the types of loans it was making, servicer improprieties, and robo-signing issues (although technically part of $25 Billion settlement, chance that negative info could have come out in discovery). At any rate, this past Tuesday, the deal with the Justice Dept (which included pro-active States) was finalized for $13 Billion. Here is the breakdown:
$4 Billion to help struggling homeowners of which $2 Billion to lower principal balances and $2 Billion for other homeowner relief including lowering interest rates;
$4 Billion to FHFA for questionable loans sold to Fannie and Freddie;
$1.4 Billion to National Credit Union Administration;
$300 Million to California AG;$515 Million to FDIC;
$2 Billion to Justice Dept.
$300 Million to California AG;
$20 Million to Delaware AG;
$100 Million to Illinois AG;
$34.4 Million to Massachusetts AG; and
$614 Million to NY AG.
(Nothing for NJ because we have been less than pro-active in this fight (as we were in the Revolutionary War and Civil War- but let’s not get into that). The deal does not include a “get out of jail free” pass for possible criminal activity.
In addition, on November 15, JPMC agreed to pay $4.5 Billion to an investor group including Black Rock, Goldman Sachs Asset Management, LP and others based on sale of securities by JP Morgan and Bear Stearns.
Now, if these settlements were based on bad loans sold by JPMC to investors or Fannie and Freddie, how come the loans that backed up these securities are not viewed as equally bad? On the positive side, however, money is available for settlements. Although servicers still dance borrowers around during the modification process (and that is not going to change dramatically no matter what MHA says), we believe that Borrowers with JPMC, or Bear Stearns loans should actively pursue modification. The money is there.
Posted by kevin on November 18, 2013 under Foreclosure Blog |
Millions and Millions of dollars were made by mortgage brokers, originating lenders, servicing companies and Wall St, firms selling residential mortgaged backed securities (“RMBS”) . Wall St made even more money by slicing and dicing the RMBS and turning them into collateralized debt obligations (“CDO”). But the assistance of one industry was necessary for the successful sale of RMBS’s and CDO’s. Who could they be? The rating agencies. You see, without an A rating or better, the best instititutional salesmen on Wall St could not unload these securities. So, without the likes of Standard & Poor, Moody’s Investors and Fitch Ratings, we may not have had the real estate bubble and the Great Recession.
In previous blogs, we have pointed out the that government has been slow on the draw going after Wall St investment houses and the Too Big to Fail Banks. But at least they have gotten off a few shots. On the other hand, governmental action has been almost non-existent against the rating agencies.
With the statute of limitations running out, we may be seeing some push back. In the last week, the liquidators of two failed Bear Stearns hedge funds filed suit against S&P, Moody’s and Fitch accusing them of fraudulently misleading investors about the quality of their ratings. The liquidators are looking for over a billion dollars in damages.
The complaint was filed in the New York Supreme Court (in NY, this is the trial level court). The liquidators are looking at the ratings in light of the types of mortgages that were in the mix, the lack of analysis by the rating agencies as proof of a lack of due diligence, and statements made by the employees of the rating agencies in emails where they joked about the quality (or lack thereof) of the mortgages that were part of a deal.
The liquidators filed bare bones complaints in early summer to beat the statute of limitations, and this past week added a 140+ page complaint.
What does this mean if you are a borrower in NJ? Unfortunately, at this time, not much. Many judges do not want to hear the details about the confluence of misdeeds by brokers, mortgage originators, rating agencies, sponsors of trusts, trustee who refuse to bounce back bad mortgages, and servicers who jerk around homeowners who want to get a modification so they can continue to live in their homes. They are granting summary judgment (defenses of borrower thrown out without the need for a trial) to lenders in foreclosure cases with increasing frequency. I have not tried a case in well over 18 months- not from lack of effort on my part. But, perhaps the case against the rating agencies, together with all the news about large banks settling with the SEC or Justice Department for billions of dollars, may cause one or more appellate panels to find consumer fraud or predatory lending; to question whether those allonges that all started to look alike about a year ago are not examples of fraudulent robo-signing; and to force plaintiffs to prove their cases with competent, credible evidence based on personal knowledge. We did get decisions like that back in 2010 and 2011. Let’s go back to the good old days.
Posted by kevin on November 3, 2013 under Foreclosure Blog |
A good proportion of the mortgages in default in New Jersey were sold to investors by means of private securitizations. In such cases, a sponsor will buy about a thousand mortgages from one or more originators, transfer them to related entity called a depositor, who then sells them to a trust. (Multiple transfers are necessary to insure bankruptcy remoteness). The trust is usually a REMIC (real estate mortgage investment conduit) which means that only the investors are taxed. The guiding document is called a Pooling and Servicing Agreement (PSA) which describes in detail what happens, how the various notes and mortgages are transferred into the trust, how and how much the investors are paid, and what the functions of the various parties are.
Unless the securitization is exempt from federal securities laws, the sponsor must register the offering with the Securities and Exchange Commission (SEC). Because of this registration requirement, some of the documents associated with the securitization, including the PSA, can be available on the SEC site. When you get the opportunity to read 100 or so PSA’s, you realize that many require that the note have an endorsement from the depositor to the trustee or in blank with all intervening endorsements so that there is a complete chain of endorsements. This is to comply with the requirements concerning bankruptcy remoteness.
When you compare the your client’s note to the usual requirements of the PSA, you often times find that the endorsement(s) on the note do not come close to complying with the requirements of transfer set forth in the PSA. If the PSA is governed my NY law, it is pretty clear that if the note and mortgage are not transferred to the trust in accordance with the terms of the PSA, then the note and mortgage are not in the trust and the plaintiff, trustee, has no standing to bring the action.
This could be a major problem for lenders. Literally, hundreds of thousands of cases in New Jersey and across the United States could be tossed out of court. But, that has not happened to date. Why? Because an unpublished case in NJ stated that a borrower cannot refer to the requirements for transfer set forth in the PSA because the borrower is not a party to the PSA. Yeah, the lender broke the rules of its own operating agreement, but the borrower, who stands to lose her home, cannot bring it up. Many trial courts in NJ have adopted this position notwithstanding that the case setting forth this rule is an unpublished, and under our Court rules, unpublished opinions have no precedential value. You can draw your own conclusions on this, but it does seem to defy common sense.
More on this in upcoming blogs.
