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William Roper
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Adam: Thank you for sharing this thoughtful and insightful discussion of Sen. Warren's questions relating to market capitalization. For those who are younger or who have short memories of financial history, it was precisely this kind of market capitalization issue that exacerbated and extended the Savings & Loan Crisis in the late 1980s and early 1990s. The first phase of that S&L collapse was largely brought about by interest rate mismatch of S&L assets and deposits. The thrifts were largely invested in fixed rate residential mortgages (or RMBS) with very long maturities and thus long durations (as that term is used to describe interest rate risk). S&Ls funded these long duration assets using relatively short term time deposits, mostly 1-year, 2-year and 5-year certificates of deposit. When the Federal Reserve Board drove interest rates much higher to wring inflation out of the economy, the value of the long term fixed rate assets collapsed. Given the relatively thin regulatory capitalization of all depository institutions, essentially ALL of the S&Ls in the United States were insolvent. The first phase of the S&L collapse was brought about not by reckless lending (or excessive credit risk), but rather by the implicit price risk associated with funding long term fixed rate assets with much shorter term deposits that re-priced much more quickly. That is the problem was PRICE RISK, not credit risk. Wall Street instantly recognized that the S&Ls were all bleeding losses and cash. Essentially every S&L asset was being funded by CDs bearing not just nominally higher interests, but rates much higher than the yield on the longer term fixed rate mortgage assets, assuring continuing recognized losses every quarter. Yet because GAAP accounting rules did NOT require ANY of these institutions to "mark to market" -- to reflect losses on the otherwise unrealized decreases in asset values -- regulators left almost ALL of these institutions in business and even sought to cope with the problem by further de-regulation. The market's recognition that these institutions were insolvent meant the the market capitalization of every thrift was pennies on the dollar when compared to inflated GAAP book values. This, in turn, had a rather remarkable second order effect driving the second and more widely recognized aspect of the collapse. By leaving the insolvent institutions OPEN speculators and business interests with large capital needs were able to obtain control of a number of insolvent S&Ls for the actual speculative value of these zombie institutions. If the new owners and management had done nothing, after a while each of these entities would have exhausted its regulatory capital through the ongoing GAAP losses, as actually realized. Only by engaging in exceptionally high risk and high reward projects did any of these entities have any hope of surviving. The most unscrupulous also focused on those high risk projects that might be best described as self-dealing. Owners and management behaved generally rationally, if seemingly recklessly or even dishonestly. My point here is that market capitalization really MATTERS, particularly with respect to taxpayer insured depository institutions. Ironically, at the date of the S&L crisis, NONE of the failed thrifts was "too big to fail". The trouble for regulators was that essentially ALL of these institutions had failed if one applied mark to market accounting. When Congress and the regulators were reluctant to recognize the losses and shut down (or recapitalize) the insolvent entities, the costs of the ultimate day of reckoning were vastly amplified. Kicking the can down the road can be very, very expensive! Now we have moved from an unwillingness to address a systemic industrywide problem to an unwillingness to put into receivership and break up even a single "too big to fail" entity. Any person of ordinary common sense recognizes that no "too big to fail" depository institution should exist. ALL of these institutions need to be broken up, NOT because these are currently insolvent as was the case during the S&L crisis, but rather because when such entities are in crisis legislative and regulatory cowardice is sure to again prevail, once more sticking the taxpayers with the losses while allowing investors and managers to enjoy the exclusive and undeserved rewards. Thanks again for your post! I wanted to add a note of historical perspective.
Attorney Gary E. Stern furnished me a digital copy of the U.S. Bank v. Spencer decision mentioned above, which I have uploaded to Scribd:
Over the last couple of years, perhaps the poster child for servicer bad faith in respect of insurance proceeds is that illustrated by the appellate case: U.S. Bank, N.A., as trustee for J.P. Morgan Acquistion Corp. 2006-FRE2 v. Arthur Spencer et al, Superior Court of New Jersey, Chancery Division, Bergen County, Docket No. BER-F-10591-10, 2011 N.J. Super. Unpub. LEXIS 746, Decided March 22, 2011, Amended March 28, 2011. Regretably, the NJ Superior Court seems to only leave the unpublished decision Adobe files up for a few weeks. (If I had realized that, I would have downloaded the decision and posted it on Scribd.) But the case can be found on Lexis and LexisOne. It can probably also be found on WestLaw. We had a brief discussion about this decision at the MS Fraud site at: Terriffic New Decision of NJ Superior Court: U.S. Bank v. Spencer The defendant's attorney Gary E Stern weighed in with a few brief comments.
