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.
Articles |The FORUM |Law Library |Videos | Fraudsters & Co. |File Complaints |How they STEAL |Search MSFraud |Contact Us

For some time now I have been reading about table funded loans.  What exactly are these type of loans?  How do yo know if you got one?  I also read that these types of loans are illegal.  If so, then wouldn't the mortgage you took out be void?  Anyone who knows, please weigh in.  Thanks

Quote 0 0
See: http://www.answers.com/topic/table-funding

"A lending method employed when a loan originator does not have access to the money necessary to make loans and then hold them until it has enough to sell on the secondary market. As a result, the originator forms a relationship with a lender who provides the funds for closing and immediately takes an assignment of the loan.This is called table funding. Under regulations of the Department of Housing and Urban Development, table-funded loans must disclose service release premiums—profit received by the originator—on the loan closing settlement statement. Loans sold on the secondary market do not have to make those disclosures."



Quote 0 0
William A. Roper, Jr.
Marla:

Way To Go has given you a basic definition, but I think that this deserves a bit of elaboration because the concept can be a little tricky.

First, it is important to note that most mortgage lenders are NOT actually lending their own money.  Most of the money lent is actually BORROWED, but the nature of the borrowing differs with the type of lender.

Traditionally, residential mortgage loans were made by building and loans, savings and loans and savings banks (together described as savings or thrift institutions).  Commercial banks not only did NOT make mortgage loans, but were actually prohibited for many years from lending for terms in excess of five years.

The source of funds for these savings institutions was time deposits, people depositing money in certificates of deposit.

With the advent of Fannie Mae and later Freddie Mac, both Government Sponsored Enterprises, loans made by either savings institutions or mortgage companies were eligible for sale or exchange for mortgage backed securities with these entities.

But the mortgage companies were NOT usually lending their own money.  Instead, each mortgage company had what is known as a warehousing line of credit with a commercial bank.  That is, a commercial bank loans the mortgage company the money for the express purposes of making the mortgage loan, but with the understanding that the loan is to be sold.  

So a traditional mortgage company borrows the funds to make the loan by drawing down its warehousing line, much as a retail merchant might have a line of credit to purchase inventory, giving in return a security interest in the it makes.

The mortgage company typically draws down the warehousing line and advances the funds to the closing agent, often a title company or an attorney working for the bank.  After the loan closes and the three day rescission period ends (when applicable), the closing agent disperses the funds.  The promissory note is then sent to the warehousing lender (or institutional custodian of the warehousing lender) as security for the loan.

*

With a savings institution, the loan might be funded using the institution's own deposit resources.

*

When commercial banks first began getting into the residential mortgage business, it was most often through a mortgage banking company which was a subsidiary.  This got around the problem of banks lending for terms in excess of the five year limit.  The mortgage company made the loans subject to a warehousing line, as described.  But the warehousing line might come from the commercial bank owning the mortgage company or owned by a common bank holding company parent.

In this way, the mortgage company was lending for a thirty year term.  The bank was lending usually for no more than about sixty days, on the security NOT of the property, but rather on the security of the secured negotiable instrument.

*

In addition to making loans by directly soliciting applications, many larger institutional lenders also purchased loans through so-called correspondent lending programs.  For example, a small credit union or a small commercial bank might lack the staff and institutional knowledge and experience to operate a full service mortgage company, but might also be regularly approached by their own customers with residential mortgage financing needs.

The larger mortgage companies and savings institutions therefore solicited business from these smaller entities, which could also include smaller mortgage companies.

These smaller institutions might not have a direct relationship with Fannie Mae or Freddie Mac and might lack a regular warehousing line of credit.  In such cases, the larger institution might offer the smaller entity a so-called "captive warehousing line".  The captive warehousing line would provide funding SOLELY for loans that the larger entity had already agreed to purchase.

That is, the smaller entity receiving an application, shops the application around to one or more corresponding lenders.  The corresponding lender enters into a written commitment to purchase the loan when made and agrees to ADVANCE the funds to the smaller entity to make the loan.

The smaller lender does the processing, the underwriting, prepares the closing package, arranges the closing, etc.  The larger institutional lender advances the funds (often drawn from a commercial bank under its own warehousing line).

