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Are ALL Mortgage Backed Securities a Scam?
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 world...you 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:
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well since they've admitted under oath they they have no empolyess, zero, we know that no humans are checking anything they do, well, except for a few lawyers in florida and cali.
but don't worry, they have a tamperseal for every enote.
http://gingolaw.com/Documents/MERS%20Quality%20Assurance%20Manual,%20Jun...
I remember very well during the dot-com days...
Bernie Ebbers and World com skewed the entire telcom space. Everybody was gearing up for the cap-ex that never came. WorldCom kept delivering the returns..which were lies...(ohh the freakin bandwidth needed) and most expected the cap-ex boom and thus Lucent went down in flames.
Not sure who is the Worldcom here but all the others emulated the con I think GE is the Lucent but so far talf saved their bacon.
Think about the bonuses for perpertrating Bernie Ebbers type fraud..sad.
This time the PONZI is too big., The truth would take down this country. Tarp was cash to keep the PONZI going because to halt payments on MBS would be..well... bad....I..think.
These scum bags are capable of the worst. things You or I would not consider they are a different breed.
Why did they do it..because they could and then for the money.
"The truth would take down this country"
Good- its completely unrecognizable, both truth AND the country.
Burn it to the ground, starve the fraud.
There are reports that due to the ease of bank access to MERS there have been cases of one bank reassigning mortgages that belong to another bank to itself.
Fraud between banksters!! Whocouldanode??
the reason we had all these old fashion rules about title recording was just because theft of property/property rights are so important. But of course, banks thought they could be so much more efficient. But you take out checks and balances and you get easy theft and chaos, not exactly efficient. Jsut like criminal law, all those rules about evidence, warrants etc do get in the way of efficient policing but also stop police from getting sloppy and just putting away anyone they are suspciou of or anyone they want to target for other reasons.
Reminds me of the mortgage guy that stole millions by buying MBS, simply going into excel spreadsheet that summarized mortgages in the spreadsheet and changing a few numbers to make total MBS look much more valuable, and then selling it to some othe sucker investor for much more. No accounting controls whatsoever, they guy literally just edited a few numbers in an excel spread sheet, and voila, instant millions in profit. This guy got caught, but with a slight bit more of sophistication...
Maybe banks were in a race with each other to foreclose since they don't know who owns what. Gotta get theirs first!
So it is pretty darn possible..at least at a 2x leverage.
It would take people checking..doing their job. Like that happened. Remember those were the go-go days and I do not think anybody looked over their shoulder. If they did they just shrugged it off and thought they were crazy.
Consider each loan is leveraged anyway through the various tranches and then cds but then add the spector of each loan or house or peoples lives being arrbitraged or leveraged in various mbs the leverage becomes exponential and so does the LOSS.
This is why every toxic asset the fed owns is toxic-cubed. If homes were to come back to 2008 prices it would not be enough.
I do not begin to know how much leverage was applied but I am firmly convinced it was.
I think 50:1
"Possible" these day isn't a far cry from likely where Wall Street venality is involved.
When was the first time you thought MBS = Ponzi? What exactly triggered that thought?
I read everything. trying to put the parts together.
I have had some very smart mentors that helped me come to this conclusion. This idea is out there most are afraid to speak of it.
I do not think it started out as a PONZI by intention.
I believe the "bank" thought they could beat the returns needed to pay the various MBS payments. They have or had quite the war chest and perhaps still do. Which is why the market lurches to and fro like a drunkin sailor in search of a drink. The "bank" needs returns .
I am not sure what went wrong and why it broke down. Greenspan sure put water on the fire by raising rates like too many times in an attempt to cool the jets but by then I think it was too manic.
"I do not think it started out as a PONZI by intention."
It's Ponzi by default! It's all reliant upon perpetual growth, and, as we know, we can't have perpetual growth on a finite planet: the fact that things have drifted so far away from physical reality (resources backing all the numbers) just makes it that much more worse off.
