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Is Kemp v. Countrywide The Case That Will Bring Down Bank Of America (And RMBS)?
Two weeks ago, the New York Times's Gretchen Morgensen wrote an article in which she touched upon the curious case of Kemp vs. Countrywide Home Loans in which Countrywide held on to the original mortgage note and related docs "even though the pooling and servicing agreement
governing the mortgage pool that supposedly held the note required that
it be delivered to the trustee, the court document shows" thereby impairing the integrity and validity of all downstream securities. Prior to this (and since) we have seen many more cases in which there was outright court fraud in some capacity, either w/r/t the PSA or the already well known issue of robosigning. It is no surprise that after making a splash, this topic has disappeared from the mainstream media, as banks are doing all they can to "silence" the debate, whose implications could be terminal for the US leveraged housing paradigm, which has existed since the advent of the GSEs. Yet, surprisingly, in today's Weekly Credit Outlook, Moody's brings new attention to this particular case, and adds some language that if one were the CEO of Bank of America, one would be very, very nervous, more so than even how damaging the revelations from the Wikileaks disclosure on BofA may end up being. To wit: "We believe the case will lead to increased litigation, higher servicing costs, and more foreclosure delays. This will pressure BofA’s earnings. Increased foreclosure timelines and costs associated with potentially defective loans will also increase losses for Countrywide-sponsored RMBS. This is negative for both BofA and Countrywide-sponsored RMBS." Did Moody's (always horrendous at timing its entrance and exit) just pee in the proverbial RMBS pool?
Full note from Moody's David Fanger:
New Jersey Court Decision May Be Unique, but Still Bad for BofA and RMBS
On 16 November, a bankruptcy court in New Jersey dismissed Bank of America’s (BofA, Aa3 negative, C-/Baa2 stable) claim for standing to enforce a mortgage originated and securitized by Countrywide in 2006. The judge concluded Countrywide had failed to properly endorse and transfer possession of the mortgage note to the securitization’s trustee, leaving it unenforceable under New Jersey law. Last week BofA was reported in the press as saying that the facts upon which the judge based her conclusion may not have been correct.
We believe the case will lead to increased litigation, higher servicing costs, and more foreclosure delays. This will pressure BofA’s earnings. Increased foreclosure timelines and costs associated with potentially defective loans will also increase losses for Countrywide-sponsored RMBS. This is negative for both BofA and Countrywide-sponsored RMBS.
Kemp v. Countrywide Home Loans, Inc. involves a May 2008 Chapter 13 bankruptcy filing where BofA/Countrywide, as mortgage servicer, filed a proof of claim on behalf of a securitization trust. Testimony by a BofA mortgage servicing employee and statements by BofA’s local attorney indicated that the mortgage note was never properly delivered, with endorsements, to the securitization trustee as required by the pooling and servicing agreement (a requirement typical of most securitizations). However, the employee also said she had never worked in originations (the area responsible for delivering the note), nor was she comfortable testifying on the extent to which the mortgage documents were moved. No additional information was provided to the court regarding the note’s chain of possession.
The Kemp case raises questions about whether, by failing to comply with the pooling and servicing agreement, BofA/Countrywide would be required to repurchase the mortgage from the trust. After the case was reported in the press, BofA highlighted that the employee’s testimony had been outside her area of expertise, and stated that “Countrywide’s policy and practice has been, and remains to fully comply with the pooling and servicing agreements, including forwarding any necessary documents to the trustee.”
In light of BofA’s statements, it appears the case was concluded without all of the relevant facts. We don’t believe Countrywide as a matter of standard practice failed to deliver mortgage notes to the trustee, and we don’t expect the Kemp case to set a wide precedent for bankruptcy and foreclosure cases involving Countrywide mortgages. However, we still don’t know to what extent their documentation and transfer process was defective. Any such defects will increase foreclosure timelines and costs and in some cases may preclude the servicer from enforcing the mortgage altogether. We also believe the case will encourage other mortgage borrowers as well as investors in Countrywide securitizations to challenge BofA. We expect this will increase servicing and litigation costs for BofA, and could reveal defects in BofA’s mortgage servicing processes, exposing the bank to further unfavorable legal decisions.
