Excellent article by Mish who separates fact and fiction in the Foreclosuregate drama. – Ilene
PIMCO, Blackrock, NY Fed Seek to Force BofA to Repurchase $47 Billion in Soured Mortgages; Viral Nonsense on "Show Me the Note" and "ForeclosureGate"
Courtesy of Mish
At long last, the real issue regarding soured mortgages has stepped up to the plate. The misguided focus on "ForclosureGate" is but a sideshow compared to Pimco, NY Fed Said to Seek BofA Mortgage Repurchases
Pacific Investment Management Co., BlackRock Inc. and the Federal Reserve Bank of New York are seeking to force Bank of America Corp. to repurchase soured mortgages packaged into $47 billion of bonds by its Countrywide Financial Corp. unit, people familiar with the matter said.
A group of bondholders wrote a letter to Bank of America and Bank of New York Mellon Corp., the debt’s trustee, citing alleged failures by Countrywide to service loans properly, their lawyer said yesterday in a statement that didn’t name the firms. The New York Fed acquired mortgage debt through its 2008 rescues of Bear Stearns Cos. and American International Group Inc.
Investors are stepping up efforts to recoup losses on mortgage bonds, which plummeted in value amid the worst slump in home prices since the 1930s. Last month, BNY Mellon declined to investigate mortgage files in response to a demand from the bondholder group, which has since expanded. Countrywide’s servicing failures, including insufficient record keeping, may open the door for investors to seek repurchases by bypassing the trustee, said Kathy Patrick, their lawyer at Gibbs & Bruns LLP.
Patrick represents investors who own at least 25 percent of so-called voting rights in the deals and stand to recover “many billions of dollars,” Patrick said.
Countrywide hasn’t met its contractual obligations as a servicer also because it hasn’t asked for loan repurchases and is taking too long with foreclosures, Patrick said. The delays stem from missing documents, process mistakes and insufficient staffing to evaluate borrowers for loan modifications, she said.
If Countrywide doesn’t correct the servicing problems within a few months, her clients could have the right to pursue legal action against Bank of America, Bank of New York or both, she said. “None of the bondholders are opposed to modifications for deserving borrowers, but you’ve got to get it done” in a timely fashion, she added.
Mortgage-bond contracts are explicit in requiring repurchases of loans when their quality fails to match sellers’ promises, said Scott Simon, Pimco’s head of mortgage bonds. The contracts also call for trustees and servicers to ask lenders to take back debt under those circumstances, he said.
The initiative covered by the letter sent to Bank of America and BNY Mellon yesterday is separate from the effort coordinated through Dallas lawyer Talcott Franklin, Patrick said. That firm is coordinating action for a larger group of mortgage-bond investors holding more than $500 billion of the debt.
The Real Deal
One way we know this is the real deal is by who is participating. The New York Fed’s participation says this is going to happen.
Right now the number is at $47 billion. How large does it get?
Bear in mind that is $47 billion in mortgages, not $47 billion in potential losses. However the amount is bound to grow by leaps and bounds.
It is curious as to why this took so long.
That these mortgage pools were misrepresented is widely understood.
The banks even knew they were doing it. In case you missed it, please consider Smoking Gun: New Evidence of How Wall Street Shafted Pension Funds by Misrepresenting Mortgages; Rep Miller Calls for Full Audit of Fannie Mae.
Dylan Ratigan Show
Democratic congressman Brad Miller calls for an audit of all the loans at Fannie and Freddie to see if they were conforming to the standards necessary to get government backing.
MILLER: There are $trillion of mortgage backed securities out there that are very much in doubt. The pension funds have been pushing for some time now to get information about whether the securitizer, the big banks that bought the mortgages and put them in pools, and sold the mortgage backed securities, whether the securitizer should have to buy back the mortgages for not meeting the contractual requirements.
If those banks have to buy back that stuff it’s a big liability.
RATIGAN: Let’s not kid ourselves, it’s lights out.
MILLER: I’ve pushed the Obama administration to … find out exactly what mortgages are in those pools that Fannie and Freddie on the securities for and figure out if they have the requirements. And if they don’t, to push and make the banks buy them back so that we [taxpayers] don’t get stuck. … If you do not pursue the legal rights, it’s another back door subsidy, back door bailout. If we have legal right to reduce taxpayer exposure, we need to pursue it.
I pushed secretary Geithner, I pushed the Obama administration, and I plan to keep pushing.
Whether or not the buybacks are coming will constitute "Lights Out" or not depends on three factors:
- Actual volume of forced buybacks
- Losses on those buybacks
- How quickly banks have to realize those losses
This can easily drag on for years. However, if it doesn’t and if the losses are significant enough, any banks that have to repurchase mortgages are going to be in serious trouble.
Quite a number of people have gone seriously astray thinking "ForeclosureGate" is the big issue. It’s not, at least for those being foreclosed on. They are headed for foreclosure anyway.
Yet Emails and articles regarding "Show Me The Note" and what "ForeclosureGate" means have gone viral. I am not surprised at some of those propagating misinformation, but after seeing John Mauldin do it I have to say enough is enough.
