American Loan Audits .com : Asset-Backed Investment Securities = Fraud?

Forensic Loan Audits, Mortgage Compliance Audits

Asset-Backed Investment Securities = Fraud?

Asset-Backed Security Trusts purchased Notes = not a "Loan" with Trust Deed

Most purported "loans" by Washington Mutual, Indymac, Countrywide, and many other "lenders" in the past 5 years were actually disguised purchases of Notes by Pools, "Special Purpose Vehicles" (SPV) created by Lehman Brothers. These SPVs were Securitization Trusts pre-funded by investors for the express purpose of purchasing said Notes to enable the Trust to be the holder of Asset Backed Securities.

A Simple Summary of the Situation:

The Homeowner expects to be a "Borrower" that will receive a "Loan" from the Bank.
If the Bank funded the loan and then sold it, it would still be a loan that was sold,
but the Bank does not fund it - the wire comes directly from the Bank for the SPV.
Lehman Brothers arranged for investors to purchase certificates in the SPV in advance, and arranged for the SPV to purchase Financial Assets from each Homeowner direclty. The Bank gets a commission as a finder's fee, but the bank never funded the loan. The SPV was not a bank, so Usury may apply. In all cases, the Homeowner was tricked into believing the Bank funded a Loan, when the Bank just was paid a commission for finding a Homewoner willing to sell the Note, which was a Financial Asset when acquired by am SPV. The Bank's Commission was also for the Bank to allow its name to be on the Note and Deed of Trust/Mortgage, and often to act as Servicer to get montly fees.
The Homeowner was never told the truth about who funded the transaction, because a Deed of Trust would not normally be allowed for a Financial Asset purchased by an SPV, which is covered by the Uniform Commercial Code Division (UCC) 8, whereas Secured Transactions with a Deed of Trust are covered under UCC 9. The biggest question is:

Was it Fraudulent Misrepresentation to lie to the Homeowner?

This question is one you need to discuss with your lawyer.

Was this a setup that the Bank and SPV knew was doomed to fail?

Lenders know that Loans with Balloon Payments, Adjustable Rates, Interest Only Periods, and Negative Amortization are Doomed to Default.
These kinds of loans are less secure that fixed rate loans. Lehman Brothers, the Banks, and other Lenders KNEW THIS.

Does it make you angry that they were betting you'd default?

Most Prospectuses for the SPVs outline your probable default time, and use "Credit Enhancement" like Pool Insurance to offset losses by Default and Foreclosure.

Did the Investors in the SPV get paid by Default Insurance? Then why do you still owe?

AIG was bailed out, so Default Insurance could continue to be paid?

Lehman Brothers collapse September2008 triggered the collapse of Banks that used them

Read more at Time, Wikipedia, TimesOnline UK, Investopedia (free, skip welcome screen).
This caused a SubPrime Crisis. Wikipedia SubPrime Crisis Timeline.
Other Banks fail as a result: Bloomberg, Mortgage Lender Implode-o-meter, WallStreet Journal, The Most Complete List of Lender Fallout
Why weren't they stopped? London Guardian
Treasury Secretary Paulson tried to stop it - according to the book A Colossal Failure of Common Sense: The Inside Story of the Collapse of Lehman Brothers .