For those with an interest in looking a bit behind the decision and the dynamics of the argument, the oral arguments for at least the Leyva case are posted on Scribd: Leyva vs. NDSC - Arguments Before the Nevada Supreme Court (Part I) Leyva vs. NDSC - Arguments Before the Nevada Supreme Court (Part II)
@L: The copies are cleaner in two respects. First, the copies have been enhanced through Optical Character Recognition (OCR), which allows keyword searching. Second, the copies have NOT been degraded by the addition of commerical links to a foreclosure defense web site, a defect in the copy posted at the site linked by Adam. If one wants to download and use the Adobe version, one will find the addition of embedded links by the site operator to be exceptionally disagreeable. And if one doesn't have a full version of Adobe, the links cannot be removed. As to the advantage of a Google Scholar version, this is readily apparent to regular users of Google Scholar. Google Scholar affords two advantages. First, it will include hyperlinks to the cases cited within the decision. Second, it will also include a tabbed page to show cases citing these decisions. The latter will become more useful over time. Of course, to those attorneys in regular practice and academic attorneys with access to robust online legal references through their univesities (such as Lexis and WestLaw), Google Scholar affords little advantage at all. But for an impoverished pro se litigant, accessibility to decisions through LexisOne (ten most recent years appellate decisions) and Google Scholar provides much of the power of Lexis and WestLaw for FREE. I would encourage you to show a little empathy for the economy minded who find LexisOne and Google Scholar to be exceptionally useful. Unquestionably, for those with access, either for free or who can readily afford the cost, Lexis and WestLaw are far more robust!
Cleaner copies of these decisions as handed down by the Nevada Supreme Court are posted here: Leyva v. National Default Servicing Corp, No. 55216, 27 Nev. Adv. Op. No. 40 (Nev. 2011) Pasillas v. HSBC Bank USA, No. 56393, 127 Nev. Adv. Op. No. 39 (Nev. 2011) I will add a link to the Google Scholar version of these cases when the case is posted there.
Leaving aside the questionable Constitutionality and the absolutely horrid lack of merit of the proposal, there is another matter which also deserves mention. And that is the fact that the single issue which almost uniformly unites conservatives and Republicans is the sanctity of property rights. Despite the fact that corporatists have corrupted and bought off Democrats and Republicans in Congress alike and play our President for the weak puppet that he is, underlying the conservative resurgence in the U.S. is a rather acute anger at the betrayal of conservative priciples by the corporatists. This anger underlies the Tea Party movement. It is truly ironic that Governor Rick Scott is so totally tone deaf to the views of those who put him in office. To any extent that Gov. Scott is actually able to enact the change that is proposed, he will not only be a single term governor, but he will probably cost the Republican Party any chance of carrying Florida in the 2012 Presidential election. The level of hostility is Florida is, in fact, now so high, that I would go so far as to predict that if the legislation were enacted that Gov. Scott would very likely to become the first Governor in modern American history to be assassinated. (I say that NOT as any sort of threat, but rather a recognition that when fully one quarter of the households in your state face imminent foreclosure, to begin lobbying for legislation to SPEED FORECLOSURES and curry favor to large out of state banks and a corrupt in state real estate lobby, precisely the OPPOSITE of what the governor's core constitutency HOPED FOR and EXPECTED, will be viewed as a betrayal and worse by some very desparate people.) Lest there be any doubt about the direction of Gov. Scott's political fortunes, I would recommend a reading of this article appearing this evening in the online edition of the New York Times: "Sinking Poll Numbers May Put Florida in Play" (June 27, 2011) Although the non-judicial foreclosure proposal is not mentioned in the article and probably hasn't yet been measured in a Florida poll, I assure you that foreclosure touches essentially EVERY household in the state of Florida and this is one issue about which EVERYONE Democratic and Republican will UNITE against the interests of the too big to fail banks and the real estate lobby. Clearly, Democrats didn't like Gov. Scott anyway and standing up to public unions, while cutting spending didn't help. But the betrayal of his core constituency by selling out to the banks will absolutely doom his political future.
