Real Relief for Upside Down Home Owners
RISMEDIA, March 9, 2010—Forget loan modifications, short sales, and “jingle mail”! If you are one of an estimated 50 to 60 million homeowners whose mortgage is part of a securitized pool, the law is on your side and everyday more and more people are deciding to exercise their rights with regard to the documents they signed.
There is much more contained within those documents and pooling and servicing agreements that govern the pools than just the borrowers promise to pay. And, there are laws that must be adhered to by the lender of the money.
As it turns out, virtually all of the securitized private label loans were part of a massive and ongoing fraud upon both the borrower and the investor. And, the fraud continues as the pretender lenders force more defaults, stop making payments to the pools, collect on the credit default swaps, and top it all off by seizing the underlying assets (only if they can make additional money on them) and keeping any proceeds for themselves.
What borrowers and investors agreed to and what they actually got are at odds, and these discrepancies raise serious legal issues including, but not limited to, Truth In Lending Violations, Real Estate Settlement Procedures Act Violations, Fraud, Bait and Switch, illegal kickbacks involving the borrower, and out right fraud and conversion upon the investor.
In the cases of loans such as a 2/28, pick-a-pay and option arm, their very existence is prima facie evidence of predatory lending and fraud upon the investors.
Nor are we talking about a small amount of money or a technicality. We are talking about a complex system of deceit by financial intermediaries that can turn a single modest home loan into millions of dollars in profit for them.
The Worse the Loan the More They Can Make
Suppose a buyer actually qualifies for a $300,000 fully amortized, fixed rate loan at 5%.
But, right at the end of the process the underwriter calls the loan officer and says something like this;
“We’ve just had a change to our underwriting guidelines and we aren’t going to fund the loan.”
This is really funny because the loan is already funded. Now, it’s time to kick up the profits. Of course, the loan officer’s emotions run the full range from disbelief to anger to fear. “Why?” She pleads.
Underwriter: “His ratios. He needs a lower monthly payment. Resubmit in our new super-duper, magical flex loan with the built in implosion feature.”
Now, before we run out and lynch a bunch of loan officers, this is what they were given to work with and trained to do. They were as indoctrinated into this as if they had drunk the cool aid. If it makes you feel better, they got pushed into these loans too. I get a lot of email from loan originators and real estate agents who often feel embarrassed about their choices, but back then we didn’t know that it was just a giant Ponzi scheme.
The loan product is determined by an underwriter. The perception is that the only purpose for underwriting is to determine the credit worthiness of the borrower and the value of the security. But, the underwriting process actually yields far more valuable information. It also reveals the borrower’s default probability and numerous details about their behavior. Knowledge of the borrower’s behavior combined with negative features in the loan allowed insiders to project when the loan would default.
Armed with this information, the underwriter is able to “tweak” the loan to increase the Yield Spread Premium and the Service Release Premium, as well as, increase the likelihood of collecting on the credit default swaps. That is the process of putting you into the most profitable loan possible. And, it is where the real predatory lending takes place.
Back to our borrower. By bumping our highly qualified borrower from 5% to 8%, they only increase the likelihood of default; they are able to extract an enormous undisclosed Service Release Premium and a Yield Spread Premium. The Yield Spread Premium is supposed to be disclosed, but often isn’t.
The Service Release Premium is where the real money is, and it’s hidden. The investor provides $480,000 to the financial intermediary in exchange for a five percent annual return of $24,000 plus a guaranteed return of principal.
The financial intermediary only loans our borrower $300,000, but when the rate adjusts to 8%, the investor has his $24,000 annual income, the financial intermediary pockets a $180,000 Service Release Premium, makes up the initial shortfall in the pool payments and buys credit default swaps.
So this is where we really are.
They are not banks. They call themselves banks, but they aren’t banks.
They did not lend you any money. They loaned you someone else’s money.
You don’t owe them any money. Maybe you owe a pension fund or something, maybe not.
You may not owe anyone any money. If the investors recouped their losses from TARP funds, you no longer owe them anything.
They may owe you money. If you were the victim of predatory lending, your damages could be into the hundreds of thousands of dollars, plus legal expenses
They may have no legal right to foreclose on you.
You have a legal right under the terms of your loan agreement and common law to raise the above issues with the true holder of the original note you signed.
Why? Because securitized loans presented an opportunity to commit fraud on both the true lender by skimming, and the borrower by convincing him he should accept a far more expensive loan than the one for which he qualified.
The financial intermediary wrote the pooling and servicing agreements and the credit default swaps. The terms of the pooling and servicing agreement allow the financial intermediary to stop making payments on all loans in the pool and keep the revenue stream from the performing loans when a default occurs within the pool. It also allows the financial intermediary to collect on the credit default swap on the entire pool which is multiples of the loan value of the entire pool.
The game was rigged, but they overlooked one little thing; The Uniform Commercial Code, Chapter 3, 47-3110. The Uniform Commercial Code is replicated in virtually every state, and this section governs who may enforce a note.
Look at this a different way. Suppose you wanted to pay off your loan, but you wanted to be absolutely certain that the money would go to the rightful party so that you would not be subject to someone showing up later claiming you never paid off your note. You have a legal right to know who that party is.
If they cannot satisfy this provision of the UCC, they cannot proceed to foreclose. If you wanted to take the fight to them and see if they can produce the note, this is the law you need to pursue.
