By Neil Garfield
So the “RMBS” industry is pushing for “economic relief” in the Pandemic. If they get it, it will be another windfall for Wall Street and investment bankers will go from laughing to convulsing in the privacy of their board rooms.
The Wall Street Journal published an article yesterday on how the mortgage market is not behaving “as expected.” With interest rates down so low there should be a flood of refinancing. And there is plenty demand to do just that. But, as the article points out, there might be demand but there is no supply. There is no supply because investors are not buying certificates issued as RMBS (Real Estate Mortgage Backed Securities).
The reason they are not buying RMBS is simple. They don’t trust the economy and all of the investors have growing doubts about the valuation and risk assessment associated with RMBS. Investors see mortgage default risks as being associated with safety of their investment because the certificates state that one of the discretionary reasons why investment banks don’t need to pay them is if there are declared defaults on certain specified loans — whether or not they are owned by the investment bank or anyone else.
And since securitization is in essence a Ponzi scheme, the more difficult it is to sell new certificates, the more difficult it is to pay investors. That part admittedly is counterintuitive but nonetheless true. While homeowner’s payments actually do cover the liability of the investment bank to investors, the reality is that the investment bank continues ot make payments to investors regardless fo receipt of money from homeowners IF they are continuing to make sales of new certificates.
The practical effect of all this for homeowners is to realize that if they sign on any dotted line they are pulling the trigger on a securitization scheme, of which their receipt of money is a tiny fraction. At the end of the day there is no person, company, business entity or trust that maintains any books and records showing the homeowner’s promise to pay as an asset on their balance sheet. In plain words, the role fo the creditor has been eliminated to avoid lender and servicer liability imposed by federal and state laws.
This fact — the absence of a creditor — has been the topic of discussion for two decades. And it is has never been addressed because the investment banks, who have the greatest amount of influence over politicians, don’t want it addressed. They don’t want it addressed because if it was addressed then the role of investment banks AS LENDERS would be revealed along with their gargantuan profits from “securitization” in which the obligations of homeowners are NOT sold to anyone, much less securitized.
In practice this means that homeowners can and probably should dispute their obligation to make payments before, during and after any false declaration of default. A declaration of default is a legal nullity if it isn’t declared by or on behalf of a creditor. If there is no creditor then there can be no default. Yes it is that simple.
So that is why I have been a broken record. Criminal lawyers tell their clients to keep their mouths shut because 80% of all criminal convictions are the direct result of what comes from the mouth of the defendants. That’s why I tell professionals with grievances filed against them the same thing.
And that is why I tell homeowners the same thing —- admit NOTHING. The reason is simple — your opposition is an investment bank regardless of who is named as claimant or plaintiff. If you admit any part of what they are saying they will argue that you admitted all of it. And they may be right under current rules.
Force them to the PROOF and they will fail the test every time.
Nothing they are saying is true and none of their documents are anything more than pure fiction. Don’t admit that the transaction was a loan, that there is an obligation, that the obligation is secured by a mortgage, that the obligation is set forth in the note, that the note or mortgage has been transferred, that the default ever occurred, or that the action is a foreclosure.
Don’t admit the trust or that a bank is a trustee or that the bank has any authority to represent a trust or the holders of certificates. None of it is true. Don’t even think that the action is for the benefit of investors. It isn’t.
And don’t think that you are cheating someone out of money by not making the payments you promised to make. Anyone who was legally entitled to receive a payment from you has already been paid. It is not your doing or your fault they got paid without your money. And it isn’t your responsibility to pay them again.
If investment banks want to change this analysis and return to the world where we are a nation of laws and not a nation where men make up their own rules and go to illegal or extra-legal schemes then they must seek to legally reform (see reformation) their schemes to protect all the stakeholders and not just themselves as intermediaries with the most to gain and the least to lose.
Your position is that you entered into a transaction in which you knew only a small part of the whole transaction and that you were entitled to know about the rest of it. Your intent was to establish a loan transaction. their intent was to start a securitization scheme in which the role of lender was eliminated.
So your intent was a loan and theirs was the creation, issuance, sale, trading and hedging of securities. Without your signature the securitization would not exist. Without securitization your homeowner transaction would not exist.
You got a payment for issuance of the note and mortgage and for a disguised and unintended license to resell personal data. That part of the consideration was offset by your required (see adherence contract) promise to make payments far in excess of the transaction payment received by the homeowner.
So was there any net consideration paid to the homeowner for issuance of the note, issuance of the mortgage and license to resell personal data? Auditors might vary in their opinions on that.
And given the requirements under all lending and securities laws to disclose the whole transaction — and not just the part of it called a “loan” — how much money should the homeowner have received for triggering a profit firestorm?
We won’t know because in a free market the homeowner would have been able to bargain for greater incentives if he/she knew about the entirety of the transaction. We won’t know because in a free market competitors for homeowners’ signatures would have offered more incentives. We won’t know because in a free market, investors would have asked for much greater incentives since, besides the homeowner, they were the only real player in the securitization scheme.
And THAT is what quasi contract law and the law of quantum meruit is all about. Use it or lose it.
*Neil F Garfield, MBA, JD, 73, is a Florida licensed trial attorney since 1977. He has received multiple academic and achievement awards in business and law. He is a former investment banker, securities broker, securities analyst, and financial analyst.