Are ALL Mortgage Backed Securities a Scam?

George Washington's picture

Washington’s Blog

Pensions and other large investors may sue the banks which sold them mortgage backed securities (mbs)based upon fraudulent misrepresentation.l

Indeed, as William D. Cohen and Felix Salmon point out in must-read stories, the big banks hired a company called Clayton Holdings to sample the quality of mortgages being purchased.

Clayton found very high percentages of mortgages which did not meet minimal underwriting standards.

However, instead of disclosing to the investors purchasing mbs that many of the mortgages were bad - or even that there were samples and statistical analyzes performed by Clayton and the banks - the banks simply kept it to themselves, and used that inside information about poor mortgage quality to negotiate a discount of the price that the banks paid when purchasing the loan portfolios from the folks who originated the loans.

This is like buying a used car, but having a mechanic look it over first. Once the mechanic discovered a cracked engine block, the buyer negotiates the purchase price way down, but then turns around and sells the car for a higher price without ever disclosing that there was a cracked engine block or even that a mechanic had looked it over.

Indeed, its worse ... at least with the car, there is something physical to inspect. But because many of the underlying mortgage documents have gone missing, there is nothing for the mbs buyer to investigate even if he wanted to. For example, as I've previously noted, MERS - the holder of 60% of all U.S. residential mortgages (and many commercial mortgages) - is a shell company, and many mortgage documents were forged.

But a financial insider claims that the entire mbs sausage-making process is a scam (via David Kotok - chief investment officer of Cumberland Advisors - and investment adviser John Maudlin):

"The whole purpose of MBSs was for different investors to have their different risk appetites satiated with different bonds. Some bond customers wanted super-safe bonds with low returns, some others wanted riskier bonds with correspondingly higher rates of return.


"Therefore, as everyone knows, the loans were 'bundled' into REMICs (Real-Estate Mortgage Investment Conduits, a special vehicle designed to hold the loans for tax purposes), and then "sliced & diced"...split up and put into tranches, according to their likelihood of default, their interest rates, and other characteristics.


"This slicing and dicing created 'senior tranches,' where the loans would likely be paid in full, if the past history of mortgage loan statistics was to be believed. And it also created 'junior tranches,' where the loans might well default, again according to past history and statistics. (A whole range of tranches was created, of course, but for the purposes of this discussion we can ignore all those countless other variations.)


"These various tranches were sold to different investors, according to their risk appetite. That's why some of the MBS bonds were rated as safe as Treasury bonds, and others were rated by the ratings agencies as risky as junk bonds.


"But here's the key issue: When an MBS was first created, all the mortgages were pristine...none had defaulted yet, because they were all brand-new loans. Statistically, some would default and some others would be paid back in full...but which ones specifically would default? No one knew, of course. If I toss a coin 1,000 times, statistically, 500 tosses the coin will land heads...but what will the result be of, say, the 723rd toss? No one knows.


"Same with mortgages.


"So in fact, it wasn't that the riskier loans were in junior tranches and the safer ones were in senior tranches: rather, all the loans were in the REMIC, and if and when a mortgage in a given bundle of mortgages defaulted, the junior tranche holders would take the losses first, and the senior tranche holder last.


"But who were the owners of the junior-tranche bond and the senior-tranche bonds? Two different people. Therefore, the mortgage note was not actually signed over to the bond holder. In fact, it couldn't be signed over. Because, again, since no one knew which mortgage would default first, it was impossible to assign a specific mortgage to a specific bond.


"Therefore, how to make sure the safe mortgage loan stayed with the safe MBS tranche, and the risky and/or defaulting mortgage went to the riskier tranche?


"Enter stage right the famed MERS...the Mortgage Electronic Registration System.


"MERS was the repository of these digitized mortgage notes that the banks originated from the actual mortgage loans signed by homebuyers. MERS was jointly owned by Fannie Mae and Freddie Mac (yes, those two again ...I know, I know: like the chlamydia and the gonorrhea of the financial cure 'em, but they just keep coming back).