The loan is closed in the name of the smaller entity, but the smaller entity immediately indorses and delivers the promissory note to the corresponding lender, which usually in turn sells the loan to one of the GSEs or securitizes it within about sixty days.

It should be noted that the distinction between a small correspondent lender and a mortgage broker is one of degree.  The broker might take the application and shop it without doing ANY processing and/or underwriting.  Or the broker might be responsible for some portion of the processing.  But a loan wouldn't typically be closed in the broker's name.

There is nothing inherently dishonest or sinister about either the existence of correspondent lenders or of loan brokers as long as the loans are being solicited and underwritten on an honest basis.

But in the subprime frenzy, financial institutions used both brokers and corresponding lenders to outsource their fraud, keeping it just at arms length with a plausible deniability as to involvement in the fraud.

Over the years, various states have passed laws regulating mortgage banking and the activities of mortgage brokers.  Often, these laws merely required registration.  One of the primary things that these laws were designed to protect against was brokers who charged customers up front fees out of pocket to arrange loans.  Most of the legislation was never intended to protect against mortgage lenders and brokers making loans to consumers on uneconomic or oppressive terms.

When I was in the mortgage lending business we sold much of our loan production to corresponding institutions and our customers got some really great deals.  Interest rates were down off of historic highs.  We were able to make money putting customers into loans at competitive rates with competitive fees.  We took pride in the fact that the loans we were closing were very much in the borrower's interest and that our services were benefiting the customers.

One of the things about the sub-prime crisis that absolutely turns my stomach is the fraud involved in putting borrowers into loans that carried terms so oppressive that no responsible financial institution ought to have participated in the sale or securitization.  Moreover, in many cases each loan put the borrower into a successively WORSE position and the loans were designed to fail with foreclosure the intended end state! 

There is nothing wrong with a loan that is funded at the table by another correspondent entity.  The key question is whether the terms of the loan are in fact reasonable and competitive.

Quote 0 0
Bill

My main question about table funded loans is this: when the security certificates were sold to investors before the loans were made, is this legal?

If the terms of the loan(s) were never properly disclosed to the investor or borrower or described in the note, does that then render the mortgage and note void or voidable?
Quote 0 0
William A. Roper, Jr.

Quote:
Angelo said:
My main question about table funded loans is this: when the security certificates were sold to investors before the loans were made, is this legal?


Angelo:

This question appears to me to subsume a false premise, that there were cases were securitizations occurred BEFORE the loans were even made.  I am aware of no credible allegations that this was taking place.

I should probably note that it IS possible that some securitizations might have been announced by way of a preliminary registration statement which preceded the closing of some of the mortgage collateral.  But this would be typically followed by a supplemental registration statement, the PSA and, ultimately, the securitization closing all of which would tend to occur AFTER all the loans were closed and their characteristics KNOWN.

The core allegations flying around are that the securitizations might have closed and certificates issued WITHOUT THE ACTUAL TIMELY TRANSFER OF THE MORTGAGE COLLATERAL TO THE TRUSTS, which is quite a different thing.

While others are alleging this to be the case, I believe that this is based upon a false paradigm.  The false paradigm is that the mortgage assignments being completed reflect a belated attempt to complete the transfer into the mortgage trust due to a defective securitization.

I believe that these mortgage assignments are actually bald forgeries which have been created solely for use as fabricated evidence in support of the foreclosure.  That is, the documents do NOT reflected a belated transfer.  They instead falsely memorialize a transaction which NEVER TOOK PLACE. 

Quote:
Angelo said:
If the terms of the loan(s) were never properly disclosed to the investor or borrower or described in the note, does that then render the mortgage and note void or voidable?


If the terms of the loans underlying a securitization were improperly disclosed to the investors purchasing the loans or to the investors purchasing the trust certificates, this might give rise to (a) a right to PUT the loans back to the seller under the terms of contractual representations and warranties as to these loans, (b) possible causes of action for fraud where the improper disclosure can be shown to be fraudulent, and/or (c) possible causes of action for securities fraud in respect of the sale of the trust certificates.  Which of these might prove to be most productive or potent depends upon the facts of the case and the laws alleged to be broken.

But improper disclosures to investors would almost never directly implicate the validity of the negotiable instruments themselves.

