Wells Fargo Sues J.P.Morgan Chase for Mortgage Documents in REMIC

which, as the trustee of the REMIC, Wells Fargo should have verified when the trust was created.

Bloomberg reports:

JPMorgan Chase & Co.’s EMC Mortgage, facing homeowner lawsuits over foreclosures, was sued by the trustee of a mortgage portfolio for refusing to turn over documents detailing the quality of loans bought by the trust.

Wells Fargo & Co., the trustee, is seeking access to files for more than 2,000 underlying mortgages in the Bear Stearns Mortgage Funding Trust 2007-AR2, according to the complaint filed today in Delaware Chancery Court in Wilmington.

“The trustee has repeatedly requested that EMC provide access to the subject documents,” Wells Fargo said in the complaint. “EMC has played proverbial ‘rope a dope’ and otherwise continued to drag its feet, and has produced nothing.”

Rope a dope? Now that's funny. Isn't that how Wells, J.P.Morgan Chase, Bank of America, et al has been dealing with frustrated homeowners who try to save their homes over the past 2, 3 years?

According to the article, it was one of the suckers who complained to Wells Fargo after having bought a significant chunk of the certificates issued by this particular trust, under Wells Fargo's loving care. The certificates, or mortgage-backed securities, are most likely not backed by mortgages at all, if the industry practice of the past decade is followed.

An investor in the trust, who owns 42 percent of the outstanding face amount of the portfolio’s certificates, questioned the condition of underlying loans

, Wells Fargo said in the complaint, citing an August letter it received from David Grais, the investor’s attorney.

Grais, a partner at New York-based Grais & Ellsworth LLP, represents the federal Home Loan Banks of Seattle and San Francisco and Charles Schwab Corp. in litigation seeking to force banks including Bank of America Corp. and JPMorgan to repurchase mortgage-backed securities because they allegedly misrepresented the quality of the loans.

42 percent. Ouch.

As to the Bear Stearns Mortgage Funding Trust 2007-AR2, here's the last 10-D filing, in January 2008. The trust issued three classes of securities, A-1, 2, 3, B-1, 2, 3, 4, 5, B-IO, XP, R, R-X (the last three did not have initial certificate balance). The underlying mortgages are Alt-A, short-reset hybrid and/or negative amortization - in other words, junk.

Just out of curiosity, I checked to see if there's any info on the securities.

Here's one, A-1 (CUSIP 07401TAA4), as of August 20, 2008, by Standard & Poor loss assessment: Projected loss = 18.84%.

Here's another A-class, A-3 (CUSIP 07401TAC0), downgraded on August 19, 2009 by S&P from B to CCC, and put on a negative watch.

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Randall Wray: Time to Audit REMICs!

Yes, those REMICs (Real Estate Mortgage Investment Conduits) that didn't have any mortgage to back their MBS, which therefore was "mortgage-unbacked securities".

Randall Wray, who's been writing extensively about mortgage origination - securitization - foreclosure fraud which he calls "the worst in human history", says it is time we audited the REMICs:

We now know that the “mortgage backed” securities were not backed by mortgages. In reality they are unsecured debt. The “pooling and servicing agreements” (PSAs) that govern securitization require that the mortgage documents (including the wet ink notes as well as a clean chain of title) are transferred in a timely manner to the trustees. This was rarely and perhaps never done, because it was counter to the recommendation made by MERS (Mortgage Electronic Registry System). Instead, notes were either destroyed or held by the servicers to speed the foreclosures that were always envisioned as the end result of the mortgage origination process. Not only does this practice render the securities fraudulent but it also violates the federal tax laws that govern the REMICs—meaning back taxes are due.

But worse than all that, by breaking the chain of title and by destruction of documents, MERS and the servicers have jeopardized the entire system of property rights. Most, perhaps all, foreclosures have been fraudulent, which means that resales of the homes are also frauds. It goes without saying that the original mortgages were frauds from the very beginning—to complete the transformation to the ownership society it was necessary to ensure that by construction, default was inevitable. Either the homeowner would be unable to pay, or the servicer would “lose” the payments. By obscuring the chain of title, it would be impossible for the debtors or the courts to sort things out. Separating home owners from their property was necessary to ensure that we can create Bush's ownership society. It is the modern form of the feudal foreclosures and seizures of peasant lands that concentrated ownership in the hands of agricultural capitalists—creating the first ownership society.

...It is time to push the reset button. All foreclosures should be stopped immediately. The REMIC trustees should be audited to see if they have properly followed the requirements of the PSAs and laws applying to REMICs. If they do not have the notes, the securities should be put back to the banks. If the banks cannot absorb the losses, they must be closed and resolved.

On a very thin trading today, banks who are servicers and/or trustees of a REMIC - Bank of America, J.P.Morgan Chase, Wells Fargo, Citi, Bank of New York, etc - are all up.