"The purpose of MERS was to help in the securitization process. Basically, MERS directed defaulting mortgages to the appropriate tranches of mortgage bonds. MERS was essentially where the digitized mortgage notes were sliced and diced and rearranged so as to create the mortgage-backed securities. Think of MERS as Dr. Frankenstein's operating table, where the beast got put together.


"However, legally...and this is the important part...MERS didn't hold any mortgage notes: the true owner of the mortgage notes should have been the REMICs.


"But the REMICs didn't own the notes either, because of a fluke of the ratings agencies: the REMICs had to be "bankruptcy remote," in order to get the precious ratings needed to peddle mortgage-backed Securities to institutional investors.


In other words, the author is saying that mbs buyers thought that they were buying specific tranches tied to real mortgages, but they were just getting a statistical cut of wispy, non-corporeal representations of information related to the entire universe of mortgages floating around in the digitized MERS ether.

So are all mortgage backed securities a scam?

Janet Tavakoli created the following chart in 2007 which might provide a hint:

See also this and this.

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CIABS's picture

"Most Americans who watch the evening news consider themselves well informed. Those who read a news paper/blog, talk the current spin points (either side) and think they are very well informed. Unfortunately most of us are not street smart enough to see the nonsense." (onlooker #655808)

there has been a gradual rise and spread of narcissism among americans in recent decades. this has been cultivated intentionally by various means including television. people have become so enamoured of their own intelligence and wisdom that they are unable to engage in debate or truth-seeking. once they express an opinion, you can't disagree with it or question it lest you inflict narcissistic injury on them, with the predictable result that the discussion immediately becomes an interpersonal conflict which a narcissistic participant is unwilling to lose, truth be damned. this epidemic is disabling to the public, placing severe limits on the possible effective practice of democracy and on collective political action to advance the reasonable interests of ordinary citizens. as intended.

Charles Mackay's picture

Apparently the Federal Home Loan Bank of Chicago agrees that banks "did not tell .. the truth" about MBS, and were "in fact ... toxic stew". It wants all of its money back.

Bank of America Sued by Chicago Home Loan Bank Over Subprime Mortgages

By Andrew M. Harris - Oct 15, 2010 6:37 PM ET

Federal Home Loan Bank of Chicago sued lenders including Bank of America Corp. claiming their failure to disclose relaxed subprime mortgage underwriting standards, led it to unknowingly buy risky mortgage-backed securities. “The defendants did not tell the bank the truth about the loans that comprised the mortgage pools,” underlying the securities, the Federal Home Loan Bank alleged. While it believed it was acquiring “safe” securities, “in fact the bank purchased a toxic stew of doomed mortgage loans,” according to the complaint.

moneymutt's picture

The more I read about MERS the more I feel like I'm reading Lewis Carrol book...what a fantasy legal land they created. No employees but millions of Vice Presidents. Don't own mortgages but do.

The fact they had to do such crazy non-sensical things proves what they were doing was wrong and illegal and they simply tried to give it the veneer of legality...figure with enought confusion, they were too complicated to fail...if any questioned what they were doing legally, they could simply say, everyone did it, if you don't like it, and try to unwind it, you will crash real estate market...sound familiar...a min version of derviatives market...rules of law don't apply, until they do, but then its too late, you have to give us a pass because we hold the entire economy hostage.

Bob's picture

I am so struck by the realization that we're finally seeing criminals of a scale that previously existed only in comic books (Lex Luthor, et al) and sci-fi movies.

ThisIsBob's picture

So essentially they computerized all these obligations so they could slice them and dice them and move them around without regard to the rules of conveyancing.  Brought to you by the same machines that do HFT.

The Revenge of the Luddites draws nigh.


Bob's picture

With 60M individual "obligations" in their data base, I'm wondering how many double or triple assignments to various MBS's there might be.  Actually, it seems to me that, with some imagination, the whole thing could be a giant slot machine, with each yank on the handle yielding a different combination of results.  How many different combinations of 60M taken, say, 1,000 at a time are there?

And what would be the odds of duplicate spins coming up often enough for anyone to see the pattern?

Something tells me that the banksters' quants would know within 0.001% probability.  And I wonder where that would lead . . . given that the odds would seem to be truly infinitesimal. 

