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‘Foreclosuregate’ and the President’s Pocket Veto
By Ellen Brown
Amid a snowballing foreclosure fraud crisis, President Obama on Oct. 7 blocked legislation that could have made it more difficult for homeowners to challenge foreclosure proceedings against them. In a maneuver known as a “pocket veto,” Obama indirectly vetoed the legislation by declining to sign the bill passed by Congress while the legislators were on recess.
Mr. Obama’s action follows an announcement that Wall Street banks are voluntarily suspending foreclosure proceedings in 23 states. It seems voluntary suspension of foreclosures is under way to review simple procedural errors that the conscientious banks are allegedly hastening to correct.
However, those errors actually conceal a massive fraud and cannot be corrected with legitimate paperwork, which is why the servicers had to hire “foreclosure mills” to fabricate the documents. These errors involve perjury and forgery.
Karl Denninger at MarketTicker is calling it “Foreclosuregate.” The name fits. Three large mortgage issuers—JPMorgan Chase, Bank of America and GMAC—have voluntarily suspended thousands of foreclosures, and a number of calls have been made for investigations. Ohio Attorney General Richard Cordray is filing suit against Ally Financial and GMAC for civil penalties up to $25,000 per violation for fraud in hundreds of foreclosure suits.
These problems cannot be swept under the rug; they go to the heart of the securitization process itself. The snowball has just started to roll.
Yves Smith of Naked Capitalism has uncovered a price list from a company called DocX that specializes in “document recovery solutions.” DocX is the technology platform used by Lender Processing Services to manage a national network of foreclosure mills. The price list includes such things as “Create Missing Intervening Assignment,” $35; “Cure Defective Assignment,” $12.95; and “Recreate Entire Collateral File,” $95.
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Notes Smith: “Creating . . . means fabricating documents out of whole cloth, and look at the extent of the offerings. The collateral file isALL the documents the trustee (or the custodian as an agent of the trustee) needs to have pursuant to its obligations under the pooling and servicing agreement on behalf of the mortgage-backed security holder. This means most importantly the original of the note (the borrower IOU), copies of the mortgage (the lien on the property), the securitization agreement, and title insurance.”
All of the mortgages in question were “securitized,” meaning they were turned into mortgage-backed securities (MBS) and sold off to investors.
MBS are typically pooled through a type of “special purpose vehicle” called a real estate mortgage investment conduit or REMIC, which has strict requirements defined under the U.S. Internal Revenue Code (the Tax Reform Act of 1986). The REMIC holds the mortgages in trust and issues securities representing an undivided interest in them.
The mortgages, experts say, are pooled into REMIC trusts as a tax avoidance measure, and that to qualify, the properties must be properly conveyed to the trustee of the REMIC in the year the MBS is set up, with all the paperwork necessary to show a complete chain of title. For some reason, however, that was not done; and there is no legitimate way to create those conveyances now, because the time limit allowed under the tax code has passed.
Why weren’t they done properly in the first place? Struggling Americans deserve answers.
Ellen Brown developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, her latest of 11 books, she turns those skills to an analysis of the Federal Reserve and the money trust. She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back.
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(Issue # 43, October 25, 2010)
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