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Matt Taibbi on Foreclosuregate: Ready, Set, Fraud!

Matt Taibbi, who made Goldman Sachs almost a household name by comparing it to a "vampire squid", writes about what MSMs continue to ignore: 'Foreclosuregate'.

In the article for Rolling Stone Magazine, Taibbi reports on a day in a foreclosure "rocket docket" in Florida (judicial state, where foreclosures have to go through the court) where the presiding judge is determined to resolve 25 foreclosure cases PER HOUR, and shows us what other researchers (like William Black and Karl Denninger) have also shown us: The whole thing has been a one, gigantic FRAUD by the banks, from creating mortgage loans to securitization to foreclosures. All of it.

Worse, the court system is set up to assist the banks over and over again until they present the judge with a decent enough set of fraudulent papers. Then, good riddance, the judge decides in favor of the banks and they can take the house. Those judges in New York, who side with the homeowners, are rare exceptions.

And he also agrees with me, that we are conditioned to blame the "deadbeats", not the Wall Street banks.

From Rolling Stone Magazine:

The foreclosure lawyers down in Jacksonville had warned me, but I was skeptical. They told me the state of Florida had created a special super-high-speed housing court with a specific mandate to rubber-stamp the legally dicey foreclosures by corporate mortgage pushers like Deutsche Bank and JP Morgan Chase. This "rocket docket," as it is called in town, is presided over by retired judges who seem to have no clue about the insanely complex financial instruments they are ruling on — securitized mortgages and laby­rinthine derivative deals of a type that didn't even exist when most of them were active members of the bench. Their stated mission isn't to decide right and wrong, but to clear cases and blast human beings out of their homes with ultimate velocity. They certainly have no incentive to penetrate the profound criminal mysteries of the great American mortgage bubble of the 2000s, perhaps the most complex Ponzi scheme in human history — an epic mountain range of corporate fraud in which Wall Street megabanks conspired first to collect huge numbers of subprime mortgages, then to unload them on unsuspecting third parties like pensions, trade unions and insurance companies (and, ultimately, you and me, as taxpayers) in the guise of AAA-rated investments. Selling lead as gold, shit as Chanel No. 5, was the essence of the booming international fraud scheme that created most all of these now-failing home mortgages.

The rocket docket wasn't created to investigate any of that. It exists to launder the crime and bury the evidence by speeding thousands of fraudulent and predatory loans to the ends of their life cycles, so that the houses attached to them can be sold again with clean paperwork. The judges, in fact, openly admit that their primary mission is not justice but speed. One Jacksonville judge, the Honorable A.C. Soud, even told a local newspaper that his goal is to resolve 25 cases per hour. Given the way the system is rigged, that means His Honor could well be throwing one ass on the street every 2.4 minutes.

Foreclosure lawyers told me one other thing about the rocket docket. The hearings, they said, aren't exactly public. "The judges might give you a hard time about watching," one lawyer warned. "They're not exactly anxious for people to know about this stuff." Inwardly, I laughed at this — it sounded like typical activist paranoia. The notion that a judge would try to prevent any citizen, much less a member of the media, from watching an open civil hearing sounded ridiculous. Fucked-up as everyone knows the state of Florida is, it couldn't be that bad. It isn't Indonesia. Right?

Well, not quite. When I went to sit in on Judge Soud's courtroom in downtown Jacksonville, I was treated to an intimate, and at times breathtaking, education in the horror of the foreclosure crisis, which is rapidly emerging as the even scarier sequel to the financial meltdown of 2008: Invasion of the Home Snatchers II. In Las Vegas, one in 25 homes is now in foreclosure. In Fort Myers, Florida, one in 35. In September, lenders nationwide took over a rec­ord 102,134 properties; that same month, more than a third of all home sales were distressed properties. All told, some 820,000 Americans have already lost their homes this year, and another 1 million currently face foreclosure.

Throughout the mounting catastrophe, however, many Americans have been slow to comprehend the true nature of the mortgage disaster. They seemed to have grasped just two things about the crisis: One, a lot of people are getting their houses foreclosed on. Two, some of the banks doing the foreclosing seem to have misplaced their paperwork.

For most people, the former bit about homeowners not paying their damn bills is the important part, while the latter, about the sudden and strange inability of the world's biggest and wealthiest banks to keep proper records, is incidental. Just a little office sloppiness, and who cares? Those deadbeat homeowners still owe the money, right? "They had it coming to them," is how a bartender at the Jacksonville airport put it to me.

