The act instructs the appropriate Federal financial supervisory agencies to regulate financial institutions to help meet the credit needs of local communities in which they are chartered, consistent with safe and sound operation to enforce the statute, federal regulatory agencies examined banking institutions for a community reinvestment act compliance and take this information into consideration when approving applications for new bank branches or mergers or acquisitions.in my opinion, this law, provided Congress with the gun which they would use against the financial industry to begin to force them to change the underwriting requirements so as to make it easier for folks who did not qualify for mortgages to suddenly qualify.
The CRA
Then in 1999, Congress and the Clinton administration, put pressure on Fannie Mae to ease credit requirements in an effort to increase home ownership. this action, which began as a pilot program involving 24 banks in 15 markets, including the New York metropolitan region, encouraged banks to extend home mortgages to individuals whose credit is not generally good enough to qualify for conventional loans. The sub prime market.
By the following spring, The program had gone nationwide. Fannie Mae the biggest underwriter of home mortgages was under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt the pressure from stockholders to maintain its phenomenal growth in profits. Suddenly, Fannie Mae was qualifying folks for mortgages who did not qualify. Many economists and some politicians were warning that if this practice failed, the government would have to step up and bail them out the way it bailed out the thrift industry. And as we see, looking back on it, that is exactly what happened.
So while the Carter administration gave Congress the gun, the Clinton administration gave Congress the bullets to put in the gun. The Clinton administration sent signals to the financial industry and the banks that they were willing to use the Department of Justice to enforce the new underwriting requirements to ensure that low income communities would be able to increase their home ownership.
There were however some politicians who saw the danger coming and tried to do something about it. In September 2003, the Bush administration recommended the most significant regulatory over haul in the housing finance industry since the savings and loan crisis. That plan would have created a new agency within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the two government-sponsored mortgage giants. The new agency would have had the authority, which now rests with Congress, to set one of the two capital reserve requirements for the companies and would exercise authority over any new lines of business and would be able to determine whether the two are adequately managing the risk of their ballooning portfolios. the plan was an acknowledgment by the Bush administration that oversight of Fannie Mae and Freddie Mac, which together have issued more than $1.5 trillion dollars in outstanding debt was broken.
A report by outside investigators in July of 2003, concluded that Freddie Mac and Fannie Mae manipulated its accounting to mislead investigators, who had said that Freddie Mac, does not adequately hedge against rising interest rates. so there were a few within the government who were sounding the alarm bells. These poor folks were meeting with resistance from members of Congress, including our current president, who was receiving huge kickbacks from Fannie Mae and Freddie Mac as a result of all the new mortgages that were being written to people who didn't really qualify for them.
As this report from Fox news shows, even as the warning bells were being sounded, they were being met with resistance and/or ignored. So, banks were left with an interesting dilemma, they could see the wave coming, they knew that when you qualify people for mortgages that they can't afford, sooner or later they will stop paying for them. And so what were the banks to do? They were being forced by the government to qualify people who didn't qualify, they eventually came up with the answer.
They would repackage the mortgages into a securitized instrument and resell them to investors.
As you see in the video, the whole financial system is now in chaos. Average Joe who bought the mortgage for his house is now underwater. That means that the mortgage is now worth more than the house. So exactly what happened to Average Joe's mortgage when it was repackaged and resold as a collateralized debt obligation to the investors? Let's start when Joe went to Bank A to get a mortgage for his dream house...
Bank A- issues a mortgage to Joe to purchase a house. Two documents are produced, a promissory note and a trust deed. The trust deed is essentially the title of the property that is held in trust until the promise to repay the loan (promissory note) is satisfied. Once the loan is paid in full Bank A releases its claim on the Trust deed and ownership passes in full to Joe.
That is what most of us believe happens in mortgages because you are not informed as to what happens after the paperwork is signed and how it impacts the title and promissory note you are obligated to. This is intentional, and represents the entire scheme that allows securitization occur. If the process that is now used is too complex it can be used as a justification to allow the shenanigans that occur during a foreclosure process to happen while the judges and juries believe that the process described above is what is actually happening. Let’s look next at the basics of securitization.
Once the mortgage has been formed between Joe and Bank A, Bank A wants to get rid of it as fast as possible and recoup its funds. To take advantage of this and the tax benefits of securitization it has to form what is called an SPV, a (Special Purpose Vehicle). Think of it as a shell company.
This protects the mortgage if something happened and Bank A went out of business. The mortgage would still exist. It also theoretically reduces the liability of Bank A to the mortgage default. It is important to realize one important thing here…the two documents that Joe signed (the promissory note and the title deed) are now SEPARATED. The trust deed remains with its trustee. The promissory note—the asset that pays money—is SOLD to the SPV. The original note is paid off by the SPV and the stream of payments becomes the property of the SPV. Bank A has its money in full and no longer has ANY interest in the mortgage.
