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.

We Shall See re: JP Morgan Comes Quickly

Posted by kevin on November 17, 2012 under Foreclosure Blog | Comments are off for this article

In my last blog, I observed that the SEC was in negotiations with JP Morgan to settle the agency’s action relating to fraudulent loans sold to investors by Bear Stearns. I questioned whether JP Morgan would get the proverbial “slap on the wrist” or whether the sanctions would be substantial. I was not holding my breathe for substantial sanctions.

Yesterday, it was announced that the fine would be $300 million. Sounds like alot of money, but you have to put it into context. Bear Stearns probably did hundreds of mortgaged backed securitized trusts from 2003 to 2007. In fact, the Schneiderman lawsuit in NY alleges that even after a memo circulated Bear Stearns in June, 2006 which indicated that 60% of AHM loans in its trusts were at least 30 days delinquent (of course investors not told that), Bear Stearns issued at least 30 more trusts.

My review of most mortgaged backed securitized trusts indicates the average trust contains at least a billion dollars of loans. So, from June, 2006 until taken over by JP Morgan in or about March, 2008, Bear Stearns issued over $30 billion of securitized trusts. That means investors paid Bear Stearns or its affiliates over $30 billion dollars for bad deals. $300 million/ $30 billion. Now, I am not a whiz at math, but that sounds like a fine of a whopping 1% of what was earned in the last 18 months of the alleged ongoing fraud (issues dried up by the end of 2007. Just want to send out an “Atta boy” to the SEC.

To put this in perspective, your home probably has lost 30% of its value since 2007-8.

JP Morgan Settlement?

Posted by kevin on November 13, 2012 under Foreclosure Blog | Comments are off for this article

On October 2, 2012, I blogged that the NY AG, Eric Schneiderman, sued JP Morgan, purchaser of the imploded Bear Stearns based on BS’s sale of mortgage backed securities. Yesterday, it was reported that the SEC’s staff recommended settlement will with JP Morgan based on the BS mortgage backed securities and will not bring charges against individuals. The dollar amount of the “slap on the wrist” has not been set but JP Morgan will not be required to admit to any wrongdoing. Looks like an investigation into the same areas that Schneiderman is tackling in his lawsuit. How will this impact on the Schneiderman lawsuit considering that Schneiderman and SEC enforcement chief, Robert Khazami, are both on the federal mortgage task force that President Obama announced with great fanfare at his last State of the Union message (but did nothing until just before the election..

What is the purpose of the various investigations? Is it to make a news splash and then get some settlement money out of the “too big to fail” banks that pretty much ruined our economy. Or is it to get to the bottom of this mess, gets the facts and punish the wrongdoers? It looks like the SEC staff does not have the stomach to do the latter. Where do these staff members go to work after they leave government service? I hate to sound cynical but I am sure that it is not some consumer non profit.

So, what is going to happen with the lawsuit brought by Schneiderman? Another quick settlement with check written but no real investigation and no punishment of the bad guys? We shall see. It would be a shame if Schneiderman follows suit with the SEC staff.

NY AG goes after JPM- Follow up

Posted by kevin on October 8, 2012 under Foreclosure Blog | Comments are off for this article

In its editorial page, the Wall Street Journal took a shot at NY AG, Eric Schneiderman, for filing a suit against JP Morgan Chase for misrepresentations made by Bear Stearns (later bought by JPM at request of feds) to investors of mortgage backed securities. Somehow, WSJ thinks that 1) BS (how appropriate) was “sloppy” in bundling loans into securitized trusts rather than knowingly or recklessly putting loans into the trusts and screwing investors; 2) the fact that BS bounced loans back to loan originators but did not pass the savings along to duped investors was OK because it was somehow allowed by the trust documents, and 3) it was unfair to JPM to help the government out and then get sued.

Let’s deal with those arguments. First, BS was just sloppy. I guess the WSJ would want you to believe that originators and mortgage brokers were making loans, and then afterwards BS got the bright idea to package those loans. So, BS went out and bought loans for a given securitized trust. Unfortunately, BS got hoodwinked and got stuck with lots of bad loans. Don’t think it happened that way. BS put together hundreds of trusts which contained thousands of loans. Given the time constraints of marketing securitized trusts, the issuer cannot willy nilly buy loans for a trust. BS made deals upfront with originators and brokers to fund mortgages, and to buy them if they met with BS’s underwriting guidelines. So, BS was telling the originators and brokers exactly what type of loans it would buy. I just settled a case with JPM involving BS trusts. The loan originator, in a sworn deposition, testified that BS told him what had to be in the loan documents and what the borrower had to produce to get the loan. According to the broker, without following BS’s underwriting guidelines, BS would not buy the loans. So, BS not only knew what it was getting but got exactly what it asked for.

Second, trusts require insurance including credit default swaps, to protect investors against the bad loans within the trust. One of those was Ambac which sued BS and JPM because BS was bouncing loans back to originators (and getting a refund) while it made a claim against the insurance. So, BS was getting paid twice. Of course, those loans fell out of the trust. Say 10% fell out of the trust. That means that if BS did not pass the savings along to investors, the investors were being short changed by 10% of the proceeds used to fund that trust. WSJ praises BS for it slickness in drafting documents which did require a pass thru to investors. So, in reality, BS either beat the insurer or the investor or both. Very slick.

Finally, JPM purchased BS at an incredible discount. Why? Because JPM knew that it was buying a lot of crappy paper, and paid accordingly for the assets of BS. So, JPM had to know that there would be fallout from the BS purchase. I recently settled a case with JPM over predatory loans made based on BS underwriting criteria. Got a fair amount of money from JPM. I am sure that JPM was not taken by surprise when they first say my lawsuit.

I like the WSJ and read it everyday. However, I do not buy everything it tries to sell.