@Jay Thomas: >>I've heard no one come out against non-judicial foreclosure generally. You must be absolutely OUT OF YOUR MIND! Do you really think that the fact that courts in non-judicial foreclosure states are congested with foreclosure cases in which egregious forgery, perjury, evidence fabrication and other fraud on the court is rampant would somehow make out a case for further depriving borrowers of their rights? What needs to be and WILL BE examined over the next few years is whether non-judicial foreclosure should EVER be allowed in ANY state given the epic criminality by our nations' financial institutions and attorneys. While the financial institutions seem to think that they can continue to manipulate the politicians that they have bought and aid for into serious breach of public trust, the public's patience for bailouts and handout to criminal enterprises is at its end! William A. Roper, Jr.
It is also probably worth noting that those commissioned by the banks to calculate the increased costs associated with a state's election to preclude use of non-judicial foreclosure are engaged in such an intellectually dishonest argument that this merits a separate refutation. Ever since the creation of the Federal National Mortgage Association (Fannie Mae), mortgage rates and prices are established nationally. That is, the SAME interest rates prevail in the judicial foreclosure states and non-judicial foreclosure states without regard to the efficiency or cost of foreclosure. While private lenders and private mortgage investors theoretically COULD punish states with stronger consumer protection provisions by charging higher consumer interest rates for mortgage loans, I have seen NO EVIDENCE that ANY DO. To the contrary, the impetus to have strong geographic diversity in an investment pool absolutely overwhelms any additional marginal cost in the conduct of foreclosures. I suppose that if states with singularly small populations and housing markets, like Delaware, Vermont and South Dakota were to pass legislation requiring a five year foreclosure process, that some mortgage investors would probably pass, no lender can afford to simply IGNORE the Florida or California market and loan pools which excluded these states would not be as diversified as those which include them. Strong consumer and regulatory enforcement can also curb reckless lending. The surest way to hold down the costs of foreclosure is to minimize its occurence. In those states where statutes or state Constitutional provisions restrict cash out equity refinances, there was very little speculative bubble and the foreclosure problem is minimal. If Governor Scott wants to get control over the foeclosure problem in his state, he should probably revisit the statutes which allowed for all manor of excess, including rather brazen fraud in Florida condomenium development. Of course, it is the condo developers who are lining the pockets of elected officials throughout the state, so this seems unlikely. For that matter, passing state legislation which prohibits cash out refinancing would probably protect borrowers and taxpayers alike.
Adam: The very proposition reflects a rather fundamental misunderstanding by Governor Rick Scott about the nature of non-judicial foreclosure. In essentially every state that non-judicial foreclosure prevails, this is the case because the legislature in those states have NOT probibited the use of privately negotiated contractual private rights of sale and have very often expressly provided a statutory mechanism for such private rights of sale by legislative enactment. But even in non-judicial foreclosure states, foreclosures can and are conducted both judicially and non-judicially. When they are conducted non-judicially, it is because the borrower freely enterred into a mortgage loan arrangement which provided for a private right of sale in either a mortgage or, more often, a deed of trust (if you can call it "freely" when lenders have universally elected to offer ONLY loans containing a non-judicial remedy). It is by the express terms of the private right of sale which are included within the mortgage, deed of trust or other mortgage security instrument, that such sales are conducted. And Article I, Section 10, expressly precludes states from enactment of legislation which impairs the obligation of contracts. It is hard to see how one writes legislation which not only allows for the use of non-judicial foreclosures, but also imposes a non-judicial foreclosure on parties whose contracts were already concluded without running afoul of both Article I, Section 10, and the 14th Amendment. It is one thing to waive one's due process rights. It is quite another to have these taken away from one by legislation and given to the counterparty of a contract already agreed to. This is hardly a matter worthy of discussion. Aside from the inherent unfairness and even the Constitutional impediment, while the criminal element in control of the banking industry might wish for such a result, I can think of no faster way for the Republican Party to lose control of not only the Governorship, but also both houses of the legislature than to even entertain such insanity.