I'm reminded of Fight Club:

A new car built by my company leaves somewhere traveling at 60 mph. The rear differential locks up. The car crashes and burns with everyone trapped inside. Now, should we initiate a recall? Take the number of vehicles in the field, A, multiply by the probable rate of failure, B, multiply by the average out-of-court settlement, C. A times B times C equals X. If X is less than the cost of a recall, we don't do one.

But surely banksters wouldn't do anything like that, right?

bada boom's picture

This is like buying a used car, but having a mechanic look it over first. Once the mechanic discovered a cracked engine block, the buyer negotiates the purchase price way down, but then turns around and sells the car for a higher price without ever disclosing that there was a cracked engine block or even that a mechanic had looked it over.

That's not illegal,  morally wrong, yes.

How about having the seller patch up the crack with jb weld, having his friend the mechanic give it a AAA rating certificate, then post the rating on the window...

And as a followup,

One or more things need to be proved for wrong doing,

One, the seller new that the jb weld really couldn't fix the crack.

Or, the mechanic actually saw or could have seen the crack with jb weld.

Plausible deniability, anyone?

Bob's picture

Hey, I have a friend who swears that JB Weld did exactly what you suggest!  And I've seen it do some pretty amazing things myself. 

MBS, on the other hand, I have far less faith in. 

hooligan2009's picture
  • Caveat emptor was first laid down as a principle in United States law in 1817, in a decision written by Chief Justice John Marshall for Laidlaw v. Organ.
  • Caveat venditor — "Let the seller beware" — is the counter to caveat emptor.
  • If both the buyer and the seller are negotiating from equal bargaining positions, however, the doctrine of caveat emptor would apply.

    In the landmark case of MacPherson v. Buick Motor Co. (1916), New York Court Appeals Judge Benjamin N. Cardozo established that privity of duty is no longer required in regard to a lawsuit for product liability against the seller. This case is widely regarded as the origin of caveat venditor as it pertains to modern tort law in US.

    "If the nature of a thing is such that it is reasonably certain to place life and limb in peril when negligently made, it is then a thing of danger. Its nature gives warning of the consequence to be expected. If to the element of danger there is added knowledge that the thing will be used by persons other than the purchaser, and used without new tests, then, irrespective of contract, the manufacturer of this thing of danger is under a duty to make it carefully. That is as far as we need to go for the decision of this case . . . . If he is negligent, where danger is to be foreseen, a liability will follow."

    I am not a lawyer and of course am precluded from giving any kind of legal view, especially since there will have been many other rulings and nuances "discovered" since 1916. Reminds me of cases that have been decided without reference to established (and publicly recorded) precedent where a different verdict could have been reached had the precedence been brought before a court. Still, the system we have is based on plea bargaining and out of court settlements (without admission of guilt or innocence) so we will wait for what the leadership decides to do. 

    Looks like this means that lawyers will be the biggest winners, with even tighter ratings, audit and compliance systems.


    Spigot's picture

    God, but this is getting foocking terrible. I can see how this will end up completely destroying the US. There is no resolution to this that can work due to the completely broken chains of title, lack of wet ink docs, etc. Even a Resolution Trust can't make this work because it assumes the mortgages are clearly assigned to a failing entity, which they aren't. And it the politicians try to legislate are major change to ramrod through a "solution" it will create multiplied more problems than it will heal (if that can be imagined).


    Bob's picture

    So much for our miraculous transformation to a FIRE economy.


    Trial of the Pyx's picture

    seems to be burning nicely

    hooligan2009's picture

    Hummph. Let's see if I have the facts right.

    A device such as MERS with no legal status is irrelevant to the foreclosure process and any warranties that it has legal status are a fraud. This applies to any party that makes such warranty.

    Ignorance is no defence in law.

    Fraudie and Funny, oops Freddie and Fanny own the bulk of all mortgage portfolios and have issued Agency securities against them.

    From here, as at June 2010:

    There was $14tn of mortgage debt outstanding as at 2q2010.

    Federal Agencies owed $5.1 tn as at 2q2010. Note the huge jump of $4.4tn from 4q2009 to 1q2010 from mortgage pools/trusts for Fraudie and Fanny. A switch from pools/trusts to the general classification happened for a reason. Is this reason the GSE's trying to partition the problem in 1q2010?