By contrast, there are a number of disclosures required to be made to borrowers by statute, regulation and contract.  The laws are both federal and state.  These include RESPA and TILA disclosures.  Failure to make certain of these disclosures can give rise to rights of rescission and/or reformation.  This is an area which can be quite complex and very fact specific.

Moreover, even when proper disclosures were NOT made OR where disclosures were incorrect, borrowers often face a daunting PROOF PROBLEM.  The proof problem arises for a variety of reasons. 

First, a borrower might have received a disclosure which was INCORRECT, but failed to save, retain or otherwise archive the paperwork.  While copies of these documents might be obtained through discovery, the borrower is often initiating allegations without knowledge or understanding of the actual facts.  Attorneys would be reluctant to take such a case on contingency absent some other pretty strong evidence at the initiation of the suit.

Second, a borrower may have signed these documents expressly acknowledging receipt of a COPY when, in fact, NO SUCH COPY WAS PROVIDED.  It is TO UNUSUAL for the borrower to be given an additional UNSIGNED COPY rather than a copy of the EXECUTED document.  Or the borrower may acknowledge receipt in writing when no copy is given at all.  This puts the borrower in roughly the same position as having LOST the document.  Allegations that the disclosures were NOT made can often be readily refuted by production of a document signed by the borrower which acknowledges receipt of the disclosure.  It is very hard to prove non-receipt when receipt has been acknowledged in writing.

Third, a dishonest lender or mortgage broker may simply forge the borrower's name to these disclosures.  They have access to the borrower's application, the note, the mortgage, the HUD-1 settlement statement.  So they have valid examples of the borrower's signature.  Some of these forgers are very skilled.  We probably all knew someone in secondary school who would forge their parent's signature on a note from home or a report card.  These people grew up to be mortgage loan officers and mortgage brokers and were employed by the criminal enterprises operating in the sub-prime mortgage market.

The trouble is that proving a forgery can be singularly difficult under the best of circumstances!  A handwriting expert might carefully examine the original, but the original will prove to have been digitally imaged and routinely destroyed.  So the expert must work from a crude reproduction.  The imaging and destruction also precludes any examination of the original for fingerprints.

The borrower might SAY that they never signed this document, but the borrower will be made out to be a deadbeat.  The loan officer or mortgage broker will be on to some new employment, fraud or swindle and probably cannot be located.

The very best cases for improper disclosures arise when the borrower has a COPY of a document containing the IMPROPER disclosure, which is rare.

It would be a very rare case that improper disclosures might actually VOID the promissory note.  More often, this is simply one of a variety of misdeeds that might either give rise to some rights of rescission and/or an affirmative defense of unclean hands.

*

But I haven't researched this area of the law for some time.  You will note that most of the analysis above reflects the realities of the proof challenges.

I would be very interested in hearing from others, especially from Moose, as to whether there is some disclosure defect that would actually void a promissory note. 

Quote 0 0
2 William
"The loan is closed in the name of the smaller entity, but the smaller entity immediately endorses and delivers the promissory note to the corresponding lender, which usually in turn sells the loan to one of the GSEs or securities it within about sixty days."

Agree with your explanation, most local or as you put it smaller lending entities immediately did just that. Many documents I have reviewed clearly state that in the closing papers. Most are truly AAA prime mortgages, with very low L2V ratios often required by the initial lending institution via proper vetting.

Some that we are looking at here in NY have a strange "stamp" on assignments in the County Clerks office , often done years after the origination,  that states 

"under the NYS law 275, No assignment is necessary as the loan is being sold into the secondary market" . 

Yet there is no signatory line for that on the closing documents!

End of chain of title, however FM declares that it owns the loan on the web page, and the "servicer' is not a warehouse lender. You can surmise I am sure who they are.

More often then not this declaration is showing up on loans long after the fact mainly between 2004 thru 2007. The height and then subsequent decline of the sub-prime bubble. 

So if in fact real "table funding" took place within sixty days of closing, why would it take often 6 years to have the loan sold out into the secondary market, just as the market was tanking.

While I understand, but do not agree with the fundamentals surrounding the GSE's, it appears to this simple person that they went fishing as the market was tanking to bundle into toxic pools prime mortgages, where more often then not there was, perhaps until now high equity in the property. In one filing with the SEC, a property was listed at the property value, over $300,000.00 above the obligation.

