The Gathering Mortgage Securitization Scandal – How to Block Foreclosure and Negotiate a Loan Modification on your Home

A Distressed House

Mortgage Securitization Scandal

There’s a scandal surrounding the securitization of mortgage loans that is gathering pace and breaking open.  Attorneys general are suing the banks and their mortgage clearinghouse, MERS, over deceptive practices.  Investors are suing banks over busted investments in mortgage-backed securities.  And homeowners have successfully blocked foreclosure, where the ownership of their mortgage was put into doubt.

Just from the recent news I find:

• NY Attorney General files suit against JP Morgan Chase over mortgage backed security fraud in its Bear Stearns subsidiary.  The AG alleges that the bank failed to perform due diligence on its loan portfolio and ignored problems it did turn up.
• Arguments were heard in Boston over the Massachusetts attorney general’s allegations that five big banks and MERS had wrongly foreclosed on properties and corrupted the commonwealth’s land records.

• Bank of America threatens to foreclose on a Portland, Oregon woman’s home for “$.00″ dollars owed.

Loan Modification Solution

“Banks should held accountable for their misbehavior”, says Washington state real estate attorney, Robert Penfield.  His favorite targets are unenforceable loans originated by Washington Mutual Bank (WAMU) and Countrywide Home Loans – held today by JPMorgan Chase and Bank of America respectively.  It’s unclear whether the WAMU loans were properly transferred to JPMorgan, when JPMorgan acquired WAMU in a rush.  Among Countrywide loans he always finds wrongdoing.  Nobody should feel sorry for the banks.  They made all their money up front when originating and securitizing the loans.  They left borrowers to suffer when the housing market crashed.  The banks have often been compensated for non-performing loans through reinsurance.  Penfield’s approach to the housing crisis is to bring pressure to bear on the banks through litigation, negotiate low interest loan modifications with an extended 40 year payment term, and thereby help borrowers back onto their feet.  It’s in the interest of all parties – borrowers, the banks, and society as a whole – to convert these distressed pre-foreclosure situations into performing loans with happy homeowners making regular payments.

There are two main terms for interested homeowners to learn about: MERS and REMICs.

MERS (Mortgage Electronic Registration Systems)

The Washington Supreme Court ruled recently in Bain vs. MERS (see “The Game Changing Implications of Bain vs. MERS” by Ellen Brown) in the favor of a homeowner seeking to block foreclosure.  MERS is a clearinghouse for loans that had the effect of messing up county real property records and leaving it unclear who held liens against properties.  The court said that MERS cannot conduct a non-judicial foreclosure and might be sued under the Washington State Consumer Protection Act for representing itself as the beneficiary of a loan, when it is not.  Whether the CPA would apply, would depend on individual circumstances to be argued before lower courts.  MERS argued as an alternative that it could be the agent of the beneficiary.  But the court ruled that there can’t be an agent without a principal directing the actions of the agent, and no principal had been identified for Bain’s foreclosure action.

Read on: it may be that no principal was identified in Bain vs. MERS because MERS and the banks can no longer identify a principal…

REMICs (Real Estate Mortgage Investment Conduit)

REMICs are trusts that hold mortgages in a pool for investors to buy.  The REMIC is not taxed, if the loans are assigned to the trust within 120 days of its formation, after which the assets have to stay fixed.  The assignments were never done in almost every case, according to Penfield.  The tax penalty is supposed to be the entire face value of the loan.  The loans are in limbo: the banks supposedly sold them to investors, but the loans never reached the tax vehicle the investors were buying.

A detailed article by two professors at Brooklyn Law School describes the mishandling of REMICs and the potential tax liability to their investors: see “Wall Street Rules Applied to REMIC Classification”.

Listen also to this startling interview of authors Dave Krieger (“Clouded Titles”) and Ellen Brown (“Web of Debt”): “Virulent Worm Destroys US Real Estate Market”.  Ellen explains why the banks held off from assigning loans into the REMICs and how it may not be possible to identify a valid owner of a loan.  In a follow up interview with Dave Krieger: “Clouded Titles: The Next Step”, Dave explains how the money for a borrower’s loan is reserved in a REMIC trust at the time of loan application and the deadline for closing the assets of a REMIC may have passed by the time the borrower signs on the loan.

Where to Get Help: Loan Modifications and Foreclosure Defense

Washington state is at the forefront of these developments and is fortunate to be home to a local law firm that understands the scale and complexity of this scandal and what to do about it.  Penfield Legal Services in Bellevue, Washington can run a free, preliminary audit of your loan to determine if you have a valid complaint.  The Penfield team is made up of highly educated partners with long histories working at institutions in the middle of this crisis.  If they take your case, they will:

• Conduct a detailed forensic audit on the loan.
• File a complaint with the lienholder challenging the legality of the loan.
• Negotiate a loan modification.

The typical proposal to a lienholder with a faulty loan is a principal reduction to 80% of the home’s current tax assessed value or appraisal (depending on desired outcome), a 2% fixed interest rate, and a 40 year amortization schedule.

If you prefer to dispose to the property through a short sale, Penfield Negotiation Services can help based on these same concepts: rooting out the misbehavior of the banks and winning the best terms through the threat of litigation.  Read more here: “Penfield Negotiation Services Achieves Better Short Sale Results“.