    From here, as at June 2009:

    of the US$47tn total long term securities on issue, $9.6tn was held by non-US resident investors with 1.2tn was Foreign holdings of Agency Securities (page 9 Table 2 down $300 bn from June 2008). Chinese mainland held $454 billion of ABS/Other debt, Rest of the world $336bn and Japan $219bn.

    From here, Mar2010:

    the Fed owns $1.2tn of Agency MBS.

    The use of conduits such as REMICS and pooling devices such as CDO's and Fraudy and Funny (damn there I go again, Freddie and Fanny) has no legal basis as securitised debt since a) there is no legal title assignation and perhaps b) look backs for probabilistic default events have no basis.

    Derivatives that hedge this risk are also invalid.

    Round turning the collateral (via rehypothecation) has occurred 30-50 times in order to play a part in the explosion of Swaps.

    The holders of mortgage debt outstanding (20% Foreign, 80% Domestic with the Fed also holding 20% of the total) are now wondering if they have any recourse to the individual borrowers in the pools or whether their claim now lies with the (yet to be determined) originating banks.

    If the originating banks still own the original loans to individuals, and the devices to transfer ownership have failed, investors are owed money by the originating banks (who need to source perfromance of loans from individuals).

    Regulators of bank balance sheets, rating agencies and the benchmark index providers against whom investment managers compare themselves) need to reclassify MBS as bank debt, alongside the relevant Tier I, II and III categories. Similarly derivatives contracts on the underlying collateral need to recast exposures as bank collateral and not MBS collateral. 

    That sound about right?

    Spigot's picture

    Yes, but also add to this that the debtors' payments have not been going to the legal creditor (there is no legal creditor), and there was no record at the County level, and the paperwork has mostly gone missing.

    Home "owners" (owers) who have little to no equity (or negative equity) have NO incentive to continue paying = ever larger disintegration of the cash flow.

    How can a REMIC trust hand back a loan (that they do not own have clear assignment for) to the bank that originated the loan?

    This is like some horrible kind of cross between the Twilight Zone and quantum physics...

    Essentially NO ONE HAS RECOURSE ... NO ONE OWNS ANYTHING ... NO ONE HAS STANDING ... Schrodinger's Cat and the damn box he's supposed to be in do not exist any more, and it all started by SOMEONE LOOKING! (haha - sick laugh)

    hooligan2009's picture

    I know a little physics down to pie and sigma bonding of electron paths round atoms, but alive or dead cats is a philophical a much as physical question surely! heh:

    Schrödinger's Cat: A cat, along with a flask containing a poison and a radioactive source, is placed in a sealed box shielded against environmentally induced quantum decoherence. If an internal Geiger counter detects radiation, the flask is shattered, releasing the poison that kills the cat. The Copenhagen interpretation of quantum mechanics implies that after a while, the cat is simultaneously alive and dead. Yet, when we look in the box, we see the cat either alive or dead, not both alive and dead

    hooligan2009's picture

    Hence the point that the law thinks that the only legal arrangement is between the original lender and the original purchaser.

    Wind back the clock to the point of original error and rework from there.

    Actually fits in with my view that talk of price deflation and negative economic growth are misnomers since prices and economic activity of the Greenspan/Bernanke years is completely bogus, unless the state (Fed) owns everything.

    straightershooter's picture


    If liens held by MERS are not legally enforceable, that means unsecured loans?

    So, catagorically,

    1. don't "refinance" so that banks can cure the MERS defect.

    2. If underwater, default and then fight foreclosure and enjoy rent free house. It should be easy, since it appears no one holds the mortgage right, and hence, no one has the standing to foreclose.

    For those owners who are responsible in life, having borrowed the money they can afford and hence built up the equity in the house, then so sorry for your responsible way. Your parents had taught yoy well so that you must bear the burden of paying for banksters/deadbeat/politicians/ mistakes, clusterf##, whatever.

    WE are doomed!