According to Michael Lewis in "The Big Short", someone ran the numbers and saw that the growth in housing prices did not have to even go to zero or go negative, it just had to slow down below 8% (or so) for the CDOs to start melting!
"I believe the 'bank' thought they could beat the returns needed to pay the various MBS payments. They have or had quite the war chest and perhaps still do. Which is why the market lurches to and fro like a drunkin sailor in search of a drink."
In other words, the banks are just degenerate gamblers, but with pedigree.
I read as much as I can too. But damn, I'm a complete fucking outsider when it comes to POMO, spreads, butterflies, WTF?
I'm to the point where I trust my gut in pretty much everything, fuck the data. And in my humble opinion, that's a bad sign.
"Just my humble opinion that what you are asking is possible. Probable unlikely."
Yeah, my question is whether what's suggested in that post--that MBS is a planetary Ponzi--is possible. I'll take your answer as a yes, it's possible.
Is that fair?
not only that; reread his last line. the only thing right is the money in and out. apparently not enough bankers are also real estate lawyers. soon, soon.
Sorry, but the cash is a Ponzi as well. That's what happens when you have a debt based currency that can be borrowed into existence at rates lower than the speculative bubbles denominated in it are growing.
So where do you stash? Or need I ask?
There's this thing called GPS for "underwater deposits"...memory is good too ;-)
Ben this is Tim. Write BAC a big check Sunday before the market opens. Call it Fadenlane II.
Fadenlane II
correction: Pagan Lane II
From: http://fedupusa.org/ ------------------------------------------------------------------------------------------------------------------------For Halloween, I’m going as a MERS Vice-President October 16th, 2010 | Author: StephanieChristopher Peterson is a law professor at the University of Utah. In a pair of papers, onepublished last summer and one not yet published, he makes a compelling case that the Mortgage Electronic Registration System (MERS) ought to be illegal — and arguably is already.
These papers are getting some play right now because they anticipate the foreclosure documentation mess currently in the news. I am not even sure how to summarize them, and I strongly recommend you read one or both for yourself (tap “One-Click Download” for the PDF). Prof. Peterson has a very pleasing style, and the historical background he provides is fascinating, particularly in the earlier paper.
But, briefly… In the 1990s, mortgage lenders and servicers decided to bypass centuries of established precedent for tracking ownership of physical land and the related loans, because they did not want to pay fees to county registries that have tracked that ownership for legal purposes since before the nation was founded.
As a result, 60% of all mortgages in the U.S. today are legally “owned” by MERS, a Delaware corporation with approximately zero employees. Now, in order for the owner of a mortgage to perform certain legal actions — like “conveying an interest” in the land — some states require the signature of a “Vice President”.
Imagine for a moment why a state might impose such a requirement, and then read this quote from Prof. Peterson’s new paper (emphasis mine):
This is just my personal favorite of the various legally questionable facets of the MERS scheme. There are several others, and again I strongly recommend reading the papers for the rest. It’s great stuff.
I have a hunch the lawyers are just getting warmed up on this one. Should be fun to watch.
One more quote from the new paper:
Oh, my.
I refer you to my "Letter to Nigeria" post for a coherent description of how MERS is set up.
It is simply Jewish Front page Usury... a JEW PAGAN SCAM... nothing more nor nothing less...
A 100% Jew Free ... Jubilee...
http://www.matrifocus.com/LAM05/images/goddess.gif
Usury In Old Babylon and In the Roman Empirehttp://theinfounderground.com/forum/viewtopic.php?f=40&p=49805#p49805
The CrackSmokeRepublican... Google it... older than ZeroHedge... and "Israel Did 9/11"
http://theinfounderground.com/forum/viewtopic.php?f=6&t=5367&start=0
Jewish Benador and the Anthrax Attacks:
http://theinfounderground.com/forum/viewtopic.php?t=10072&p=48215
Did Israel's Talpiot help pull off 9/11?