But in reality, it's the unpaid bills that are incidental and the lost paperwork that matters. It turns out that underneath that little iceberg tip of exposed evidence lies a fraud so gigantic that it literally cannot be contemplated by our leaders, for fear of admitting that our entire financial system is corrupted to its core — with our great banks and even our government coffers backed not by real wealth but by vast landfills of deceptively generated and essentially worthless mortgage-backed assets.

You've heard of Too Big to Fail — the foreclosure crisis is Too Big for Fraud. Think of the Bernie Madoff scam, only replicated tens of thousands of times over, infecting every corner of the financial universe. The underlying crime is so pervasive, we simply can't admit to it — and so we are working feverishly to rubber-stamp the problem away, in sordid little backrooms in cities like Jacksonville, behind doors that shouldn't be, but often are, closed.

About loan securitization:

Since these mortgage-backed securities paid much higher returns than other AAA investments like treasury notes or corporate bonds, the banks had no trouble attracting investors, foreign and domestic, from pension funds to insurance companies to trade unions. The demand was so great, in fact, that they often sold mortgages they didn't even have yet, prompting big warehouse lenders like Countrywide and New Century to rush out into the world to find more warm bodies to lend to.

In their extreme haste to get thousands and thousands of mortgages they could resell to the banks, the lenders committed an astonishing variety of fraud, from falsifying income statements to making grossly inflated appraisals to misrepresenting properties to home buyers. Most crucially, they gave tons and tons of credit to people who probably didn't deserve it, and why not? These fly-by-night mortgage companies weren't going to hold on to these loans, not even for 10 minutes. They were issuing this credit specifically to sell the loans off to the big banks right away, in furtherance of the larger scheme to dump fraudulent AAA-rated mortgage-backed securities on investors. If you had a pulse, they had a house to sell you.

As bad as Countrywide and all those lenders were, the banks that had sent them out to collect these crap loans were a hundred times worse. To sell the loans, the banks often dumped them into big tax-exempt buckets called REMICs, or Real Estate Mortgage Investment Conduits. Each one of these Enron-ish, offshore-like real estate trusts spelled out exactly what kinds of loans were supposed to be in the pool, when they were to be collected, and how they were to be managed. In order to both preserve their tax-exempt status and deserve their AAA ratings, each of the loans in the pool had to have certain characteristics. The loans couldn't already be in default or foreclosure at the time they were sold to investors. If they were advertised as nice, safe, fixed-rate mortgages, they couldn't turn out to be high-interest junk loans. And, on the most basic level, the loans had to actually exist. In other words, if the trust stipulated that all the loans had to be collected by August 2005, the bank couldn't still be sticking in mortgages months later.

Yet that's exactly what the banks did. In one case handled by Jacksonville Area Legal Aid, a homeowner refinanced her house in 2005 but almost immediately got into trouble, going into default in December of that year. Yet somehow, this woman's loan was placed into a trust called Home Equity Loan Trust Series AE 2005-HE5 in January 2006 — five months after the deadline for that particular trust. The loan was not only late, it was already in foreclosure — which means that, by definition, whoever the investors were in AE 2005-HE5 were getting shafted.

Why does stuff like this matter? Because when the banks put these pools together, they were telling their investors that they were putting their money into tidy collections of real, performing home loans. But frequently, the loans in the trust were complete shit. Or sometimes, the banks didn't even have all the loans they said they had. But the banks sold the securities based on these pools of mortgages as AAA-rated gold anyway.

In short, all of this was a scam — and that's why so many of these mortgages lack a true paper trail. Had these transfers been done legally, the actual mortgage note and detailed information about all of these transactions would have been passed from entity to entity each time the mortgage was sold. But in actual practice, the banks were often committing securities fraud (because many of the mortgages did not match the information in the prospectuses given to investors) and tax fraud (because the way the mortgages were collected and serviced often violated the strict procedures governing such investments). Having unloaded this diseased cargo onto their unsuspecting customers, the banks had no incentive to waste money keeping "proper" documentation of all these dubious transactions.

Please go to his Rolling Stone Magazine article, and read it. It is not the matter of 'deadbeat' homeowners who 'didn't deserve' it. It is the matter of Wall Street banks getting away again with probably the biggest fraud and ponzi, with the help of the government and the court system, again.

And for the unlucky homeowners in non-judicial states, there's no help. Not that I know of, short of declaring bankruptcy. Banks send them conflicting, fraudulent foreclosure papers, there is no public venue for the homeowners to contest them, and banks win by obtaining the houses that they LACK legit title to.

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Foreclosuregate: NY Judges Side with Homeowners

Washington Post reports that the judges in three counties in New York - Suffolk, Nassau and Kings counties - are increasingly siding with the homeowners who are being foreclosed, often by the nation's biggest banks, over the fraudulent documents and procedures and fraudulent/incomplete mortgage assignments and transfers.

Their judgement: because of these frauds, the foreclosing banks do not have standing to foreclose.

