The Process

While most people just view taking out a mortgage as a simple credit transaction, nothing could be further from the truth. If your mortgage has been securitized, techinically you are actually an issuer of an unregulated security in a highly complex structured financial transaction 

In fact, it is my theory that during the period of time roughly covering 2002 - 2007, originating lenders (as well as everyone else in the chain of the securitization process) bet against the borrower to be able to fulfill their obligation. The strategy can be compared to a situation whereby the lender deposited a single dollar bill into a slot machine, the dollar bill would be gone forever, but the slot machine was guaranteed to payoff every single time and return 2, 3 or even 5 dollars . The mechanism for this process was what is known as "credit default swaps" Credit default swaps were (and amazingly still are allowed) a way for entities to bet against (or for) borrowers of home mortgages to be able to continue making payments on loans that were rigged to fail.  This fact means that as a result of these "bets", your loan has already been paid off.

Additionally, investors in these securitized trusts that are mortgage backed securities, or collateral debt obligations, were covered by monoline, multiline, or other form of "pool insurance" or mortgage guarantee insurance, which has already indeminfied the securitized trust for a borrower's default. Moreover, these trusts also "overcollateralized" and/or "cross collateralized" certain "tranches" within these securitized trusts that subrogated losses from borrower defaults to other tranches (thus different investors than the ones trying to foreclose on your home), and therefore the investor on your loan may have in fact already been indemnified for any loss from default on your loan.

Even in light of the above, the servicer, and other parties that engineered the securitization that includes your mortgage, seek to collect yet again, by foreclosing on your home. I have credible evidence that suggests that mortgage servicers may be auctioning these homes and not turning the proceeds over to the securitized trust and its investors. Thus the mortgage servicer is keeping the proceeds of these foreclosure auction sales as a financial windfall (another reason why your servicer has absolutely no incentive to work with you on a loan modification).  

This issue is now surfacing when homeowners who are attempting to be approved by their mortgage servicer for President Obama's Home Affordable Mortgage Program ("HAMP"). Some applicants are being told that, while technically their loan meets the qualifying criteria of the program, they are being denied because their loan is covered by "pool insurance". Additionally,borrowers generally get the runaround when trying to get their mortgage payments modified. This is so for a number of reasons, but mainly because the mortgage serivcer receives more money for keeping you in foreclosure.  Default servicing pays more money. The trust has an escrow account to pay litigation fees to servicers, and the servicer gets to keep all late fees and junk fees paid by the homeowner. This means the servicer is incentivized to default a home loan and its motivation is at odds with its client, the securitized trust. The largest default servicer in the country is based in Jacksonville – Fidelity National Default Solutions (now known as LPS Default Title and Closing). This is essentially a shadow company that makes it’s money through both legitimate and nefarious methods. It has been known to fabricate loan data, create falsified court documents and charge illegal fees to homeowners. FNDS hires the foreclosure lawyers on behalf of the securitized trust and does not permit the lawyers to directly communicate with the trust, even though the trust is the actual plaintiff in the case.

This begs the question, "if my loan is covered by pool insurance" (and has been indemnified), where is the loss to the investor bringing the foreclosure action? And more importantly "why the heck am I still making mortgage payments to an entity that has already been paid off on my obligation, and has no legal right to foreclose on my home?"

Federal Securities Law

If your mortgage was securitized, it is subject to the securities and exchange commission and its rules and regulations as well federal laws governing securities (acts of 1933 and 1934).

One of the main requirements under federal securities law is that a prospectus be provided to investors in mortgage backed securites. If your mortgage has been securitized, theoretically your mortgage loan ended up in a securitized trust as part of the securities sold to large institutional investors. Under federal securities law the prospectus determines the roles of all of  the parties to the transaction, and sets forth the requirments enabling the trust to qualify as a federally regulated security.

Another source of authority is the "pooling and servicing agreement", which is the contract

Theoretically these trusts were set up to be "bankruptcy remote". So what generally happens is that a financial institution creates many sub-corporations in order to create a chain of "absolute sales" of the trust assets, leading to the final transfer into the securitized trust. Generally these are the requirements and parties involved in the process:

• Cut Off Date - The date that all of the mortgaage loans must be identified, which will be forming the asset pool of the securitized trust.
  
  
• Closing Date - The date that the identified mortgage pool assets (Mortgage File that includes the borrowers mortgage note endorsed in blank and the security interest in recordable form, for each mortgage) must be transferred to the "Custodian"
  
  
• Originator or Responsible Party - The Bank, Mortgage company (or broker) who sold you your mortgage
  
  
• Sponsor or Seller - A sub-corporation (Special Purpose Entity [SPE]) formed by the financial institution creating the securitized trust, that aquires (by "absolute sale") and holds the loans (including yours) originated by the "Originator".
  