There is much more contained within those documents and pooling and servicing agreements that govern the pools than just the borrowers promise to pay. And, there are laws that must be adhered to by the lender of the money.
As it turns out, virtually all of the securitized private label loans were part of a massive and ongoing fraud upon both the borrower and the investor. And, the fraud continues as the pretender lenders force more defaults, stop making payments to the pools, collect on the credit default swaps, and top it all off by seizing the underlying assets (only if they can make additional money on them) and keeping any proceeds for themselves.
What borrowers and investors agreed to and what they actually got are at odds, and these discrepancies raise serious legal issues including, but not limited to, Truth In Lending Violations, Real Estate Settlement Procedures Act Violations, Fraud, Bait and Switch, illegal kickbacks involving the borrower, and out right fraud and conversion upon the investor.
In the cases of loans such as a 2/28, pick-a-pay and option arm, their very existence is prima facie evidence of predatory lending and fraud upon the investors.
Nor are we talking about a small amount of money or a technicality. We are talking about a complex system of deceit by financial intermediaries that can turn a single modest home loan into millions of dollars in profit for them.
The Worse the Loan the More They Can Make
Suppose a buyer actually qualifies for a $300,000 fully amortized, fixed rate loan at 5%.
But, right at the end of the process the underwriter calls the loan officer and says something like this;
“We’ve just had a change to our underwriting guidelines and we aren’t going to fund the loan.”
This is really funny because the loan is already funded. Now, it’s time to kick up the profits. Of course, the loan officer’s emotions run the full range from disbelief to anger to fear. “Why?” She pleads.
Underwriter: “His ratios. He needs a lower monthly payment. Resubmit in our new super-duper, magical flex loan with the built in implosion feature.”
Now, before we run out and lynch a bunch of loan officers, this is what they were given to work with and trained to do. They were as indoctrinated into this as if they had drunk the cool aid. If it makes you feel better, they got pushed into these loans too. I get a lot of email from loan originators and real estate agents who often feel embarrassed about their choices, but back then we didn’t know that it was just a giant Ponzi scheme.
The loan product is determined by an underwriter. The perception is that the only purpose for underwriting is to determine the credit worthiness of the borrower and the value of the security. But, the underwriting process actually yields far more valuable information. It also reveals the borrower’s default probability and numerous details about their behavior. Knowledge of the borrower’s behavior combined with negative features in the loan allowed insiders to project when the loan would default.
Armed with this information, the underwriter is able to “tweak” the loan to increase the Yield Spread Premium and the Service Release Premium, as well as, increase the likelihood of collecting on the credit default swaps. That is the process of putting you into the most profitable loan possible. And, it is where the real predatory lending takes place.
Back to our borrower. By bumping our highly qualified borrower from 5% to 8%, they only increase the likelihood of default; they are able to extract an enormous undisclosed Service Release Premium and a Yield Spread Premium. The Yield Spread Premium is supposed to be disclosed, but often isn’t.
The Service Release Premium is where the real money is, and it’s hidden. The investor provides $480,000 to the financial intermediary in exchange for a five percent annual return of $24,000 plus a guaranteed return of principal.
The financial intermediary only loans our borrower $300,000, but when the rate adjusts to 8%, the investor has his $24,000 annual income, the financial intermediary pockets a $180,000 Service Release Premium, makes up the initial shortfall in the pool payments and buys credit default swaps.
So this is where we really are.
They are not banks. They call themselves banks, but they aren’t banks.
They did not lend you any money. They loaned you someone else’s money.
You don’t owe them any money. Maybe you owe a pension fund or something, maybe not.
You may not owe anyone any money. If the investors recouped their losses from TARP funds, you no longer owe them anything.
They may owe you money. If you were the victim of predatory lending, your damages could be into the hundreds of thousands of dollars, plus legal expenses
They may have no legal right to foreclose on you.
You have a legal right under the terms of your loan agreement and common law to raise the above issues with the true holder of the original note you signed.
Why? Because securitized loans presented an opportunity to commit fraud on both the true lender by skimming, and the borrower by convincing him he should accept a far more expensive loan than the one for which he qualified.
The financial intermediary wrote the pooling and servicing agreements and the credit default swaps. The terms of the pooling and servicing agreement allow the financial intermediary to stop making payments on all loans in the pool and keep the revenue stream from the performing loans when a default occurs within the pool. It also allows the financial intermediary to collect on the credit default swap on the entire pool which is multiples of the loan value of the entire pool.
The game was rigged, but they overlooked one little thing; The Uniform Commercial Code, Chapter 3, 47-3110. The Uniform Commercial Code is replicated in virtually every state, and this section governs who may enforce a note.
Look at this a different way. Suppose you wanted to pay off your loan, but you wanted to be absolutely certain that the money would go to the rightful party so that you would not be subject to someone showing up later claiming you never paid off your note. You have a legal right to know who that party is.
If they cannot satisfy this provision of the UCC, they cannot proceed to foreclose. If you wanted to take the fight to them and see if they can produce the note, this is the law you need to pursue.
Labels: foreclosed homes, foreclosure, loan modifications, mortgage, mortgage rate, short sale
posted by The Fine Living Group of Nashville at
11:36 AM
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