Please consider The Subprime Debacle: Act 2
OK, in a serendipitous moment, Maine fishing buddy David Kotok sent me this email on the mortgage foreclosure crisis just as I was getting ready to write much the same thing. It is about the best thing I have read on the topic. Saves me some time and you get a better explanation. From Kotok: ….
"The purpose of MERS was to help in the securitization process. Basically, MERS directed defaulting mortgages to the appropriate tranches of mortgage bonds. MERS was essentially where the digitized mortgage notes were sliced and diced and rearranged so as to create the mortgage-backed securities. Think of MERS as Dr. Frankenstein’s operating table, where the beast got put together.
"However, legally…and this is the important part…MERS didn’t hold any mortgage notes: the true owner of the mortgage notes should have been the REMICs.
"But the REMICs didn’t own the notes either, because of a fluke of the ratings agencies: the REMICs had to be "bankruptcy remote," in order to get the precious ratings needed to peddle mortgage-backed Securities to institutional investors.
"So somewhere between the REMICs and MERS, the chain of title was broken.
"Now, what does ‘broken chain of title’ mean? Simple: when a homebuyer signs a mortgage, the key document is the note. As I said before, it’s the actual IOU. In order for the mortgage note to be sold or transferred to someone else (and therefore turned into a mortgage-backed security), this document has to be physically endorsed to the next person. All of these signatures on the note are called the ‘chain of title.’
"You can endorse the note as many times as you please…but you have to have a clear chain of title right on the actual note: I sold the note to Moe, who sold it to Larry, who sold it to Curly, and all our notarized signatures are actually, physically, on the note, one after the other.
"If for whatever reason any of these signatures is skipped, then the chain of title is said to be broken. Therefore, legally, the mortgage note is no longer valid. That is, the person who took out the mortgage loan to pay for the house no longer owes the loan, because he no longer knows whom to pay.
"To repeat: if the chain of title of the note is broken, then the borrower no longer owes any money on the loan.
I am sorry but that is complete nonsense. It will mean delays and legal expenses to figure out who has the right to foreclose, but it sure as hell does not mean borrowers own their house free and clear.
The article continues …
"The move by the United States Congress last week, to sneak by the Interstate Recognition of Notarizations Act? That was all the banking lobby. They wanted to shove down that law, so that their foreclosure mills’ forged and fraudulent documents would not be scrutinized by out-of-state judges. (The spineless cowards in the Senate carried out their master’s will by a voice vote…so that there would be no registry of who had voted for it, and therefore no accountability.)
"And President Obama’s pocket veto of the measure? He had to veto it…if he’d signed it, there would have been political hell to pay, plus it would have been challenged almost immediately, and likely overturned as unconstitutional in short order. (But he didn’t have the gumption to come right out and veto it…he pocket vetoed it.)
"As soon as the White House announced the pocket veto…the very next day!…Bank of America halted all foreclosures, nationwide.
"Why do you think that happened? Because the banks are in trouble…again. Over the same thing as last time…the damned mortgage-backed securities!
"The reason the banks are in the tank again is, if they’ve been foreclosing on people they didn’t have the legal right to foreclose on, then those people have the right to get their houses back. And the people who bought those foreclosed houses from the bank might not actually own the houses they paid for.
"People still haven’t figured out what all this means. But I’ll tell you: if enough mortgage-paying homeowners realize that they may be able to get out of their mortgage loans and keep their houses, scott-free? That’s basically a license to halt payments right now, thank you. That’s basically a license to tell the banks to take a hike.
Once again the article contains a bunch of half-truths interspersed with nonsense. This certainly NOT a license to stop paying the bills and keep houses scott-free. Anyone who tries is going to lose their house!
I am disappointed that people perpetuate such nonsense.
I do not want to make light of the purposeful fraud in robo-signing, but people will not get to own their house free and clear over robo-signing nor will they get their house free and clear because of MERS.
Largest Bank Will Resume Foreclosure Push in 23 States
I was getting ready to comment on that last night when I had to laugh at the headline Largest Bank Will Resume Foreclosure Push in 23 States
Bank of America announced on Monday that it would resume home foreclosures in nearly two dozen states, despite the running controversy over how banks handled tens of thousands of cases of homeowners facing eviction.
Bank of America, the nation’s largest bank and the servicer of roughly one in five American mortgages, insisted that it had not found a single example where a foreclosure proceeding was brought in error.
The move is also likely to encourage other giant lenders, like JPMorgan Chase, to resume the foreclosure process that threatens two million homeowners.
While I find it had to believe that BofA could have validated all of those foreclosures, the fact remains that 99.99% of those being foreclosed on, deserve to be foreclosed on (by someone), if they are in default.
Again, I do not want to make light of "robo-signing" and I am not, because some people ought to face criminal charges over this. Yet, from the perspective of the person being foreclosed on, all this process means (at most) is some potential delays. Given that some foreclosures suspensions are off already, the delays may even be less than I thought.
Many bloggers got wrapped up on the wrong issue about what "ForeclosureGate" and "Show Me The Note" means in practical terms. The answer is not much more than delays in the inevitable.
In contrast, that PIMCO, Blackrock, NY Fed Seek to Force BofA to Repurchase Soured Mortgages is a very big deal for bank earnings, and possibly even for the banking system itself.
Pic credit: Jr Deputy Accountant