The case is also negative for RMBS in general. It shows that where sponsors failed to deliver and endorse the mortgage notes in accordance with the transaction documents, servicers may not be able to foreclose or enforce bankruptcy proofs of claim when challenged by borrowers. The extent to which sponsors failed to adhere to the requirements in the transaction documents is unclear. The current Attorneys General investigations could shed light on this, although it is unclear whether their scope will include document transfer issues.
Operational flaws in supervising and lawyering foreclosures and bankruptcies also pose an issue for BofA and other servicers. The Kemp case reveals that the servicer’s employees and lawyers may be unaware of the complexity and requirements of the securitization process. This kind of disconnect between the servicing and the securitizing subject RMBS to additional delays, costs and losses – and is probably not confined to BofA.
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Assange has his finger on the BAC red button and with his Swiss Bank acct shut down, he may have pressed it.
ZH rules
I like this, as I have a CW/BAC mortgage - inherited from my father (RIP) in July, 2009. Here's the best part. MERS is nominee for CW on the mortgage, so when BAC/FKA CW foreclosed on March 29, 2010, no problem, except that they submitted to the court, on April 21, 2010, an assignment from MERS to BAC effective November 8, 2008, and notarized on March 3, 2010.
So, I ask, why would one wait a year and four months to notarize a document?
Maybe it's phony to the core, and they jumped their own shark with it, as they technically had no standing when they started the action.
Probably the same reason the lawyers haven't gotten off square one on my foreclosure. Filed March 29, I answered (denied all claims) on April 12. Crickets, since.
Take them to the mat.
I stop paying mine in March. It simply does not make sense. I am 100% hedged in silver, and will buy the house off the foreclosure auction, in .........2-3 years.
perhaps pissed in the wheaties more apt?
Chip away at the stone, cracks are widening.
If those comments are Moody's they show a tremendous bias. The woman who testified was particularly flown out from California to NJ to testify because she was in charge of custodial duties at BAC. It was her job to know if the docs had been transferred. She commented that is was CUSTOMARY practice to not transfer the documents, as did the lawyer for BAC in the case. Afterwards, BAC tried to rewalk the statements when they realized how damaging they were. The fact that Moody's would characterize the comments as such and still recognize the damage being done speaks volumes. I think Moody's is covering its ass, too, as it rated a bunch of securities that may well end up not being securities at all. I wouldn't be surprised if the rating agencies are codefendants in investor lawsuits as you would think that they would have done some due diligence about whether notes were routinely conveyed as required by the psas and remic laws...
Structurally I find this story and the lack of continued exposure to be one of the most interesting of the financial world. It should have created a feeding frenzy in a system with so many lawyers. Yet here it sits, on virtual life support, it’s true potential untested.
This is turning into a legal food fight and I predict a "lawyerly" solution to the problem. Civil cases are decided on the preponderance of evidence, well why not settle these ownership claims based on -- the preponderance of documents? If my stack of documents is bigger and more notarized than yours, well then it obviously has more legal weight and should define the ownership of the property in the dispute. Or, as Bill Clinton once said, "Sometimes it's more important to do what's right than to do what's legal".
Next!
These bankers think they are like crack troops, covering their tracks with mind-bending fin-legal complexity. And it works till it works and then it doesn't.
And living in California I saw countrywide in operation. Even went to sell them some CRM software in the hey hey, hows ye doin days.
The place was absolute sleaze. Huge offices near LA. Pathetic management. It was just a chopshop, boosted for playing their master's games.
Good riddance if they all fall down!
ORI
http://aadivaahan.wordpress.com
It will take years, many years, for the most relevant cases to wind their way through the court system, until finally reaching SCOTUS.
There's plenty of road left to kick this can down.
they'll get to you. Until then, live free.
Kemp Dae Ho
The balance of justice ALWAYS tips over to the side that has the most cash.
Do you guys REALLY think bankrupt people stand a chance?
HA HA HA! Really!