Now, the SPV forms a new trust entity. This trust entity is defined by the IRS as a REMIC (Real Estate Mortgage Investment Conduit) and must adhere to the laws regarding such a trust. The benefit of doing this is that when the SPV transfers the mortgages into the Trust NO TAXES MUST BE PAID ON THE TRANSFER. This makes the trust is a much more efficient and profitable vehicle for investors. REMICs, in turn, cannot retain any ownership interest in any of the underlying mortgages. The Trust, then, is as its name states a Conduit where money flows in from the person who pays their mortgage and out to the investor as a payment. The right to receive those payments was purchased when the security (stock or bond) to the trust was purchased. Proceeds from that went back to the SPV who used them to purchase the mortgages from Bank A. It is a giant figure 8 circular flow of money with the Trustee coordinating it all.
Let’s see who OWNS the mortgage then:
The first owner was Bank A who took interest in the property as collateral on its loan to Joe. Simple enough, when Bank A sold the mortgage to the SPV its interest was extinguished. Ownership of the promissory note WAS transferred to the SPV who is now the note holder. The SPV forms the REMIC trust and transfers the note into the trust, thereafter it irrevocably changes the nature of Joe’s mortgage. It becomes a Security. Once again, the SPV must transfer the note and pay taxes on the transfer. The mortgage now in the trust becomes for all purposes a blended group of monthly payments. These payment streams become the source of funds that the trustee pays out to investors. In essence the trustee—when certificates, stocks or bonds to the trust are sold—sells a beneficial interest in the mortgage. That is not ownership of any portion or any segment of the revenue stream but rather is simply a security—just like a share of IBM or Google doesn’t entitle you to any of the assets of the company. But who owns the note?
Because of the tax exemption of the REMIC it is PROHIBITED from retaining any ownership of the underlying assets it no longer holds any ownership to the note on the day it is formed. The investors in the trust do not hold any interest in the note either; they only hold the security which was sold to them. So what happened to ownership of the note? It was EXTINGUISHED when it entered into the trust in order to obtain the flow of cash back to the original lender and the tax-preferred investment proceeds to the investors. So, who does Joe owe the money to? Who has authority to release the deed to Joe when his mortgage has been satisfied?
The answer? No one.
The trust is set up and cannot take an active role in the collection of the funds. It is a shell entity ONLY. Therefore it appoints a servicer to collect the payments every month. So what happens when Joe defaults? How is his property foreclosed upon?
In this proceeding the servicer presents documents to the court (or the trustee of the deed in a non-judicial foreclosure state) that state that THEY are the owner of the note and have a legal standing to foreclose. This is not true, is not legally possible, and is fraudulent. The servicer is the agent of the Trust and will use that to claim that they are foreclosing on behalf of the trust. The problem? The Trust itself cannot hold ownership of the note because of its tax-preferred REMIC status! What about if they state that they are representatives of the investors? The investors have no ownership interest in the underlying mortgages; they only have ownership interest in the securities that were issued to fund the trust! So who does Joe owe? The answer is nobody. The process of a note becoming a Security is final and irreversible. You cannot unscramble the eggs. A Security cannot be used to foreclose.
Bottom Line -All Terms of Joe's Mortgage Were Fulfilled:
The Lender was paid from the SPV upon selling the note.
The SPV was paid from the Trustee who received money from the sale of securities.
The Servicer was paid on schedule by the Trustee from fees generated.
Owners of the certificates (bonds or stock) received a payment from the Trust.
The REMIC Trust itself was insured by the SPV to protect investors.
If the terms of the mortgage were fulfilled (i.e. everyone was paid) To Whom Does Joe Owe Any Money?
There still exists a lien on the house that is unenforceable. You would have to go through a process to extinguish that lien by having an attorney file for you a Quiet Title, which silences or quiets any more claims to the property.
That's right, it is highly likely that the lien that exists on your house is unenforceable because if your mortgage was securitized and made part of a collateralized debt obligation package, it would be nearly impossible to determine whom legally holds your mortgage note. As explained your original note, (the one you signed in BLUE INK) was rendered invalid once the mortgage became a security.
You have the right to ensure that you are not being defrauded!! You have the right to request from the entity to whom you are sending your mortgage payments, that they prove they have the legal right to foreclose on your property if you stop making those mortgage payments.
You can request that they produce the original, (singed in blue ink), note that you signed at the time your mortgage loan was closed. Hint: They cannot... the note is gone.
The original note that you signed at closing must remain with the (trust) deed, if either is missing, the other is worthless. If you had $1,000 dollars worth of gold in one hand, and $1,000 dollars in the other hand, how much would the dollars be worth if you took the gold away?
If you said NOTHING you are right.
The original note that you signed at closing must remain with the (trust) deed, if either is missing, the other is worthless. If you had $1,000 dollars worth of gold in one hand, and $1,000 dollars in the other hand, how much would the dollars be worth if you took the gold away?
If you said NOTHING you are right.
You can get a satisfaction of mortgage from a court and a quiet title and you can own your home.
A mortgage securitization audit is available to you and will track exactly what happened to your mortgage from the closing table through today, it will show each instance where fraud may have been committed against you. It also gives you standing in court proceedings. If you can show fraud, you have standing.
If you would like more information, please complete the form and a representative will contact you. This consultation is free and you are under no obligation.