@Mike Dillon: Mike I did not mean to demean or disparage your efforts. I realize that you do NOT have access to the vaults of the institutional custodians. And you are no doubt making a thorough study of the data actually available. My post was to point out to Adam that the regulators and auditors DO have an ability to access the custodial files within the custody of the institutional custodians and that examination of these files and COMPARISON with the documents actually being filed in foreclosure cases OUGHT TO HAVE BEEN part of any regular audit procedure by either independent auditors OR regulators as they studied and tested the internal control environment. Had these test been done, the fraud would have certainly been discovered in its infancy instead of after more than $1 trillion in questionable foreclosures.
Toggle Commented Jun 20, 2011 on More on Allonges at Credit Slips
Adam: I also want to clarify one other point in my post above. When I stated: "This is how I DISOVERED THE FRAUD IN 2007. And I reported this to both newspapers and the Justice Department." I did NOT mean to suggest that the discovery of this systemic fraud was original to me. Others, including the first commentator above, Mike Dillon, seemed to be well aware of the nature of fraud systemic fraud in mortgage servicing and foreclosure when I first became acquainted with it in 2007. Nye LaValle was another pioneer. And I KNOW for a fact that Nye was communicating widely with anyone in authority who would listen (as well as those who refused to listen) well before I reached my independent conclusions. My background as a former mortgage professional gave me a different insight and take on the problem. And I viewed many of the claims others made during our early acquaintance with great skepticism, just as you have expressed skepticism at the possiblity of allonge forgeries. But I was not persuaded by Mike and Nye's arguments and assertions. Rather, I was persuaded by my own independent and existensive examination of primary public records from county recorders, PACER Federal Bankruptcy and U.S. District Court dockets and state court filings. I was persuaded by the records filed in hundreds and hundreds of cases. As my study continued, the hundreds of examples expanded into thousands. When you look at that evidence, the patterns are absolutely clear and stark. There is NO DOUBT. The evidence is absolutely conclusive. Mike and Nye and others saw aspects of the fraud well before I was ever aware of it. So please understand that I am NOT asserting that my discovery was original. Rather, my finding was that the fraud could be easily demostrated from public records without necessity for discovery or cooperating witnesses at all. The challenge was that the scale of the fraud was so sweeping and epic, involving essentially every major financial institution in the country as to be seemingly unbelievable. With a suspension of disbelief, all that one has to do is go and draw a sample. Examine the sample. When essentially ALL of the records pulled from ANY sample exhibit fraud, the conclusion is obvious. To a certain extent, this is what Abigail Field recently did with her examination of notes pled into evidence. But she drew incorrect conclusions from her data. Try the exercise yourself. Pull a random sample of twenty five or assignments or the notes pled in judicial foreclosures in essentially ANY jurisdiction. Look them over carefully. If you need help, ask. Every sample will show extensive fraudulent activity. Then go check with a good Georgetown statistics professor and ask him the probability that this is a chance outcome. Try the experiment again with a larger sample. ALL OF THE PRIMARY EVIDENCE SHOWS THE MISCHIEF! So which are you going to believe? The paid spin meisters and apologists at the banks, who have been LYING throughout? Or will you believe that data?