    Bob's picture

    Can't help but wonder, it apparently being true that no one knows who owns the notes, if it is equally true that nobody has standing to report delinquencies on anyone's credit reports.  There are significant penalties for negligently screwing up people's credit histories. 

    three chord sloth's picture

    I think Gonzalo Lira is correct; the nebulous (by need and design) nature of MERS and the REMICs makes the whole pigpile of MBS illegitimate. In order to create AAA tranches from the available grab bag of iffy mortgages, the sponsors needed MERS and the REMICs to hold the mortgages and notes, but not really hold them... if you know what I mean. Inconveniently, the entire legal system (related to mortgages) is designed to eliminate and punish ambiguity. They tried to out-clever a part of the legal system that frowns on cleverness. As it's been said before -- if the rule of law still exists in America, the banks will have to eat all of this.

    I see MERS and the REMICs as a sort of financial Oort cloud; a place where notes and mortgages drift in a frozen undifferentiated limbo. The gravity of the recession disturbed their peaceful slumber, and sent a vast wave of them hurtling earthward... a barrage of devastating financial comets.

    They say the ancients viewed comets as harbingers of doom. I guess those ancients were pretty damn smart... I'll follow their lead.

    Augustus's picture

    Maybe these securities have something to do with the Sigsby Salt that Geo Wash knows so much about.  Citing Flex Salmon as some sort of authority reminds me of the grab for Matt Simmons.  I do hope that Flex survives longer.

    Hephasteus's picture

    Junior (uranus in aries) is squaring off on Dad (pluto in capricorn) and I think some nuts are going to get lopped off.


    onlooker's picture

    60% of the American population is stupid, 30% is stupider. 10% have all the money.

    Most Americans who watch the evening news consider themselves will informed. Those who read a news paper/blog, talk the current spin points (either side) and think they are very well informed. Unfortunately most of us are not street smart enough to see the nonsense.


    This is probably an unfixable human trait that will continue to be repeated. A partial solution for the British was a method of dealing with Pirates. Hang them and let them rot on the end of a rope for all to see. Just saying there is no risk of being a Pirate in today’s world. I suppose destruction of the World economy, destruction/depriving citizens of the right to have a job, and enslaving the new born and the living and the future children with a deadly dept that they can never repay may not justify hanging. If not, is there any kind of punishment that is appropriate??? Or am I missing something?.

    Mitchman's picture

    A lot of folks on this blog would love to decorate those Wall Street Lamp posts...

    underh20's picture

    So for us folks who are current on a loan which is part of the improper securitization issue, what do you do?

    Action to quiet title?  Everyone is just saying, no one owns your loan; the Trust can't legally take your money.  But, no one seems to say what to do.  If we stop paying, we will be marked delinquent.  We haven't come this far to do that to our credit.  Not if there is no entity to claim the note and assignment of mortgage.

    Any thoughts would be helpful.  One more day of paying the Trustee is one more day of paying someone without legal interest in the property. 

    Ned Zeppelin's picture

    Keep paying. This is truly a huge mess, but when it is done and sorted out, you will be expected to pay your mortgage.  Your mortgage may get modified, and indeed, there may be a bold strategy to strategically default and take advantage of the situation, but for that you need the advice of a very experienced lawyer and nerves of steel. 

    But you raise a good point - am I paying the right party? I think that question may be difficult to answer.  It may be the right legal action is to file an suit, tell the Court you don't know who to pay, and pay into the Court until they determine who is the right recipient.  

    I predict national legislation will be required to fix all this mess. 

    blunderdog's picture

    Don't pay the court!  Arrange an escrow or trust or something, but for heaven's sake don't trust the local civic authorities.  They're going to be broke in a few years.

    If you have balls like church bells and could accept a possible total loss, it's a fascinating play to attempt.  It's a big gamble, potential big payout, and for sure unless you're a very lucky and/or very talented person, you ain't gonna rich punching the clock.  Depending on who you're providing for, there's more or less leeway.  Young kids?  Pretty dodgy.  Just a spouse who also has balls like church bells?  Well...hmm.

    If your payment is onerous and you're just barely scraping by and your life sucks because you sit in a house too big and eat rice every night, compare the potential of sinking your mortgage payment into Au/Ag (or uh...equities? heh) vs. the very high likelihood of losing your credit score and being locked out of ever obtaining a major loan again.