The ONLY time when JUSTICE is served, IS IN A DISNEY MOVIE!!
the interesting dynamics are that the chopshop guys that made the loans and securitized them at Countrywide are all paid and gone, hopefully for their sake with corporate indemnifications (with potential govt guarantees). Now it is the shark trial lawyers lining up against the BAC bureaucracy coverup. The media doesn't matter. Bill Gross is buying RMBS with both hands planning to shovel it back to BAC in a dump truck. He is not buying securities he is buying claims. Hopefully, the taxpayers will get some back from the GSE claims before they have to pony up to rescue BAC...
I sent the Kemp case to friends with copies of the Morgensen article because of the comments of the BAC attorney Larry Platt.
Testimony in the case established that it was BAC customary practice “to maintain possession of the original note and related loan documents.”
Larry Platt was quoted in the article (after the case was concluded and reported) saying "It was Countrywide's practice to deliver the notes".
So, your client goes down on this specific point and you still deny, deny, deny. We are about to see whether the rule of law exists still in America.
Assange is already on the waterboard with a tight little bag over his nut, its just the media who keep saying he's gone into hiding and cant be found
Could well be.
It will curative legislation national in scope and retoractive in its application to fix this problem: the provisions of the new law will say: "compliance with all of these laws after the fact is OK," expressly authorize one-sided allonges and assignments, overrule/preempt any pesky state laws to the contrary, authorize and bar questioning of foreign (i.e., out of state) notarizations, permit foreclosure actions to be conducted by non-attorneys; etc. etc.
Essentially, it would be an equitable decision... if both the buyer and seller of the securities are ok with keeping them as is and can ignore the lack of formalities, why not let them stand?
My question is why in the fucking hell would the buyers of this shit be ok with keeping them? And, if it is not a rational person, but instead a FED or, even dumber, a GSE, then what about fiduciary duty? If you have a stinker investment and you have the option of stuffing it back from whence it came, then how do you not have a duty to break out the rubber gloves and shove it back into their holes of origin? Does anyone other than the fed, gses, and pimco own these things?
Ned, I respectfully disagree. Note how the AGs were supposed to be "close to a settlement" two weeks ago. Nothing since. It's too complex and I suspect some of the AGs have heard from constituents and other groups helping people keep their homes to apply a fix-all.
Banks probably are asking for a get out of jail free card and some AGs just aren't ready to go that route. Backlash from voters could be deadly to their political careers. The banks are in a box and they know it.
The AGs are caught in a pickle too. By coming out to stop foreclosures, all they've done is help out the firsts so that lower priority claims are effectively barred from establishing priority and it gives more time for a legislative solution. On the surface, the foreclosure moratoria seem to be aimed at helping the public (i.e. the AG's job), but in reality, the public would be better served to be fraudulently foreclosed upon because we get a shot at a free house, depending on the level of transgression/title confusion... or at least a nice settlement. Likewise, it begs the question as to what the fucking hell the AGs have been doing all this time while this bullshit was going on... we know what the SEC was doing (tranny porn).
This relentless increase of exposed poor practice by the banks are in an equally relentless fashion not going to the core issue of plaintiffs.
They were not damaged.
You have no standing in a lawsuit if you were not damaged. These plaintiffs all were failing to pay their mortgage. They Were Going To Be Booted Anyway.
The courts are not going to depart from that conclusion until someone finds a magic formula of demonstrating damage, and you can bet your last dollar that if there is a plaintiff out there who was truly and grievously damaged, BAC will settle with them for big numbers and send them on their way before the formula found goes public. Keeping it quiet will be part of the settlement.
BAC is at risk, yes, because that formula may be out there, but do not under any circumstances imagine that there is some sort of inevitability in play here. Tens of thousands of plaintiffs have tried to find a way to make a case for damage and so far, none have. Odds are increasing that there is no way.
These plaintiffs all were failing to pay their mortgage. They Were Going To Be Booted Anyway.
I think you're talking about defendants in foreclosure cases, per se, so your point is MOOT. Cue Jessie Jackson.
Bingo. Used as a shield, standing is an incredible impediment. However, attempting to use it as a plaintiff is more like using a whiffle ball bat than a sword... damages are largely unnecessary when the plaintiffs purveyed a fraud upon the court... the court will give its licks where they are deserved.
But the case won't get to court!
That's the point I am making. The plaintiff has to be the evictee if he's being evicted. If the eviction process is flawed, the court is taking it at face value and signing off.