So guess in a word there is a tremendous amount of fraud going on out there that has yet to be addressed, and that a large portion of homeowners are even aware of. 

As we see now with all of the HAMP fraud hitting people who were not in default and now are loosing their home's... this seems to me to be a place to connect the dots. Which of course MSF has been telling people about for some time.





Quote 0 0
William A. Roper, Jr.
Quote:
PJ said:
So if in fact real "table funding" took place within sixty days of closing, why would it take often 6 years to have the loan sold out into the secondary market, just as the market was tanking.


PJ:

As far as I know, neither Fannie Mae NOR Freddie Mac has EVER required an assignment of mortgage from the seller-servicer to Fannie or Freddie.  To the contrary BEFORE the creation of MERS, the servicer tended to remain the mortgagee of record.

Foreclosures were also traditionally brought in the name of the servicer rather than the GSE.

Both Fannie and Freddie DID require an assignment from the originating Lender to the seller-servicer which was selling the loan to the GSE (or exchanging the loan for RMBS).

In most states (MA being a notable exception) the proper indorsement and delivery of the promissory note carries with it the mortgage, deed of trust or other security instrument.

Historically, the PURPOSE of the assignment was to preclude the forgery of additional copies of the note and the multiple pledging of the same loan to more than one warehousing lender, mortgage investor or some combination of these.  Because Fannie and Freddie had audit rights to audit their seller-servicers, as well as minimum capital requirements, the GSEs thought they could TRUST their seller-servicers.  (I ALWAYS thought this was foolish!)

Mortgage investors have been burned before in double pledging schemes, including the EPIC Funding and EF Hutton swindles in the 1980s.

I do NOT believe that the belated assignments reflect an belated sale or transfer by these entities.  I believe that the assignments are forgeries which were solely fabricated for use as false evidence in these cases.
Quote 0 0
Sandy
So, would one assignment of mortgage into MERS and one assignment out of MERS, just before foreclosure, be sufficient for a loan now owned by "Investor" Fannie Mae? (Setting aside, for a moment, the questions about the validity of MERS.)

I am confused about how my loan was funded and whether it was securitized at all. It was not a sub-prime loan.

As far as I can find out, the loan file followed this simple trail:

1. Mortgage broker
2. Original Lender
3. Countrywide Home Loan Servicing (payments soon went to BofA--2008)
4. BAC Home Loan Servicing

Then, MERS assigned the mortgage to BAC fka Countrywide just before foreclosure.

In the above chain, no assignment would have been necessary from either servicer to Fannie Mae, is that correct?

At some point, Fannie Mae allegedly became the investor.
How does it come into the picture without any assignment or paper trail at all?

Was Countrywide servicing the loan for Fannie Mae or for the original lender (note indorsor in blank)?



Quote 0 0
2 William, 

"Mortgage investors have been burned before in double pledging schemes, including the EPIC Funding and EF Hutton swindles in the 1980s."

I am not as knowledgeable as you in this area , but have seen peoples "payment" be endorsed by 4 different entities over the course of a year, all sent to one servicer/address. How can that be?
Quote 0 0
William A. Roper, Jr.,

We obtained a conventional FHA insured mortgage in Sept. 1987, the mortgage originator signed an Assignment of Mortgage in late Dec. 1987 in which it stated that said mortgage was sold to Freddie Mac, and recorded same at the county register of deeds office late Feb. 1988.

Now, it gets very interesting;

In March 1993 we re-financed said mortgage (lower interest rates) and got the original mortgage sent back to us (wet ink signatures) marked Paid In Full with the 'pay to the order of .....' rubber stamp on the back side of the Note. It was made out to Freddie Mac by the way.

The same mortgage originating bank files an Assignment of Mortgage signed Oct. 1993 by a now known 'robo-signer' as VP of said bank, and this AOM is recorded at the county register of deeds in April 1994. In this AOM it says said bank sold the mortgage to a now defunct mortgage company which was the subsequent mortgage servicer.

Since then there have been three other mortgage servicers, and for each one there was a new AOM stating the last previous servicer sold the mortgage to the now new servicer.