The "Lender" named in the Note and Deed of Trust or Mortgage (e.g. Washington Mutual, Indymac, Countrywide, etc) did not fund the transaction, and therefore was not really the "Lender" at all. They acted only as a "Nominal Lender", named in the Note only to facilitate the creation of a Deed of Trust or Mortgage to secure the Note as an alleged "Loan", when it was not a "Loan", but rather the receptacle for an Asset-Backed Investment Security. Frank J. Fabozzi and Vinod Kothari, in their book "Introduction to Securitization" state on page 5 "The asset securitization process transforms a pool of assets into one or more securities that are referred to as Asset-Backed Securities."
The ramifications of this process are that there was no "loan" funded by the "Nominal Lender". In fact, it can be alleged in court that the "Nominal Lender" was paid in full, plus a commission. Also, the Deed of Trust or Mortgage can't secure an Asset-Backed Investment Security (SPV) or a Financial Asset directly purchased by an SPV, and the Homeowner was tricked into thinking he was a "Borrower" of a "Loan", when he was actually a Seller of a Note to an SPV. The SPV had no right to a Deed of Trust or Mortgage to a purchased Note that was not evidence of a debt or obligation - it can't be a Secured Transaction covered under UCC9,when it's an Investment Security covered under UCC 8. The "Nominal Lender" shouldn't be able to foreclose on an asset in an Investment Security with an invalid Deed of Trust or Mortgage, fraudulently procured under the guise of a "Loan", when it wasn't a Loan, but rather the "Purchase of a Note" into an Asset-Backed Investment Security, and the "nominal Lender" was paid in full, plus a commission for something it did not fund.
Can a "nominal Lender" that didn't fund the transaction, but rather fraudulently allowed its name to be put on a Note and Deed of Trust or Mortgage to trick a Homeowner into signing a Deed of Trust or Mortgage to secure an Investment Security, assign a Beneficial Right it never had to another Beneficiary?
WaMu almost never Assigns the Deed of Trust or Mortgage, but forecloses directly or through Chase, its new owner.
WaMu is the Servicer, and Trust wording also calls it the Originator, but the Trust purchased the Notes directly - WaMu did not fund the loan.
The trust was fully formed before the purchase, and it wired the funds into escrow. The originator almost never funds directly to sell it.
Fraud can be alleged that the Borrower was tricked into believing it was a loan to procure a Deed of Trust or Mortgage, and the true nature of Transaction was not disclosed.
Fraud can also be alleged (after research) that the Pool Insurance paid the Investors after multiple Defaults and Foreclosures. If they were paid, why the foreclosure?
Further, fraud can be alleged that the Deed of Trust (UCC 9) is invalid for an Investment Security (UCC 8) (you can't have both). A foreclosure is improper, and should be voidable.
The direct purchase of the Note by the SPV appears to violate the procedures specified in FAS 140 - "Statement of Financial Accounting Standards 140" by the Financial Accounting Standards Board (FASB).
The Bank signs a Mortgage Loan Purchase Agreement with a Representative of the SPV, yet the Bank doesn't fund the purchase of the note, and can't sell what it hasn't bought.
The Pooling and Servicing Agreement is hard to get, because it is not filed with the SEC, but it clarifies all the fine points they don't want you to know.
Credit Enhancement is used to sweeten securitization trusts. Trusts containing Sub-Prime Notes usually have Pool Insurance to cover Defaults and foreclosure. If enough Notes go into Default and Foreclosure, the Insurance pays off the Investors. The Servicer usually continues to foreclose, even though the investors were paid poff.
Other insurance is often procured for fraud arising in the origination process - if you win for fraud, they can collect that insurance, as well.
Indymac was foreclosing itself, but now it often forecloses through either OneWest Bank, its new owner, or through Deutsche Bank, trustee for the Asset-Backed Security.

The Uniform Commercial Code (UCC) separates the different transactions into different divisions:

Division 3 is for Negotiable Instruments.
Division 9 is for Secured Transactions (Negotiable Instruments that are Secured fall exclusively within this Division, if not an Investment Security)
Division 8 is for an Investment Security (a transaction that is part of an asset-backed Investment Security can't also be a Secured Transaction covered under Division 9.)

Quotes from the California Commercial (Uniform Commercial Code in California):
UCC 8-102: Uniform Commercial Code 8-102, as in California by California Commercial Code 8102, defines "Security" and "Financial Asset" as: (15) "Security," except as otherwise provided in Section 8103, means an obligation of an issuer or a share, participation, or other interest in an issuer or in property or an enterprise of an issuer that is all of the following: (A) It is represented by a security certificate in bearer or registered form, or the transfer of it may be registered upon books maintained for that purpose by or on behalf of the issuer. (B) It is one of a class or series or by its terms is divisible into a class or series of shares, participations, interests, or obligations. (C) It is either of the following: (i) It is, or is of a type, dealt in or traded on securities exchanges or securities markets. (ii) It is a medium for investment and by its terms expressly provides that it is a security governed by this division. (9) "Financial asset," except as otherwise provided in Section 8103, means any of the following: (A) A security. (B) An obligation of a person or a share, participation, or other interest in a person or in property or an enterprise of a person, that is, or is of a type, dealt in or traded on financial markets, or that is recognized in any area in which it is issued or dealt in as a medium for investment. (C) Any property that is held by a securities intermediary for another person in a securities account if the securities intermediary has expressly agreed with the other person that the property is to be treated as a financial asset under this division. As context requires, the term means either the interest itself or the means by which a person's claim to it is evidenced, including a certificated or uncertificated security, a security certificate, or a security entitlement.
UCC 8-103(d): Uniform Commercial Code 8-103(d), as in California by California Commercial Code 8103(d) applies: (d) A writing that is a security certificate is governed by this division and not by Division 3 (commencing with Section 3101), even though it also meets the requirements of that division. However, a negotiable instrument governed by Division 3 (commencing with Section 3101) is a financial asset if it is held in a securities account
UCC 3-101: Uniform Commercial Code 3-101, as in California by California Commercial Code 3101 states: 3101. This division may be cited as Uniform Commercial Code--Negotiable Instruments. UCC 3-102: Uniform Commercial Code 3-102, as in California by California Commercial Code 3102 states: 3102. (a) This division applies to negotiable instruments. It does not apply to money, to payment orders governed by Division 11 (commencing with Section 11101), or to securities governed by Division 8 (commencing with Section 8101). : : : : :(b) If there is conflict between this division and Division 4 (commencing with Section 4101) or Division 9 (commencing with Section 9101), Divisions 4 and 9 govern. [If it is Secured, Division 9 for Secured Transactions applies instead]
Cornform to UCC 8-102(15) [and (9)], each Note that is purchased by the SPV: (A) It is registered upon books maintained for that purpose, and is transferable, (B) It is one of a class (the classes are defined in the 424(b)5 Prospectus) (C)(ii) It is a medium for investment and by its terms expressly provides that it is a security governed by this division.