If AFTER EVICTION, the plaintiff wants to sue, he has to show damages.
BOA is not going to be hurt if the court finds that they cut corners. They will be granted administrative latitude. To smack BOA hard requires damages.
This has been discussed many times here, so I'll try and make it as brief as possible. It is universal that in the event fraud is committed on the court (not against another party to a lawsuit mind you, but upon the court), the court may set aside a judgment. In short, there need be no damages to set aside a foreclosure judgment in the event of fraud. Generally speaking, you are correct, in that a foreclosure defendant must show a meritorious defense in order to set aside a foreclosure judgment (damages in other words). However, there is a very substantial exception to this rule, fraud, and numerous courts have already determined that the robostamped, falsely acknowledged, and untimely assigned documents have amounted to a fraud upon the court.
Further, the time to set aside a judgment, outside of laches or other equitable arguments, appears to be, practically speaking, a non-issue given the time frames of the foreclosure ramps.
In summary, a judgment entered as a result of fraud upon the court is likely void ab initio and, depending on jurisdiction, the court may be obligated to set the judgment aside, regardless of any impact to judicial economy or futility.
PS, practically speaking, just because a defaulting homeowner may not have damages per se, that does not mean that a defaulting homeowner can't hold banks and other parties hostage over the void judgment... and thus be entitled to, at least, a nuissance value.
Angelo Mozila looks like a NYC crime boss. Hollywood could not have cast this act any better.
MA Secretary of State Bill Galvin is trying to get a law in place that would require court review before foreclosure, just over half of the states have this law.
http://www.boston.com/realestate/news/articles/2010/12/06/galvin_wants_c...
Seems the court review process slows things down.
- Ned
the cure is two simple words, rocket docket.
Gots lots of those $5 puts ready....bring em home to popa!
Reuters is reporting that Lender Processing Servicesof Florida who were one of the 1st Robosigners uncovered are having financial woes while under reporting the true scope and size of their problems.
http://today.msnbc.msn.com/id/40533358/ns/business-us_business/
FTA:
a Reuters investigation shows that LPS's legal woes are more serious than he let on. Public records reveal that the company's LPS Default Solutions unit produced documents of dubious authenticity in far larger quantities than it has disclosed, and over a much longer timespan.
Questionable signing and notarization practices weren't limited to its subsidiary, called DocX, but occurred in at least one of LPS's own offices, mortgage assignments filed in county recorders' offices show. And rather than halt such practices after the federal investigation got underway, the company shifted the signing to firms with which it has close business ties. LPS provided personnel to work in the new signing operations, according to information from an LPS spokeswoman and court records including an October 21 ruling by a judge in Brooklyn, New York. Records in county recorders' offices, and in the judge's opinion, show that "robosigning" and preparation of apparently false documents went on at these sites on a large scale.
"The current Attorneys General investigations could shed light on this"
The current AG of CA is Jerry Brown, he couldn't find criminal acticity in the city of Bell CA (read the LA Times Jerry).
Jerry's replacement is an every bigger lefitist schill.
Fraud loans were proliferated to promote, protect and subsidize mass immigration and the "progressive movement", it provided the fuel & funding and votes, the second the"protection" is removed the "movement" is defunded and prosecuted.
Aint no way the state AG's will touch this one, Spitzer might have, he had the balls and Ego, and he was removed and castrated.
"The current Attorneys General investigations could shed light on this"
The current AG of CA is Jerry Brown, he couldn't find criminal activity in the city of Bell CA where the city council and city manager looted the treasury as well as bond funds(read the LA Times Jerry).
Jerry's replacement is an even bigger lefitist schill.
Fraud loans were proliferated to promote, protect and subsidize mass immigration and the "progressive movement", it provided the fuel & funding and votes, the second the"protection" is removed the "movement" is defunded and prosecuted.
Aint no way the state AG's will touch this one, Spitzer might have, he had the balls and Ego, and he was removed and castrated.
Assange may have already pressed the button, we'll know in 12 hours won't we. Also the data may show that Bank of America knew that they fradualently put these things together and knew the results. Wouldn't it be a hoot if in the documents that the bank leaders where laughing and saying that it doesn't matter the govt. will bail us out and everything is good.