Remember I said this was going to get interesting - The originating bank actually sold the re-financed mortgage to Freddie Mac back in March 1993!! I have the proof, Freddie Mac's loan #, etc. Inquiry at Freddie Mac's WEB site confirms they are still the owner/holder of the mortgage & note.

Yes, there is fraud out there Dorothy! Thankfully MERS is not involved in this BUT I have strong feelings that Freddie Mac has been fully aware of what the mortgage servicers have been doing for 15+ years.

Respectfully,

David
Quote 0 0
     To truly understand the fraud that took place in subprime lending, we need to understand the concept of "fractional reserve banking".
      Back in the old days, pre 1968, it was done with gold and silver coin
as the "reserve". Then the banks would lend perhaps ten times the amount
of the 'reserve' they had on deposit. With the end of gold and silver money,
real estate notes backed by mortgages became the new "reserve". Derivatives were made from these Notes (ie counterfeits) of from 10 to 100
times the "reserve". Investors bought these "counterfeits" in the form of
"mortgage backed securities".
       How do I know this is true? I know it must be true because of all the
"counterfeit Notes" being presented as evidence in foreclosure cases.
       I also know it happened by analysing loan documents. A typical example
is a cook who made about $20,000 a year but inherited $80,000 from his
father. He went to a broker who steered him to NC. NC had a 100k property
appraised at 200k. The cook put down 50k and took out a 10% 150 k mort.
with NC. That means he was paying 15k per year in interest alone! He made
his payments for two years until the other 30k ran out and then defaulted
in 2007. By 2009, the house had dropped to 75k and in Ap. 2009 he had a
Judgment entered for 240K! Why would any lender make such a rediculous
loan? In the old days, banks looked after the interest of the borrower by
looking after their own interest by getting a true appraisal.
        So how could NC make any money on this deal? Simple, they sold the
same note multiple times to different investors on the secondary mortgage
market. They did it by making multiple counterfeit color copies of the Note
and then sold them in different Note pools to different investors. They destoyed the originals to hide the crime of counterfeiting.
        The servicer OC was the key player in the Ponzi scheme because
they controlled the reserve set up to make monthly payments to the
multiple investors who thought they owned the original ( and only) Note.
In 2008, when the gullible investors stopped buying into the Ponzi scheme
NC was already out of business and the server OC had lost their savings
and loan charter but stuggled along as an LLC servicer.
       The investors in NC Notes took a real beating and lost most of their
investment because the Notes were largely worthless. Then the vultures
like DBNT would buy these Notes for pennies on the dollar and try to foreclose on the subprime borrowers.
       The story of the cook ended happily though, because he met me and
filed Ch7. He listed the Judgment as unsecured and disputed and took advantage of Florida's generous HX exemption. He got a full discharge of the
240k judgement and now owns his 75k house free and clear. Did he get a
free house? Hardly, he paid a total of 80k for it, so he was lucky and got
what he paid for. Unfortunately, most subprime borrowers were not as lucky
as he was. Many paid a lawyer who gave them bad advice instead of an
experienced paralegal (who would never give them advice) but just show
them how to fill out the forms correctly! Something most lawyers don't know
how to do!
        
Quote 0 0

"WELL PUT" Mike H.    Maybe some readers may understand this now. I tried to explain in my own words  in another post in reference to BK. Good Job.

Quote 0 0
Bill

Quote:

 How do I know this is true? I know it must be true because of all the
"counterfeit Notes" being presented as evidence in foreclosure cases.
      

Could you please post some examples of the "counterfeit notes".

Quote 0 0
Bill,
    There are many ways to ID a counterfeit Note. First, feel for the ridge
marks on the opposite side of the Note where the borrower is alleged to have
signed. If they are not there, you probably have a counterfeit color photo
copy.
    Next, the use of a an "original" yellow magic marker on a small sample of
the signature will show if any ink is present, it will smudge. If it doesn't, it
is most likely a photocopy. Only do this with the permission of the Court.
    Examination of the signature under a microscope will show for sure if it
is a color photocopy or original blue ink.
    Test these procedures yourself with sample blue ink signatures and then
make copies on high tech color photocopiers. Once you understand the tests, you will be prepared to do your own forensic analysis.
Quote 0 0
Write a reply...