BOA Settles W/ Freddie

Posted by kevin on December 4, 2013 under Foreclosure Blog | Comments are off for this article

Freddie Mac buys mortgage loans either for its own portfolio or for sale to investors. Under the terms of these purchases, Freddie has the right to put back the loan to the originator if it is found that the loan does not meet the standards set forth in the purchase agreements. The so-called “put back” loans defaulted because, for the most part, the loans were made to people who could not afford to repay them. That is the essence of predatory lending.

As of September, 2013, Freddie Mac had $1.4 billion in put back loans that were previously owned by BOA, and they wanted BOA to take them back. The settlement reached has Freddie Mac receiving $404 million.

This is not the first time that BOA has settled with Freddie Mac. In January, 2011, BOA made a $1.35 billion settlement over loans sold by Countrywide which was acquired by BOA in 2008. Moreover, BOA recently settled with Fannie Mae for over $11 billion.

Why is BOA settling for these vast sums of money? Well, the standard line is that they want to cut litigation costs and move on. While both statements are technically true, my take is that a primary motivating source in the settlements is that BOA (and other settling banks) does not want the government conducting a methodical and in depth investigation into its lending practices. That would uncover “irregularities” that make everything else look like child’s play.

Let’s play a little detective. Did you ever ask why there was widespread robo-signing of documents which included everything from people signing other people’s name on endorsements and assignments on thousands of documents to outright forged endorsements. I would say the question is, why were these notes not endorsed at the closing or shortly thereafter? I mean, the banks and investment houses had all the best legal minds in their stables telling them exactly what to do and when to do it. Do you really believe they all collectively dropped the ball on doing something as simple as signing an endorsement on a note or signing an assignment of mortgage?

I have been in the trenches for 4 years fighting foreclosures. I have seen a lot of “stuff”, both from the banks and the courts. Perhaps, I have become a bit jaded. But one question that I ask, over and over again, is, ‘was there a reason that the banks and investment houses allegedly did not endorse notes until they were robo-signed just before the foreclosure action was filed? Well, here’s one theory. Banks and investment houses are required to borrower billions of dollars daily at the repo desk. To get their hands on that kind of money, they have to put up collateral. A note that is endorsed to someone else or in blank cannot be used for collateral. But if, by chance (or not by chance), you had notes that were made out to you but not endorsed to a third party or in blank, perhaps, just perhaps, those notes could be used as collateral at the repo desk. Who would know the difference?

That would be a massive fraud. It would make Bernie Madoff look small time. Now, I am not saying that this happened. But, what I am saying is that there has to be a reason that BOA and other banks and investment houses are paying millions and more often billions of dollars in settlements, right and left. There has to be a reason that they do not want any in-depth discovery of their paperwork or e-work. It is not because of a few predatory loans.

Think about it. Then ask yourself, why aren’t the courts and the feds asking this same question?

MBIA Settlement

Posted by kevin on May 9, 2013 under Foreclosure Blog | Comments are off for this article

Historically, MBIA wrote insurance on municipal bonds. It made good, but not spectacular, money for years. In the early 2000’s, however, it saw how much $ AIG was making on insuring mortgage backed securities (“MBS’s”), and wanted in. To induce investment in MBS’s, the sponsor would offer insurance or credit default swaps to investors. MBIA would be paid a premium to issue that insurance. An easy way to make lot’s of money because the MBS’s were rated triple A by S&P, or other rating agencies. However, notwithstanding the triple A rating, the mortgages that backed the MBS’s were ticking timebombs which started to go off in 2007. The results were disasterous for companies like MBIA.

Countrywide (“CW”) was one of the leading purveyors of toxic mortgages. It sold many of its loans to securitized trusts. MBIA wrote the insurance on these MBS’s. When the proverbial s*%t hit the fan, MBIA had to pay out about $3 billion in claims. By that time, Bank of America (“BOA”) had bought out CW. MBIA sued BOA on the grounds that the representations and warranties made in the various prospectuses that securitized CW mortgages were nothing but a pack of lies. These were not safe investments made to well qualified borrowers. They were predatory loans that should never have been written in the first place. After years of litigation, BOA agreed to pay MBIA $1.7 billion the case.

A victory? For MBIA, yes. But what about the average borrower who got screwed by CW? I mean CW lied to MBIA and the investors about the quality of the loans. Borrowers were lied to or taken advantage of by CW who put the borrower in loans that the borrowers could not afford. Without the underlying bad loans, there would be no MBS’s, no investors, and no insurance or credit default swaps. So, does the borrower have a new defense that the various chancery judges in NJ will be eager to enforce?

Don’t bet on it. I am afraid that most Jersey judges will ignore the argument on the grounds that the borrowers do not have standing to raise the breach of warranty issue because the borrower is not a party to or a third party beneficiary of the Pooling & Servicing Agreement (“PSA”). That’s precious considering that the breaches of warranty and misrepresentations deal with the underlying loans made by the banks to the borrowers. Without borrowers, there would be no representations and warranties.

We have lots of laws, but who do they protect?

SEC Investigation- Mortgage Repurchases

Posted by kevin on September 29, 2011 under Foreclosure Blog | Comments are off for this article

This is a part of the game that the consumer does not see.  The SEC is investigating Credit Suisse and RBS for misleading investors as to the number of bad loans that had to be repurchased (or should have been repurchased) by the originators for failure to live up to the warranties and representations made in the Pooling & Servicing Agreements (PSA) or other like documents.

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