The banks arranging these mortgage-backed securities have typically served as trustees for the investors. When the trustees could not present timely written proof of ownership entitling them to foreclose, they would in the past file “lost-note affidavits” with the court; and judges usually let these foreclosures proceed without objection.
But in October 2007, an intrepid federal judge in Cleveland put a halt to the practice. U.S. District Court Judge Christopher Boyko ruled that Deutsche Bank had not filed the proper paperwork to establish its right to foreclose on fourteen homes it was suing to repossess as trustee. Judges in many other states then came out with similar rulings.
Following the Boyko decision, in December 2007 attorney Sean Olender suggested in an article in The San Francisco Chronicle that the real reason for the bailout schemes being proposed by then-Treasury Secretary Henry Paulson was not to keep strapped borrowers in their homes so much as to stave off a spate of lawsuits against the banks. Olender wrote:
“The sole goal of the [bailout schemes] is to prevent owners of mortgage-backed securities, many of them foreigners, from suing U.S. banks and forcing them to buy back worthless mortgage securities at face value – right now almost 10 times their market worth. The ticking time bomb in the U.S. banking system is not resetting subprime mortgage rates. The real problem is the contractual ability of investors in mortgage bonds to require banks to buy back the loans at face value if there was fraud in the origination process.
“. . . The catastrophic consequences of bond investors forcing originators to buy back loans at face value are beyond the current media discussion. The loans at issue dwarf the capital available at the largest U.S. banks combined, and investor lawsuits would raise stunning liability sufficient to cause even the largest U.S. banks to fail, resulting in massive taxpayer-funded bailouts of Fannie and Freddie, and even FDIC . . . .
“What would be prudent and logical is for the banks that sold this toxic waste to buy it back and for a lot of people to go to prison. If they knew about the fraud, they should have to buy the bonds back.”
Needless to say, however, the banks did not buy back their toxic waste, and no bank officials went to jail. As Olender predicted, in the fall of 2008, massive taxpayer-funded bailouts of Fannie and Freddie were pushed through by Henry Paulson, whose former firm Goldman Sachs was an active player in creating CDOs when he was at its helm as CEO.
Paulson also hastily engineered the $85 billion bailout of insurer American International Group (AIG), a major counterparty to Goldmans’ massive holdings of CDOs. The insolvency of AIG was a huge crisis for Goldman, a principal beneficiary of the AIG bailout.
In a December 2007 New York Times article titled “The Long and Short of It at Goldman Sachs,” Ben Stein wrote:
“For decades now, . . . I have been receiving letters [warning] me about the dangers of a secret government running the world . . . . [T]he closest I have recently seen to such a world-running body would have to be a certain large investment bank, whose alums are routinely Treasury secretaries, high advisers to presidents, and occasionally a governor or United States senator.”
The pirates seem to have captured the ship, and until now there has been no one to stop them. But 60 million mortgages with fatal defects in title could give aggrieved homeowners and securities holders the crowbar they need to exert some serious leverage on Congress – serious enough perhaps even to pry the legislature loose from the powerful banking lobbies that now hold it in thrall.
http://www.globalresearch.ca/index.php?context=va&aid=15324
Thank you for the heads up on this. Here’s a link to the Court’s decision: http://www.kscourts.org/Cases-and-Opinions/opinions/supct/2009/20090828/98489.htm .
Please re-post manana when most normal people are awake and sober, better yet do it again Monday.
Another instance of a judge declaring that contracts, willingly entered into by both parties, are invalid.
Why don't the aggrieved parties just give the money back?
So if I get a foreclosure notice because I could not pay due to unemployment, how would this help me? Just asking as I am not sure I fully understand all of this. I am not in Kansas.
It’s worth noting that the author of this piece, Mike Taibbi, is a hard-left radical anti-capitalist. His byline usually graces Rolling Stone, which tells you everything you need to know when reading this...
Ping.
I think this might relate with the Ourobouros thread
Well, at least now we know where some of the bailout money is going.
Sixty million free houses.
What a jerk I was!! I probably could have lied my way into a seven figure loan! And then just skated!
Thanks for posting this! All this info never ceases to amaze me.
Is shoddy paperwork fraud, though? That might be the escape hatch for some of this, anyway.
Bumped, bookmarked and glad to see others are figuring this out.
Goldman Sachs?
Here’s how I now see this story ,, maybe I’m wrong..
1.) Joe Blow gets a mortgage from bank “A” on a house.
2.) Bank “A” sells Joes mortgage along with 499 others to Goldman for 95% face value. Mortgage notes are cancelled/paid in full.
3.) Goldman/Lehman whoever ,, repackages the mortgages into a NON-MORTGAGE (but mortgage related) product where people buy “income streams” from the now now-existant mortgage.
4.) Housing bubble pops ,, things start going bad.
5.) The original lender , “bank A” , was retained to collect and distribute payments BUT they no longer have an actual interest in the mortgage as they have been paid in full by GS for the note and they have no rights to foreclose if payment is not made.
6.) Similarly the buyers of the CDO/CMO “security” do not and never did own a piece of a mortgage, just a promise from Goldman, they cannot foreclose. Besides that one mortgage of Joe Blows was divided into 10 “tranches” that went into 4 different CDO’s each having 250 end buyers ,,, even if the CDO purchaser had the right to foreclose you would need to assemble 1000 fractional owners and get parallel paperwork from them..
Am I seeing this the right way now?
BTTT!
Excellent post!