How do some lawyers fight this Fraud?

1) the "nominal Lender", who didn't fund the transaction and was paid in full plus a commission, has nothing to Assign, but rather it can be alleged in court that the Homeowner was tricked into signing a Deed of Trust or Mortgage to secure an Investment Security, which it could not be legally used to secure, under the fraudulent misrepresentation that it was a Loan.
2) when the "nominal Lender" loses its Beneficiary status (see above #1), the Trustee for the asset-backed security usually takes up the fight, alleging that the asset-backed security is the owner of the debt. Many lawyers are alleging that the investor is the Beneficiary, as Certificate Holder, and that the trust was just a vehicle. Essentially, the "nominal Lender" and the Trustee are not the proper party to sue or foreclose.

Is this Legitimate or Contrived? - Are Lawyers actually alleging this?

Neil Garfield is one of the foremost lawyers teaching other lawyers about the process. Some of his links are;
Asset Securitization Comptroller’s Handbook ,
Another Resource Corroborating Our Securitization Model ,
Trustee for Investors: Powers and Limitations (with livinglies annotations)— Critical in Your Presentation in Court

Another prominent lawyer working in this process is Michael T. Pines in Encinitas, CA:
Pines and Associates.com
reventuresrealty.com
Blogspot.com

The Comptroller of the Currency issued a Handbook for Asset Securitization:
You can download the Cover Letter at Cover Letter
The Comptroller's Website shows the Handbook as "Out of Print".
Attorney Neil Garfield provides a PDF of the Handbook at Handbook
Quote p. 11: "Third-party credit support is often provided through a letter of credit or surety bond from a highly rated bank or insurance company."
Quote p. 21: "Surety bonds. Guarantees issued by third parties, usually AAA-rated mono-line insurance companies. Surety bond providers generally guarantee (or wrap) the principal and interest payments of 100 percent of a transaction."
Quote p. 39: "Most prospectuses on asset-backed securities issued by banks clearly state that the offering is not an obligation of the originating bank."
Quote p. 41: "In addition to loan quality problems, poorly designed automated underwriting and scoring systems can adversely affect some borrowers or groups of borrowers."
Reference p. 89, et al. : 12 CFR 3, Minimum Capital Ratios; Issuance of Directives (including Appendix A)

Specifically, what can be done?:

1) Get a Loan Audit from a company that also looks at improper document signing and recordings, and will investigate the securitization process to find the problems that you can then have a lawyer use a the basis for letter writing and/or incorporate into a complaint. We are American Loan Audits.com
2) Get the Loan Auditor to write Qualified Written Requests (QWRs under RESPA) early to get more ammo from the Lender/Servicer and other parties. It can take 60days. Here at American Loan Audits.com, we prepare great QWR's.
3) Find out if Pooling Insurance was already collected on for the Pool, and how much.
4) Hire a Lawyer to pursue the results from the Loan Audit (#1) and QWR (#2) to stop the foreclosure with Letters and a Complaint with request for Injunction. In non-judicial foreclosure states, if you stop the Foreclosure, you won't have to fight eviction. In judicial foreclosure states, the lawyer can help you fight their judicial foreclosure.