JP Morgan- Bear Mortgage Bonds

Posted by kevin on August 26, 2013 under Foreclosure Blog | Comments are off for this article

Earlier this month, newspaper articles surfaced which stated that the US Justice Department has stepped up its investigation of Bear Stearns’ mortgage dealings in the run up of the mortgage crisis. Bear Stearns was purchased by JP Morgan Chase, with more than a little arm twisting by the feds. Now, JP Morgan is holding the bag.

At the same time, US prosecutors in California have been investigating JP Morgan based on Bear Stearns sale of mortgage bonds.

Back at the beginning of the mortgage crisis, the Justice Department indicted two executives of a hedge fund set up by Bear Stearns on the basis that they defrauded investors. Notwithstading huge losses and some rather questionable emails sent and received by these individuals, the jury did not convict. The Justice Department backed off, but it appears that they are engaged once again.

I had a case against JP Morgan based on a piggyback loan which was bought and then securitized by Bear Stearns. The key to the case was that I was able to get my hands on the “real” closing file from the mortgage broker. In that file was a set of underwriting documents which indicated that Bear Stearns did not want the borrower to produce any documents which verified the income of the borrower. Coupled with the testimony from the mortgage broker that Bear Stearns would not have bought the loan unless the mortgage broker followed the instructions of Bear Stearns, I was able to fashion a very favorable settlement for my client. The settlement was approved by the bankruptcy court.

Unfortunately, we rarely get to see the “entire” file in discovery. Plaintiffs in foreclosure cases produce significant amounts of documents but, from our perspective, it probably is not the entire file. The problem from our end is that it is difficult to pinpoint something that is not there, especially considering that closing documents are not uniform. You always get the note, mortgage, HUD-1, TILA Disclosure Statement and like documents. What you never get is the underwriting criteria of the originator or more aptly, the sponsor of the securitized trust (that is the entity that is calling the shots).

While borrowers may not get the key documents, the DOJ should not be in the same position. They have the power of the government behind them. Clearly, the government is starting to use its vast powers, at this late date, to expose the lenders and investment houses for their role in the mortgage meltdown.