    Continuing to make payments the worst case is a house worth a lot less than you bought it for that you cannot sell.  How much of a "loss" is that?  You need to live somewhere no matter what happens.

    fxrxexexdxoxmx's picture

    Fraud is claiming environmental consequences that lack validity. Something a long the lines of a Gulf oil spill that is claimed to be the worst episode in history. Other than steal 20 billion dollars for Chicago thugs what use was the lie?

    freedom X still pissed about constant articles about how naturally occurring hydrocarbons in infinitesimally small quantities in relationship to where dispersed posed any realistic threat.

    RockyRacoon's picture

    For all of those who blame borrowers for just wanting a "free house":


    October 15, 2010

    October 15, 2010

    We previously wrote on this website about various scams being engaged in by “lenders”, servicers, “trustee” banks, and the like with regard to “temporary forebearance agreements” which are, in our view and experience, nothing more than a method for the foreclosing parties to pull money from the borrower to fund their operations and attorneys for an ultimate foreclosure when the “permanent” loan mod request is denied. However, based on the literal slew of e-mails we have been receiving lately, there is apparently a new scam which seems to be intentionally designed to railroad borrowers attempting to work with the foreclosing party into a fraudulently manufactured foreclosure.


    The fact pattern is always the same: the “lender”, servicer, etc. reaches out, at least on paper, to the borrower facing or in a foreclosure as to a possible workout with a payment schedule. There is an agreement made, and the borrower makes the first payment on time, receipt and delivery confirmed (e.g. certified mail RRR, Fedex, etc.), but the “lender”, servicer, or whoever made the offer then intentionally sits on the borrower’s payment, does not post it until after the “due date”, and then claims that the borrower defaulted on the agreement and proceeds to foreclosure. To add insult to this injury, many of the so-called “workout” agreements contain waiver of defenses clauses where the borrower gives up the right, by contract, to later contest or challenge the foreclosure.


    This is plain, outright, blatent fraud. There is absolutely no excuse whatsoever, under any circumstances, for a foreclosing party who sets forth a payment schedule which the borrower complies with to not code the payment as received on the confirmed day of receipt. It thus appears, under the totality of the circumstances and in view of the frequency of the fact pattern, that what the “lenders”, servicers, and others are doing is to falsely lure the unsuspecting borrower into a set of false representations for the express purpose of fraudulently manufacturing a foreclosure while depleting the borrower’s liquid reserves which could have been used to defend the foreclosure.


    In view of the recent revelations in the depositions of employees of the law offices of David J. Stern where a multitude of instances of illegal and unlawful conduct were revealed (which actions were engaged in to force foreclosures through the system due to the pressure by the lenders, etc.), we are not surprised at what we are hearing. What needs to be done, however, is to vehemently challenge these fraudulently manufactured foreclosures and, if appropriate under the proper circumstances, assert claims for money damages as well.

    Jeff Barnes, Esq.,

    Ned Zeppelin's picture

    And yet another angle on the fraud, dishonesty and greed pervading this entire mess. 

    Widowmaker's picture

    ned, you forgot "best and brightest"

    Mitchman's picture

    The system is in free fall.  Every one of the bad guys is desperately reaching for whatever they can get before the music stops.

    onlooker's picture

    If the bundled toxic packages were sold to investors  around the World like PIGS and retirements and China and others, where is the outrage of the foreign nations. Where is the outcry? Where are the court moves? Can it be that the USA Government is buying the poison to quiet the deceived buyers?


    This is way too quite, like it does not exist in the World economies.


    What am I missing??

    banksouttacontrol's picture

    ponzi payments have not been missed. yet.

    sushi's picture

    Foreign owners of MBS need not have any concerns.

    The US Government intends to provide them with 100% restitution of their purchases, dollar for dollar.

    Once Benny and the Fed get the value of the dollar down to .02

    DisparityFlux's picture

    ... and now we know why the FED has been buying up MBSs and refusing to be audited.

    Mitchman's picture

    I encourage all to go to the link provided by Oh Lawrd above to the report on BoA's exposure to the problem.

    If the banks don't hang for this, then it really is time to give up on this country.

