Banks Committed Fraud on Investors of Mortgage Backed Securities
IF YOU DON'T READ ANYTHING ELSE ON ACTIVERAIN TODAY. . . .
Read Tim's article below about the Mortgage Mess. It's insightful and touches on some areas of the mess not often discussed but about which we will be reading more, at least I hope so. Sadly, far too often the perps in these financial schemes to stick their grubby and greedy hands into the pockets of the American tax payers are often covered up by the ones they're charged with protecting.
Courtesy, Lenn Harley, Broker, Homefinders.com, 800-711-7988.
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WANT TO KNOW WHOM TO "BLAME" FOR THE MORTGAGE MESS?
Take a look at the repeal of Gramm-Leach-Bliley Act, managed by the then Senator Phil Gramm, "GLBA". More. . .
History of the GLBA
"The history of the GLBA has its roots in the separation of banks, brokerage companies, and insurance companies. As a result of the financial failures of the Great Depression, Congress in 1933 passed the Glass-Steagall Act prohibiting national and state banks from affiliating with securities companies. In 1956, Congress passed the Bank Holding Company Act that prohibited a bank from controlling a non-bank company. In 1982 Congress amended the Bank Holding Act to further forbid banks from conducting general insurance underwriting or agency activities. This changed, however, in 1999, when the GLBA repealed sections of these acts and allowed banks to engage in a wide range of financial services."
Forget about troubled homeowners trying to stop the foreclosure with a "show me the note" defense. It's kind of a David vs. Goliath battle. That's kind of small potatoes compared to what's shaping up to be massive lawsuits between two Goliaths: banks vs. large investment houses.
It looks like it is likely that we'll be seeing investors of MBS(mortgage backed securities) ie. pension funds and insurance companies, go after the banks who put together the securities.
It's looking a lot like securities fraud. Banks knew the mortgages in these securities were flawed but they got the rating agencies to give them high ratings so they could sell them as if they were a lot less risky than they really were. When you sell securities, you have to disclose things that you know are material. It's kind of like seller's property disclosures.
The banks actually hired a company to evaluate the quality of the mortgages but never told the investors that they had found that many of them wrere "toxic". They told them that they had done a quality test on them but failed to indicate what kind of results were found. With the rating agencies giving them high marks, it was assumed that they were of high quality.
...the risk to investment banks isn't only one of dodgy paperwork; there's also a serious risk of massive lawsuits from the SEC or other prosecutors, as well as suits from individual mortgage investors.
The key firm here is Clayton Holdings, a company which was hired by various investment banks - Goldman Sachs, Bear Stearns, Citigroup, Merrill Lynch, Lehman Brothers, Morgan Stanley, Deutsche Bank, everyone - to taste-test the mortgage pools they were buying from originators...
In any case, it's clear that the banks had price-sensitive information on the quality of the loan pool which they failed to pass on to investors in that pool. That's a lie of omission, and if I was one of the investors in one of these pools, I'd be inclined to sue for my money back. Prosecutors, too, are reportedly looking at these deals, and I can't imagine they'll like what they find.
The bank I talked to didn't even attempt to excuse its behavior. It just said that Clayton's taste-testing was being done by the bank - the buyer of the loan portfolio - rather than being done on behalf of bond investors. Well, yes. That's the whole problem. The bank was essentially trading on inside information about the loan pool: buying it low (negotiating for a discount from the originator) and then selling it high to people who didn't have that crucial information.
Here's a good video where they explain what went on.
I've done other posts on MERS, and the problems associated with the way the mortgage securitization process is set up.
More Than You Ever Wanted to Know About MERS
The MERS Problem. RICO Lawsuit Spells Out the Details.
Janet Tavakoli: This is the biggest fraud in the history of the capital markets
Jon Stewart Covers the Foreclosure Problems with the Fine Print
What to Do About the Mess that MERS Created
Title to Property Is Sacred and Must Be Protected by the Rule of Law
JP Morgan Exits MERS. Sloppy Paperwork or an Inherently Flawed System Ready to Collapse?
Make Sure the Bank Didn't Lose Your Mortgage. Where's the Note?
Citi Confernce Call: Best Case Scenario Is That Foreclosures Delayed for at Least a Year
Major Title Insurance Company Has Stopped Insuring Homes Foreclosed by JPMorgan Chase
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