Toggle Commented Jun 20, 2011 on More on Allonges at Credit Slips
Adam: Each of the prior responses gives you some good indication as to the answers to your question. And the answer is really very, very simple. Brad Hunsicker's observation is DEAD ON. One CAN ascertain the origin of both the assignment forgeries AND the allonge forgeries through pattern analysis. IF the institutional trust was engaged in the forgery, one might expect to find commonalities for each trustee. Leaving aside the fact that the trust isn't really involved in the mortgage borrower side, I can assure you that this is NOT the case. IF the foregeries were by the institutional custodian, one would expect commonalities by institutional custodian. This is also NOT the case. The institutional custody business is actually VERY disciplined and squeeky clean. The commonalities mostly appear amongst similar assignments and allonges pled by a particular foreclosure mill law firms. In a few cases, the servicer is directly perpetrating the forgeries. There are a few contract forgery mills which churned out distinctive assignments FOR THAT MILL, which were somewhat independent of the law firm. But this is really a subcategory of servicer commonality, that is the commonality in forgery perpetrated by the contract forger employed by the foreclosure contractor OR the servicer. Again, this can be seen by the PATTERN. In the case of assignments, some jurisdictions even REQUIRE that the preparer be identified. So the forged assignment actually STATES on its face that it was created by either the foreclosure mill law firm OR the servicer. By contrast the REAL indorsements and REAL assignments also have a distinctive appearance. These bear unmistakable commonalities. These were created by the loan originators, usually within about two weeks of origination. Moreover, you and the others involved really have failed to perceive the obvious because you are too focused on listening to the likes of Yves Smith, who has no idea whatsoever what she is talking about. The originating Lender typically loses control of the promissory note within about 72 hours of loan closing. This is because even the very largest mortgage lenders are lending borrowed money. The money is borrowered from a warehousing lender and the note is security for the loan. So the note is ALWAYS immediately indorsed in blank and sent to the institutional custodian! The originating lender continues to OWN the loan, but the warehousing lender is the holder. Thereafter, when the loan is sold into secuirtization, the warehousing lender is PAID and the collateral (promissory note) is released for delivery to the Sponsor, Depositor and then the trust. THE SERVICER NEVER HAS CUSTODY OF THE NOTE AFTER ABOUT DAY 3. As I said in my comment to your prior post, there is NOT a systemic problem in securitization. You are barking up the WRONG TREE. The patterns are ABSOLUTELY CLEAR, UNMISTAKABLE AND PLAIN AS DAY. The role of the default management shop is ALSO misunderstood, because folks just are NOT PAYING ATTENTION and haven't systematically examined the evidence. The default management shop ORCHESTRATED both the foreclosure and the fraud, but through control of the foreclosure mill law firm. PRIOR TO July 2008, the default management shop executed the robo-forged affidavits prepared by the law firm, as well as executing the robo-perjured assignments. When an indorsement was perceived to be missing, an allonge was also forged. ANY OTHER DOCUMENT THAT WAS NEEDED IN SUPPORT OF THE FORECLOSURE WAS SIMPLY FABRICATED. This was KNOWN as a consequence of In Re Hill. If you are at all confused about this, get in touch with me. After the discovery of Dory Goebel's perjury in the In Re Wilson case, LPS CHANGED its business process, pushing the execution of the perjured affidavits and the forged allonges back to the servicer. This was the origin of most of the servicer robo-signing as it came to be discovered. But this was NOT the model that was used PRIOR to Dory Goebel's perjury. Primarily for two select customers who were struggling with recent acquisitions, LPS pushed affidavit forgery to its DOCX subsidiary. These are KNOWN FACTS. They can be demonstrated with reference to the public record. This is a criminal, NOT a civil matter. But the Justice Department has continued to coddle the banks and treat this as a civil matter. The answers to these questions are readily apparent by a simple examination of public records! This is how I DISOVERED THE FRAUD IN 2007. And I reported this to both newspapers and the Justice Department. * Mike Dillon mentions going to the loan files to look. That is the WRONG PLACE to look. Bank supervisors, regulators, and auditors OUGHT TO HAVE BEEN CHECKING THE COLLATERAL FILES within the custody of the institutional custodian and spot checking these against the documents filed in foreclosure cases. This is a simple audit technique. Comparison of the documents in the collateral files with the documents recorded in public records and filed in foreclosure and bankruptcy cases not only proves the FACT of these forgeries, but also PROVES the criminal intent. As I said in my prior post, there is NOT a systemic problem with the securitization. The fraud is in the foreclosures. Documents were simply forged to order. * One really wouldn't need to conduct depostions of the bank employees. There is AMPLE evidence to MAKE ARRESTS for the flagrant criminality. And if the FBI simply went around and ARRESTED the DOCX employees, these folks would give up their supervisors at LPS in a heartbeat. Moreover, by gathering up the robo-perjurers and robo-forgers, who were cranking out 1,000 perjuries and forgeries a DAY, these folks would flip on the lawyers and executives faster than you could ever imagine. The ONLY reason that this fraud continued for YEARS after it was first discovered and reported was an UNWILLINGNESS to treat clear and unmistakable criminality as a CRIMINAL rather than a CIVIL matter. Feel free to e-mail me if you are really ignorant of these facts and need any details! William A. Roper, Jr.