    Conrad Murray's picture

    "The main foundations of every state, new states as well as ancient or composite ones, are good laws and good arms; and because you cannot have good laws without good arms, and where there are good arms, good laws inevitably follow, I shall not discuss laws but give my attention to arms" - Machiavelli, The Prince

    Oquities's picture

    relatively simple, eh - senior tranch is first lien, "equity" tranch is last lien, right?  first dibs to those who bought the seniors/to the cautious goes the spoils, if return of principal and a lot of stress can be called spoils.  whether the junior tranches were mixed in with the senior tranches via MERS doesn't change ownership preferences as to principal recapture.  chaos has enough opportunity without irrational thought stinkin' the mix..

    Homeland Security's picture

    As I understand this issue so far, the chain of title is broken between the Mortgage Electronic Registration Systesm (MERS) and a Real Estate Investment Conduit (REMIC), there is only one MERS, but potentially hundreds or thousands of REMICS. Just for my entertainment I would like to read more about the relationships between MERS and REMICs and which comes first.

    Also, are there MERS-like systems for the CDOs, CDO-squared and -cubed and are there the same type of tracking, ownership issues by passing securities through various MERS-like systems.

    Miles Kendig's picture

    I wonder how much the Landesbanks will get in the return rub making their MBS/CMBS whole under QE2X?

    OutLookingIn's picture


     Oh! What webs they weave, when first they attempt to deceive!

     Liars loans. Lying agents/docs processors/servers. Lies bundled with other lies. Ratings that were lies. Lied to customers. Lies! Lies! And more damned government statistics! I smell expensive bespoke clothe burning!

    Liar. Liar. pants on...  

    Bob's picture

    Nice to see that people are hacking away at the thick brush and doing some heavy lifting in figuring out the actual meaning of the emerging facts. 

    Thanks, George!  And thanks Gonzalo. 

    Cheyenne's picture


    Care to opine on the ultimate question posited in a remark (by poster banksoutacontrol, I think) on another thread?


    I am completely convinced that MBS are a giant PONZI Enron stlye.

    Everything else is a diversion.

    Think about it... A pension fund calls the "Bank" as says I have a $100,000,000 and need a %5 percent yield and want this in the form of a MBS.


    The "bank" complies but the loans are never assigned.


    All the bank has to do is make the payment to the MBS.  I take $100,000,000 and pay you back %5 percent at a time


    Then another request comes in for a Giant MBS and another and another and all i have to do is make the montly payment.

    They will never find out who actually at the MBS level owns anything because moslty the MBS own nothing and are dependent for the PONZI to find fresh particpants or fresh bailouts to keep the beast alive.

    Where did all that cash go?

    It is all a lie.

    beastie's picture

    Just my humble opinion that what you are asking is possible. Probable unlikely. 

    You just have to look at the list of who owns MER's. It's all the major banks and freddie, fannie etc. In order to perpetrate what you are asking would require someone on the inside of MER's fudging the records to hide it from the other partners. Too many cooks to pull this off. It's a big stinking database and it's very easy to audit a database for duplicate records and duplicate anything. All the banks can plug into MER's with ease and run off reports. 

    Further down the chain in the packages of loans one could certainly be running a Ponzi. The problem with a Ponzi is you KNOW it's going to blow up so you have to keep pulling in more more people paying into it. These are fixed income payouts so a ponzi wouldn't last long here.

    Again, just my opinion. 



    Having said all that they seem to have a problem with paperwork and having looked at my entry in the MERs database I can see two first Lien Holders. 

    In other words it looks like there is a Lien holder that should have been removed from the database on payoff. 

    Just as an FYI my MERs info has been changed in the last six months. 

    This implies they don't audit the database for oddities. Which also implies the database was built poorly. 

    The only thing they seem to be correct with is money coming in and out. 


    Bob's picture

    This implies they don't audit the database for oddities. Which also implies the database was built poorly.

    Does it suggest that your note has been double allocated to different MBS?

    Ned Zeppelin's picture

    MERS doesn't sound like a brain trust in operation, and I would guess the information in its files (and upon which foreclosures are filed) is pretty questionable. It's not like there's adisinterested or governmental person checking it for accuracy.