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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Nye Lavalle
THANKS TO APRIL FOR THIS VALUABLE REPORT AND ATTACHMENT

From: April Charney
Sent: Sun 1/13/2008 3:05 PM

Subject: "Wall Street and the Making of the Subprime Disaster": nitc's report on the making of the subprime disaster


The attached report is one the best papers that I have read to date on the "subprime disaster". I have summarized some of the highlights, but the summary is not a substitute for the report. And, I have blended some other information into the summary that did not come from the report.

1. Investment banks had bonus incentives to pursue the advancement of improvident lending at all costs.

2. Investment banks funded the originating lenders of these improvident nonconforming loans.

3. Investment banks pressured and encouraged originating lenders to commit fraud and to conspire to commit fraud and to scheme to identify and apply reduced underwriting guidelines to enhance opportunities to fund improvident nonconforming "exception" loans.

4. CDO issuance went from $157 billion in 04 to $550 billion in 06. CDOs came into existence some 10 years ago. CDOs package securities into tranches with varying investment grades ( supposedly based on risk assessments, i.e. hocus pocus). Many hedge funds were heavy eaters of CDOs gladly fed to them by the investment banks which also serve as trustees of the securitized trusts that file the foreclosures on the homelosers across the land. The trustees also hire the servicer to service the loans and to provide default loan servicing pursuant to the pooling and servicing agreements that set up the mortgage backed securities that are marketed and sold by the investment banks.

5. A citation to a quote from New Century's 06 10K: "...we frequently enter into committed forward loan sale agreements" with the investment banks.

6. Investment banks also fund the day-to-day operations of the originating lenders and the "squeeze" placed on access to funding caused by the constriction of available lending to these originating lenders in all directions (all access to funds is controlled by the investment banks) has resulted in the "seizing up" and vaporization of hundreds of these originating lenders, the ones with primary liability for the fraudulent and criminal acts and practices in origination.

7. The vertical and horizontal integration of the investment banks in the marketing of securities and the housing finance industry is a result of the actions and/or the failure to act of the regulators, the conflicted raters, and the active fraud and misrepresentations of the investment banks who cannot rely on true sale opinions.

8. The business model appears to be to ride the ride for as long as they can at all and any cost/

9. Many (thousands) of the hedge funds that purchased and invested in the CDOs have repurchase agreements in place, but these repurchase agreements have no value because there is nowhere to access the usual remedies of recourse because there is no pocket of money or performing mortgages from which to obtain a return on the investment.

10. In 06, the top ten investment banks ( the most evil ones, given the havoc they have brought to our economy) served as underwriters for 70% of the $486 billion in subprime securitizations that were done that year.

11. The investment banks think/thought that through the securitization dance they were avoiding (for them, their lawyers, their hedge funds, the investors in the hedge funds, and on and on) direct liability for any predatory lending practices, discriminatory and unfair lending practices or for regulatory compliance failures. (What mind altering substances were they taking?)

12. One Fannie report estimated that 50% of subprime borrowers could have qualified for prime loans. This is largely the result of direct and easy to hide monetary incentives for steering subprime borrowers into expensive, toxic loans.

13. There are very interesting issues related to "true sales" or actually the lack thereof which deny the investment banks' access to the shield from liability for predatory and discriminatory lending practices, including exposure to potentially devastating amounts in usury related and punitive damage awards to come.

14. The investment banks provided the fuel for the bogus loans that fed the up-front access to predatory profits by the originating lenders.

15. The investment banks provided the fuel to the raters by paying the raters (akin to food critics) to rate the mortgage backed securities.

16. The investment banks provided the fuel to the traders who were marketing the securities.

17. The investment banks provided the fuel for the entire ponzi scheme...including paying...er...funding politicians.

18. Investment banks earned fees off of every securitized trust deal.

19. The fee structure for CDO underwriting was 3 times more lucrative for the investment banks who structured the CDO deals.

20. The attorneys and accountants started getting nervous and starter making references to all manner of disclaimers such that swallowed all the rules.

21. The investment bankers' models of risk "turned out to be dead wrong". I see this as an enterprise in its own right that was also part of the enterprise that a RICO claim would be based on.

22. In one Goldman Sachs pool, 58% of the 8,274 loans were low/no doc loans with ltv of 99% average.

23. We will now see rater layoffs (bankruptcies?) galore as the raters lose their market.

24. One of the "smoking guns" will be found in the due diligence reports that were ignored and have yet to surface. Even the raters just relied on summaries of these reports. An institutional investor driven lawsuit against Credit Suisse based on suppression of such due diligence reports is referenced.

25. Another "smoking gun" is the off-balance sheets that have yet to see the light of day. These enronesque accounting misrepresentations go on right now to delay the inevitable. There is no graceful exist strategy. But where has the SEC been? This is all hidden in plain sight.

26. Most interesting vocab word: "bonus pool".

I want to mention that the National Training and Information Center, the Northwest Bronx Community and Clergy Coalition and People United for Sustainable Housing, Buffalo are behind this great report. I am going to have to check out all these organizations at their websites and I am hopeful that lots of other folk will do the same...I am interested to read the promised next report on SIVs.

For the full report, go to:

http://www.ntic-us.org/documents/WallStreetandtheMakingoftheSubprimeDisaster.pdf

Michele Rodriguez Taylor
National Training and Information Center
810 N. Milwaukee Ave.
Chicago, IL 60622
312-676-2808 (o)
312-676-2838 (f)
http://www.ntic-us.org
http://www.savetheamericandream.org

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