Toggle Commented Jun 19, 2011 on More on Allonges at Credit Slips
Unfortunately, this particular investigation is a blind alley based upon a totally false paradigm. Those who fail to perceive and actually understand the nature, character and origins of the foreclosure fraud scandal continue to propagate the false paradigm of securitization failure. Hopefully, the investigation will have some mild utility in helping the investigators to understand the true nature and facts of securitization. But this will NOT prove securitization failure, but will support the proof of systemic forgery, perjury and evidence fabrication in foreclosure by the servicers, foreclosure mill law firms and their contract forgers and perjurers. Unfortunately, by focusing on a false paradigm supported by false premises, the focus and energy of the probe is also being misdirected. It would be very unfortunate if this misdirection results in a dishonest declaration that the matter has been investigated and found to be without merit (which will be TRUE), allowing the AG to prematurely terminate the investigation without exploring the actual mischief. Those without knowledge of the facts who send investogators on wild goose chases need to carefully assess whether their efforts are helpful are rather as pernicious as those who call in false fire alarms!
Toggle Commented Jun 17, 2011 on Securitization Fail Probe at Credit Slips
Adam: Allonge forgeries have been an enormous problem, but NOT for the reasons that you and most others in the foreclosure defense community surmise. But a forgery is a forgery. And those engaged in such forgeries need to be investigated, charged and brought to justice. This is NOT a civil matter! The FACT of the allonge forgery can very often be proven with reference solely to public records, though historically this was somewhat harder to do than proving assignment forgery. Attorney Cox's examples are excellent! And with a really good defense attorney, good discovery and a supportive judge, one can very often develop strong proof within a case as to the FACT of the forgery. But one thing that attorneys and defendants continue to overlook throughout is the value and importance of a good expert. And I am NOT talking about people to examine handwriting, paper, or other document forensics. Those NOT actually familiar with the mortgage industry and standard business practices look at an indorsement, and allonge, and/or an assignment and FAIL TO SEE the conspicuous evidence of forgery, because you are generally UNFAMILIAR with what the REAL thing looks like! The single problem which CLOUDS your understanding is that you are operating on a totally FALSE PARADIGM about the nature and character of the frauds and WHY these frauds have arisen. You look at the documents routinely filed in cases and, because essentially ALL of the evidence is FABRICATED, you ASSUME that this is what REAL indorsements, REAL allonges and REAL assignments LOOK LIKE. Ooops! You incorrectly believe that a particular instrument LOOKS regular because it looks like all of the other forgeries. You are making FALSE COMPARISONS. You need to compare the forgeries with the REAL instruments. And you DO NOT KNOW what these look like! When you KNOW what the real instruments look like, you can INSTANTLY TELL whether a document is a forgery (at least in the case of the more common and cruder forgeries). With this realization, you come to discover that essentially ALL of the assignments used in support of foreclosures are forgeries. NOT belated corrective assignments. FORGERIES. MOST of the allonges being pleaded are also forgeries, but this is not as monolithically true. Some of the notes being pleaded are forgeries, but this is far less common. And the REASON for the fabrication of a note is NOT what most fear or suspect. The mortgage foreclosure fraud crisis is NOT a minor "paperwork problem". Rather, it is the single largest commercial criminal conspiracy in global history. Thousands of people have perpetrated millions of crimes. The correct answer is right in front of your nose and can be demonstrated solely with reference to readily available public information. But you have bought into the securitzation defect hysteria propagated by Yves Smith and a number of other poorly informed self-aggrandizers. The fraud is mostly NOT in the securitization. The fraud is in the foreclosure. William A. Roper, Jr.
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Jun 17, 2011