The Washington Post article tries to paint it as "paperwork" (i.e. trivial; just look at the wimpy title) problem, but what these judges are doing goes to the heart of the matter - what William Black calls "control fraud".

Some judges chastise banks over foreclosure paperwork
(Ariana Eunjung Cha, 11/09/2010 Washington Post) [Emphasis is mine.]

EAST PATCHOGUE, N.Y. - A year ago, Long Island Judge Jeffrey Spinner concluded that a mortgage company's paperwork in a foreclosure case was so flawed and its behavior in negotiations with the borrower so "repugnant" that he erased the family's $292,500 debt and gave the house back for free.

The judgment in favor of the homeowner, Diane Yano-Horoski, which is being appealed, has alarmed the nation's biggest lenders, who say it could establish a dramatic new legal precedent and roil the nation's foreclosure system.

It is not the only case that has big banks worried. Spinner and some of colleagues in the New York City area estimate they are dismissing 20 to 50 percent of foreclosure cases on the basis of sloppy or fraudulent paperwork filed by lenders.

...The situation in Suffolk and Nassau counties on Long Island and Kings County in Brooklyn- which have among the highest rates of foreclosure in the state and where the 81 judges handling foreclosures have become infamous over the past few years for scrutinizing paperwork for errors - provides a window into how the crisis could unfold across in the country.

While the level of tolerance for document mistakes varies from judge to judge, the group as a whole has a reputation for ruling against mortgage companies when paperwork issues or other problems arise. At least one bank, J.P. Morgan Chase, requires document processors to separate foreclosures cases from these three counties from those in the rest of the country. A high-ranking executive of the company is specially assigned to sign off on the area's foreclosure filings.

Judge Dana Winslow of Nassau County says he's thought a lot about why judges in his area are more apt to question filings. He said it comes down to one thing: Lack of trust for Wall Street. In this region, judges have seen a lot of inaccurate filings from the financial sector.

The article then lists several recent cases in which "paperwork errors" stopped the foreclosure:

On June 17, for example, Judge Karen Murphy of Nassau County ruled that Wachovia Bank lacked standing to foreclose on a home because the document used to prove ownership of the mortgage was incomplete.

On Sept. 21, Judge Peter Mayer of Suffolk County delayed a foreclosure by Ally Financial's GMAC mortgage unit after noticing that the paperwork transferring the mortgage to the bank was dated two days after the foreclosure was initiated.

And on Oct. 21, Judge Arthur Schack of Kings County dismissed a OneWest foreclosure motion because the bank had not adequately documented how the mortgage had been sold and resold to investors. He also questioned why the employee who signed many of the documents claimed to be a vice president of several different mortgage companies at the same time.

In a different case in May, Schack ruled that HSBC Bank could not foreclose on a home because the paperwork that assigned the mortgage to HSBC from the original lender, Cambridge, was "defective."

(You can read the entire article at the link above.)

A big can of worms is the securitization fraud.

If the mortgages weren't properly transferred to a securitization trust (REMIC - Real Estate Mortgage Investment Conduit) when the trust was duly set up, as seems to be the case in many (if not all) mortgages, then the certificates issued to the investors by the REMIC did not have any backing as specified in the pooling and servicing agreement. The investors were literally sold worthless papers (or digits on their accounts). The trustee of the REMIC is responsible for making sure the mortgages are properly transferred into the trust, and that these mortgages meet the standard specified in the agreement. It looks the trustees of numerous REMICs - large banks like Bank of New York Mellon, Deutsche Bank, Wells Fargo - didn't bother to do it.

Why is this important for the borrowers? Well, if the REMIC didn't own the underlying mortgages but was receiving the payment from the borrowers and distributing to the investors, I don't know a better word for that than FRAUD. Or RACKET. The borrowers were paying to the entity that had no right to receive payments.

New York is a judicial foreclosure state. Lucky for the struggling homeowners being foreclosed. The same fraudulent papers, filings, assignments, etc. are rampant also in non-judicial foreclosure states (California is one of them), but the homeowners who are being foreclosed in the non-judicial states have to bring a costly lawsuit to get a court hearing, and the burden of proof that the foreclosing party does not have the standing is on the homeowners, unlike in the judicial foreclosure states like New York.

It seems to me that non-judicial foreclosures are unconstitutional, denying the borrowers in the non-judicial states the right to be heard by the court while that right is enjoyed by the borrowers in the judicial states.

Thus, MSMs like Washington Post and the politicians in the pockets of Wall Street bankers (from President on down) don't want to touch "Foreclosuregate" very much, and when they do, they try their best to portray as a mere "paperwork" problem to be remedied very quickly and easily by the banks.

And we are conditioned to blame "greedy" borrowers and "deadbeats".

(h/t vecteur63)

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