HOW BANKS DO IT …..
Can someone please answer the question? Just because the bank presents the original note, does that mean no matter what has transpired they can foreclose?
The bank is the holder in due course from day one through eternity. A holder in due course but “FBO” its investors. Remember, possession is nine tenths of the law.
The original note was never released from the bank as its own custodian. The note is encumbered by a warehouse line of credit. Therefore the borrower is the debtor to the note and lender is the obligor to the bank.
The Lender Company “A” is alleged to have MERS representing it as the nominee for its investors. In a third party origination the lender called Company “A” is a stand in who is provided a warehouse line by the Bank Company “B”.
Wholesale is an uncomfortable business means for Banks to originate loans yet offers a huge advantage. It creates an illusion of a “Loan Purchased” through a TPO or third party origination.
The Lender Company “A” funded the loan (using OPM) and shipped the file to the Bank Company “B” c/o its Whole loan Division. Wholesale keeps the left and right side and ships the “Collateral file to the warehouse division, of Company “B” the Bank.
The collateral consists of 1) a live note and 2) copy of deed of trust (nonjudicial state) (3) the endorsement in blank and (4) assignment in blank (5) the HUD I.
The Lender Company “A” is not a major player, a small Frye, who was approved to sell loans to the Company “B” the Bank Wholesale Division. The Banks warehouse line is a credit facility used to originate loans.
Note – If the lender (ACME Home Loans) is not a recognized name, it’s a TPO; i.e. Indy Mac Bank funds its own loans.
The Pooling and servicing agreement divulge the registrant who is the warehouse lender –the Bank Company “B”. The draw towards wholesale is the ability to avoid triggering certain accounting violations is dependent on the TPO wholesale channels and is form and substance “table funding” which is a regulatory violation. TPO is dangerous if not “controlled” and if controlled it’s a violation. Wholesale origination has its appeal however for purposes of the Bank, Company “B” remaining out of sight and out of mind. It is for this and other purposes it is popular, such as avoiding concentration of assets and taking the direct hit for predatory lending.
The platform (which the FDIC told me never to say) is for means and methods of its object, and why Lehman and B of A were the driving force in 85% of all subprime assets origination. It’s the warehouse lender and Bank, Company “B” who were controlling the wholesale origination channels operating in a clandestine and secretive manner. None the less, a major player is the Bank, Company “B” who is the registrant of the securities – the securitizer. Company “B” the Bank is typically backed by a consortium of participants like Sun Trust and Am Trust Bank who stepped up to share the risk and rewards of warehouse lending.
QUESTION – If warehouse lending is a God forsaken time consuming micromanaged costly business with HUGE risk – why then did all these banks jumped in to participate. See the Lehman Bros investigation conducted by the US Trustee “Vulkas”.
None the less these warehouse participant’s operated so clandestine and secretive for purpose of avoiding concentration and dispersing risk and apparently to avoid the attention of the FDIC and OTS enforcement of regulatory risk assessment procedures. But in actuality there is more here than meets the eye.
Back to the question – The warehouse lender is the bank Company “B” and it never ever gives up the note – got it. Never! If the loan is sold to an arm’s length investor only then ship the note before the wire under a Bailee agreement. The loan “files” were shipped “flow” or “upon funding” by the lender Company “A” to the “Wholesale” division of the Bank. The “collateral” file was shipped PTF direct to the warehouse division of the Bank, Company “B”
Herein the securitization process begins.
LOANS SEPARATED FROM THE LINE.
First – Remember the loan is assigned concurrently at funding to MERS- representing the investors as was stated on the mortgage or deed. The Deed is the collateral for the note. The recording of the mortgage at closing is the substitution for the missing assignment. The language MERS requires acts as an assignment granted by the borrower executing the collateral – mortgage or deed.
The line of credit is sold by the Bank Company “B” the Seller to Company “C” an SPE that was formed as a Trust. The Trust Company “C” is a shell that comes to life upon capitalization by Depositors. The Bank Company “B” will deposit capital or funds to start up the SPE Company “C”. The shifting of Warehouse lines of credit over to the SPE Company C” is called moving liabilities off balance sheet. It’s exchanging the “insured” FDIC Deposits normally held at a bank into an “uninsured” Depositor’s account held at the bank. This substitute’s the Loans for Depositors capital to satisfy the regulator’s for the amount outstanding used to originate the mortgages.
100 K Loans – 100 K Lines = 0.00 vs.
(100 K Loans – 100 K Lines) + $100 K Deposits = $100K
Offset the borrower “loans” that are held on the banks lines of credit.
Upon moving the lines off balance sheet the loan are unencumbered or owned free and clear. (For this example).
BANK =$100 K Loans and
QSPE = $100K Deposits – $100K Deposit’s = 0.00
Thus zero net worth is bankrupt insulated
Therefore the deposits are substituted collateral that enhances the Bank; Company “B” books freeing up more lines for liquidity and freeing up loans to securitize. The unencumbered loans are Banks assets held for benefit of SPE Company “C”. The excess cash flow is then payable to Trust Preferred investors in Company “D”.
The Bank, Company “B” holds the notes and owes the borrower payments to the SPE Company “C” for (1) lines outstanding and (2) Common Trust Shares (“CD”) dividends (3) to deposit the excess. Therefore the SPE Company “C” has a receivable due from the Bank Company “B”. Company “C” QSPE then pays out the balance left over to the SPE Company “D” as dividend to trust preferred shareholders.
The entire structure is held in a Real Estate Investment Trust or REIT and the common shares in Company “C” are owned by investors and controlled by a 10% holding owned by Bank management in a TRS or taxable REIT Subsidiary. The loans are an asset evidenced by the note and owned by the bank that is the controlling interest for Company “C” SPE common shares. The cash flow Company “C” collects and then forwards is debt of the bank – It’s all Debt.
The cash flow Company “D” is entitled to is for unsecured securities like bond or “Debt / Equity” bonds called Preferred Trust Certificates.
Moving lines of credit off balance sheet secured by deposits is legal. Nothing deemed fraudster or Bankster’s about it. The lender Company “A” is removed from the scheme within 30 days normally and the Bank through its wholesale division controls production and the warehouse division facilitate the originations.
The Bank always held the notes. The amount due the warehouse line is converted into a long term debt and a receivable for Company “C” by way of shifting over deposits into “Common Stock Shares, which free up the encumbered borrower loans. It’s called factoring – buying someone’s receivables. And once again – the cash flow Company “D” receives is for unsecured securities like bond called Preferred Trust Certificates, payable by the QSPE Company “C”.
My personal experience and insider knowledge of the scheme reveals’ a significant fraudulent effort here –centered on the “common shares” and TRS. It’s something that cannot remain hidden in discovery.
It is a fine line between “divestiture” and committing paper (borrower loans) as pledge assets to investments. For the other case of fraud, I believe the FDIC has no idea of what these debt collectors had up their sleeve. This I will testify too.