By: Crack_Smoke_Republican on: 22.01.2007 [00:46 ] (6264 reads)
http://www.iraq-war.ru/article/116064
Ahad Ha'am (Asher Ginsberg) - Writer of the Protocols of Elders of Zion:http://theinfounderground.com/forum/viewtopic.php?f=7&t=9328
Henry Paulson was a Catholic. Nuff said.
Hank Paulson was (is still) a pawn. Nuff said.
Unreal ain't it Ned...they never stop...LOL.
Idiot banker trolls.
Ned's not here. Will a VI do?
@ Fed Supporter (ughhhhhhhh)
thanks for the links. interesting.
the important points i got was that 1) land transfer has always been a very important process in america. 2) mers was designed to replace the states recording rights. (yes i'm big on states rights). 3) mers is basically engaged in fraud.
Acting like Seagulls that have just dined on the shit soup sandwich at Chez Shalom
i'm not sure it really will be enough said; the story seems to keep cropping up. yet whatever power above the perps acknowledge, from here it just looks like big black birds.
I don't know how this will play out, but I hope everyone here is sending emails and/or making phone calls to all the media outlets they can think of about it. We have to make this a lead story nationally and keep it that way until it is resolved. It only takes a few minutes and those ratings fiends will respond to a loud, unified voice.
For those who haven't treated themselve to it yet, Caturday laughs (my first playlist for ZH):
http://www.youtube.com/view_play_list?p=8584FE99F413E42F
http://i8.photobucket.com/albums/a44/SpiderGirlie/Caturday.jpg
Media outlets only cover fags in dresses-- all fags all the time.
The rest can burn in hell truthless.
BTW sorry for all the trolling on your points!
http://stopforeclosurefraud.com/2010/10/16/heres-that-devastating-report...
OMFG
Page 16 is a doozy. I wonder is Sprott or some else sitting waiting for these to fail with credit default swaps?
Great post. Devastating for all the TBTF involved. BoA has got the big slice because of Countrywide and Merrill. I can't wait to see wells' portfolio.
"The presentation comes to a pretty damning conclusion: Bank of America’s exposure could nearly halve its share price".
My thoughts:
http://www.youtube.com/watch?v=lbB_HVcXpPk
What share price? Laugh it up, the joke is on Joe Sixpack, his family treasure (3 generations of wealth confiscation) and his [former] rule of law only applicable based on wealth..
The REAL bailout will be legislative, and wont cost BAC a dime.
Anybody arrested? Thought so -- that should tell you something..
And that those numbers do NOT even include fraud lawsuits coming down the pike!
MERS, INC., APPELLANT, VS. SOUTHWEST HOMES OF ARKANSAS, APPELLEE
SEPTEMBER 23, 2009
MORTGAGE ELECTRONIC REGISTRATION SYSTEM, INC., APPELLANT, VS. SOUTHWEST HOMES OF ARKANSAS, APPELLEE
No. 08-1299
SUPREME COURT OF ARKANSAS
2009 Ark. LEXIS 121
March 19, 2009, Opinion Delivered
Further, under Arkansas foreclosure law, a deed of trust is defined as “a deed conveying real property in trust to secure the performance of an obligation of the grantor or any other person named in the deed to a beneficiary and conferring upon the trustee a power of sale for breach of an obligation of the grantor contained in the deed of trust.” Ark. Code Ann. § 18-50-101(2) (Repl. 2003). Thus, under the statutes, and under the common law noted above, a deed of trust grants to the trustee the powers MERS purports to hold. Those powers were held by East as trustee. Those powers were not conveyed to MERS.
