Mortgage Servicing Fraud
occurs post loan origination when mortgage servicers use false statements and book-keeping entries, fabricated assignments, forged signatures and utter counterfeit intangible Notes to take a homeowner's property and equity.
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Does this FDIC examination result affect the chain related to negotiation/transfer of the note, since the first transfer was not a true sale? Maybe it even could affect the original lender's contract with the borrower at formation for lack of consideration, lack of proper disclosure, and misrepresentation. I'm still researching the "loan to one borrower" issue mentioned.

Comments and opinions solicited and appreciated.

June 4 2012

In recent examinations, the FDIC has focused on the existence of “optionality” provisions in participation agreements that provide the originating lender with the option of repurchasing the participated portion of the loan upon a borrower default. Such “optionality” provisions have been determined to cause the interest sold by the originating lender to be classified by the FDIC as a “secured borrowing” rather than constituting a “true sale” of the participation interest under applicable accounting guidance. Accountants and auditors may well react likewise in recommending restatements with respect to the institution’s previously issued financial statements and call reports, and categorization of the participation interests as “secured borrowings” in future financial statements and call report filings subject to amendment of participation documents discussed below.

In these circumstances, the FDIC has also required participation originators to file restated call reports to reflect the change in classification. Call report restatements can, in turn, lead to the determination that the 
financial statements included in filings made by publicly traded financial institutions and financial holding companies with the Securities and Exchange Commission and/or state securities regulators, or in pending 
registration statements or made available to potential investors in connection with pending offerings, must be restated and the related securities filings amended.

Reclassifying the participation interest as “secured borrowing” by the originating lender can also result in “loan to one borrower” issues as well as, in some instances, Reg O issues depending on the nature of the credit, the 
impact of aggregation rules, and nature of the borrower.

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