Why the AGs Must Not Settle: Robo-signing Is Just the Tip of the Iceberg

[marmar]

Published on Sunday, February 5, 2012 by [font color="green"]Common Dreams[/font]
Why the AGs Must Not Settle: Robo-signing Is Just the Tip of the Iceberg

by Ellen Brown


A foreclosure settlement between five major banks guilty of “robo-signing” and the attorneys general of the 50 states is pending for Monday, February 6th; but it is still not clear if all the AGs will sign. California was to get over half of the $25 billion in settlement money, and California AG Kamala Harris has withstood pressure to settle.

That is good. She and the other AGs should not sign until a thorough investigation has been conducted. The evidence to date suggests that “robo-signing” was not a mere technical default or sloppy business practice but was part and parcel of a much larger fraud, the fraud that brought down the whole economy in 2008. It is not just distressed homeowners but the entire economy that has paid the price, resulting in massive unemployment and a shrunken tax base, throwing state and local governments into insolvency and forcing austerity measures and cutbacks in government services across the nation.

......(snip)......

Why All the Robo-signing?

Over half the homes in the country are now held in the name of an electronic database called MERS—Mortgage Electronic Registration Services. MERS is a smokescreen concealing the fact that these mortgages were sold to trusts that sold them to investors. The mortgages were chopped into pieces and sold as “mortgage-backed securities” (MBS), which traded in a supposedly liquid market. That meant the investors could sell them in the money market at any time on a day’s notice. Yale economist Gary Gorton gives this example:

Suppose the institutional investor is Fidelity, and Fidelity has $500 million in cash that will be used to buy securities, but not right now. Right now Fidelity wants a safe place to earn interest, but such that the money is available in case the opportunity for buying securities arises. Fidelity goes to Bear Stearns and “deposits” the $500 million overnight for interest. What makes this deposit safe? The safety comes from the collateral that Bear Stearns provides. Bear Stearns holds some asset‐backed securities (with) a market value of $500 millions. These bonds are provided to Fidelity as collateral. Fidelity takes physical possession of these bonds. Since the transaction is overnight, Fidelity can get its money back the next morning, or it can agree to “roll” the trade. Fidelity earns, say, 3 percent.

That is where the robo-signing came in. Foreclosure defense attorneys armed with the tools of discovery have discovered that robo-signing -- involving falsified signatures assigning mortgages back to the trusts allegedly owning them -- occurred not just occasionally or randomly but in virtually every case. Why? Because the mortgages had to be left free to be bought and sold on a daily basis in the money market by investors. The investors are not interested in making 30 year loans. They want something short-term with immediate rights of withdrawal like a deposit account. .................(more)

The complete piece is at: http://www.commondreams.org/view/2012/02/05

[KansDem]

1. Thanks for posting this!

I'm still wading through the muck and mire that is this scandal. And the more I learn about it, the angrier I get!

Posts and articles like this one help to enlighten me...

[FreakinDJ]

2. All a House of Cards

[Bluenorthwest]

3. Actually a game of 3 Card Monte....

in that the deception is intentional.

[City Lights]

4. Thanks for posting this!

It was a real eye-opener to me!

[ashling]

5. I worked in title insurance for several years

I have been a title researcher, underwriting attorney and claims attorney. When I went to law school our property class took a trip out to a local county courthouse in the country (Raymond, MS) to go over the process of recording of instruments, searching this particular system etc. I swore I would never do that again! I opened my doors tho practice law in a small town in 1982 and, times being what they were, found that to keep bread and butter on the table I was doing a lot of title searches. Before long, I found I had more experience doing that than anything else.

I would go on and fill in more of my story, but it would probably be better to wait for the movie.

Anyway, for many years in this country there were only a few differences between states as to their recording laws. They all came down to this one fact, your deed had to be on file in the courthouse to put the whole world on notice that you owned that property. With minotr variations by state, you got a deed, you recorded it. You financed your property through a Deed of Trust, which is essentially a deed of no trust whatsoever, because if the bank thought you were going to pay them anyway, why would they go to all that trouble. That may sound like a humorous statement - or just plain stupid - but bare with me for a moment. Anyway, you recorded the deed of trust so everybody in the county was now on physical notice and everybody in the world was on constructive notice that Bank X had an interest in your property. Anybody lending you money or remodeling your home knew from then on that their interest was subordinate to Bank X's interest. If and when Bank X sold their interest to Bank Y, they had to file a notice of transfer at the county courthouse. Now everybody was on notice - physical or constructive - that now Bank Y had an interest in your property. When Bank Y went under and was bought out in receivership by Bank Z, the same process took place.

Now this was good for you, the property owner, because, among other things, when you went to sell your property you could prove who had the interest to pay off. This worked very well for everybody for a long time. Then banks started selling deeds of trust in bulk. When that happened I was examining title is Wash DC, Banks would begin to file documents they sometimes called an Omnibus Deed of Trust ot Transfer of Deeds of Trust. Those of us researching title had to go through tons of paper to make sure that your little trust was actually covered, Before long, the Banks (and I use that term loosely, because it was about this time that banks broke their glass ceiling: the Glass-Stegall Act - (pun intended).

These Financial Institutions (as they realy werent banks anymore) realized that they would save a lot of paperwork - not to mention filing fees - if they didn't have to file all of this stuff so, just like they were thePacific Railroad dumping off another trainload of dead Chinese laborers

(pardon me, I just finished a long [strike through]tirade[/strike through] er, explaination to a student about the history of Chinese laborers and Yick Wo v Hopkins and how he wasn't taking a job cleaning laundry from an American Citizen - really!)

Now, where was I? Oh yeah, these Financial Institutions decided to create a subsidiary corporation to remember where the deeds of trust were.) When I first encountered this thing they created called Mers I thought: "this is not going to end well." Boy was that an understatement. As far as I was concerned, Mers was not enough. There were recording laws, by God, and I still tried to hold my people to them. Now, I hear you saying words like "futile," "naive" and "loonatic" - all of which descriptive words I gladly accept. However, I had alredy found out that the Title Insurance companies weren't trying to be the keepers of the recording laws, or even to prove perfect title - just reasonably good, don't get us sued, title.

However, somebody realized that this MERS organization couldn't just operate that way. That, I suppose, is when they started being placed on the actual deed of trust when you sign at settlement. The deeds of trust were now not signed to Bank Q, but to MERS as nominee for Bank Q. This was to solve the whole problem of taking it out of the hands of the county recorder. Technically, it was a fix, but it still didn't make MERS any more reliable. You were supposed to be able to contact MERS to find out who had the interest that needed to be paid off. Sometimes that worked, sometimes it tool a lot of calling and a lot of digging. The owner of the property had no earthly idea that his deed of trust ws on such a trampoline of transfers. The owner was dealing with a mortgage servicer - who had their own problems.

Well, now I am a recovering attorney and title agent, so I no longer deal in that stuff.

Anyway, I just wanted to tell you all that this thing will not end well.

[JDPriestly]

6. Thanks. Excellent explanation.

Years after we had refinanced our loan and after it had be sold and resold a couple of times, we got calls from mortgage company representatives trying to talk us into refinancing again -- and they always referred to the original loan we had taken. I never understood why they believed our mortgage company was the original one until I learned about MERS. What a mess!