MERS holds no authority to act as an agent and holds no property interest in the mortgaged land. It is not a necessary party. In [*11] this dispute over foreclosure on the subject real property under the mortgage and the deed of trust, complete relief may be granted whether or not MERS is a party. MERS has no interest to protect. It simply was not a necessary party. See Ark. R. Civ. P. 19(a). MERS’s role in this transaction casts no light on the contractual issues on appeal in this case. See, e.g., Wilmans v. Sears, Roebuck & Co., 355 Ark. 668, 144 S.W.3d 245 (2004).
Finally, we note that Arkansas is a recording state. Notice of transactions in real property is provided by recording. See Ark. Code Ann. § 14-15-404 (Supp. 2007). Southwest is entitled to rely upon what is filed of record. In the present case, MERS was at best the agent of the lender. The only recorded document provides notice that Pulaski Mortgage is the lender and, therefore, MERS’s principal. MERS asserts Pulaski Mortgage is not its principal. Yet no other lender recorded its interest as an assignee of Pulaski Mortgage. Permitting an agent such as MERS purports to be to step in and act without a recorded lender directing its action would wreak havoc on notice in this state.
Affirmed.
http://foreclosuredefensenationwide.com/?page_id=161
Nice nug
Bwa ha ha!
That kinda made my day.
me the fuck too.
Help me out here, because I really don't know much about the securitization end game.
So, all the mortages were sliced, diced, pakaged and sold all over the world, right?
What are they worth today? Say I am a Spanish pension fund, and I bought $100 million in CDOs in 2007 - what is the current value likely to be? I was expecting an income stream, too, right? What's been happening to that cash flow? Do I have SUBSTANTIAL losses? If I do, why can't I turn around and sue the pants off the fine folks who peddled the garbage to me under fraudulent terms and conditions? Maybe even sue the ratings agencies?
If I am right, it seems far beyond the ability of a lame-duck Congress to pass a doc signing retroactive law and just shove the whole thing under the rug. Yes, the banksters are powerful, but some other really powerful players all around the world seem to have been burned big time. Or, am I wrong?
So now we know why Greenspan kept mortgage rates low for so long,...to facilitate the selling of the CDO's, MBS, and derivatives of these.
Since other returns were so low, these rates and the AAA/aaa Ratings gave them the look of legitimacy, and the ability to sell this scam worldwide in the great rip-off.
Help me out here, because I really don't know much about the securitization end game.
So, all the mortages were sliced, diced, pakaged and sold all over the world, right?
What are they worth today? Say I am a Spanish pension fund, and I bought $100 million in CDOs in 2007 - what is the current value likely to be? I was expecting an income stream, too, right? What's been happening to that cash flow? Do I have SUBSTANTIAL losses? If I do, why can't I turn around and sue the pants off the fine folks who peddled the garbage to me under fraudulent terms and conditions? Maybe even sue the ratings agencies?
If I am right, it seems far beyond the ability of a lame-duck Congress to pass a doc signing retroactive law and just shove the whole thing under the rug. Yes, the banksters are powerful, but some other really powerful players all around the world seem to have been burned big time. Or, am I wrong?
"So, all the mortages were sliced, diced, pakaged and sold all over the world, right?"
Right. Each part of the world has it's own jurisdictional laws about securities registration, disclosures, etc. etc.
So each part of the world with their own laws and their own lawyers and their own courts can sue the crap out of the nefarious Investment Bank (securities distributor).
I am not exactly sure why they don't do this right now.
Anybody care to guess?
Assume the financial institutions knowingly committed fraud during repackaging and are successfully sued. Does that mean all bonuses paid by said financial institutions are subject to clawback? This I want to see....
Edit: that's 10 years of bonuses....
The only clawbacks are paid in flesh. Many will marginalize this premise to their own greedy detriment, thinking ill gotten wealth will protect them.
Paid in flesh.
Fraud in the inducement can nullify the entire contract...
Government corruption/capture.
at a minimum i'm guessing two thirds purchase price evaporated. politicians can change the legality of the contract but, without accepting liability, cannot change those recalcitrant and insufficient cash flows.