  
• Depositor - A sub-corporation formed by the financial institution creating the securitized trust, (or other party) that aquires the loans from the "Sponsor" (by absolute sale") Usally the "Depositor" will not have any business operations other than "securitizing" the mortgage asssets received from the "Sponsor"  As part of the "securitization" process, the "Depositor" issues "certificates" that theoretically become the representation of the mortgage assets in the securitized trust asset pool. These certificates are generally in the form of Bonds sold to Investors. The Depositor generally is the only entity authorized by the prospectus to transfer the mortgage assets into the securitized trust.
  
  
• Issuing Entity - A sub-corporation formed by the financial institution creating the securitized trust that is formed on the "closing date" pursuant to the "pooling and sevicing agreement". This is the sub-corporation that forms part of the very long name of the entity bringing the forecloaure action against you. This SPE creates trusts to be sold to investors, including the individual trust that your loan is in (usually the last part of the very long name of the entity foreclosing).
  
  
• Trustee  - Generally a National Bank (Predominately Deutsche Bank National Trust) theoretically represents the interest of the securitized trust investors of the specific trusts.. This is the party that generally brings the foreclosure action in its name "as trustee" against the borrower.
  
  
• Servicer - Generally a company hired by the securitized trust responsible for the billing, maintenance, and foreclosing of the mortgage loan pool contained within the trust.

Therefore, taking into consideration the above; if you get a notice of foreclosure that states that an entity is bringing a foreclosure action against you is named:

DEUTSCHE BANK NATIONAL TRUST COMPANY as TRUSTEE UNDER POOLING AND SERVICING
AGREEMENT DATED AS OF NOVEMBER 1, 2006, SECURITIZED ASSET BACKED RECEIVABLES
LLC TRUST, 2006-WM3 MORTGAGE PASS- THROUGH CERTIFICATES SERIES 2006-WM3.

1. Deutsche Bank is the Trustee acting on behalf of the trust
   
   
2. The pooling and servicing agreement date represents the cut-off date for the mortgage pool assets to have been identified to the your specific trust.
   
   
3. Securitized Asset Backed Receivables, LLC Trust, is the Issuing Entity
   
   
4. 2006-WM3 Mortgage Pass-Through Certificates Series 2006-WM3 is the specific trust containing your mortgage that was created by the "Issuing Entity".

Securitized mortgage backed securities prospectuses generally require that the mortgage assets (your mortgage note and mortgage), be transferred by absolute sale from the Originator to the Sponsor to the Depositor (who is the only party authorized to deposit the mortgage assets directly into the securitized trust asset pool) then to the specific securitized trust.

This is a supposed A to B to C to D transfer of assets to the securitized trust. The reason this is set forth in the prospectus is to keep the mortgage asset pool bankruptcy remote (referring to the other entities in the chain of transfer), as well as to qualify these securities as  Real Estate Mortgage Investment Conduit ("REMIC").

Pooling and Servicing Agreement (*"PSA")

The PSA is the "glue" that binds all of the players in the securitization process together and is typically filed with the Securities and Exchange Commission, although you might have to dig a bit to find the one that governs the securitized trust that owns your loan.

The PSA requires that all promissory notes must be endorsed by the originator and delivered to the trustee shortly after the creation of the trust. Similarly, an Assignment of Mortgage must accompany each note. In reality, this NEVER happens, and the consequences of this failure are potentially catastrophic for the trust. I surmise that the mortgage-backed securities market was so white-hot that actual delivery of these critical documents just got in the way of an “efficient” process.

The PSA requires the servicer to make mortgage payments to the trust regardless of whether it actually receives the payment from the homeowner. The only way for the mortgage servicer to stop paying the monthly payment to the securitized trust is to foreclose on the home. Once again, here is another reason the mortgage servicer does not want to work with you to modify your loan.

Some of the above was taken from an article describing what a pooling and servicing agreement is, an can be found here

REMIC

 Real Estate Mortgage Investment Conduits, or "REMICs," are a type of special purpose vehicle used for the pooling of mortgage loans and issuance of mortgage-backed securities. They are defined under the United States Internal Revenue Code (Tax Reform Act of 1986). The main advantage of these entities is that income is tax exempt from double taxation..

Though REMICs provide relief from entity-level taxation, their allowable activities are quite limited “to holding a fixed pool of mortgages and distributing payments currently to investors.” A REMIC has some freedom to substitute qualified mortgages, declare bankruptcy, deal with foreclosures and defaults, dispose of and substitute defunct mortgages, prevent defaults on regular interests, prepay regular interests when the costs exceed the value of maintaining those interests, and undergo a qualified liquidation, in which the REMIC has 90 days to sell its assets and distribute cash to its holders. All other transactions are considered to be prohibited activities and are subject to a penalty tax of 100%,  as are all nonqualifying contributions.

However, cash contributions after the cutoff date can avoid this tax if they are given three months after the startup day, involve a clean-up call or qualified liquidation, are made as a guarantee, or are contributed by a residual interest holder to a qualified reserve fund. Additionally, states may tax REMICs under state tax laws.“Many states have adopted whole or partial tax exemptions for entities that qualify as REMICs under federal law.” 

Therefore, all contributions (read as delivery of the mortgage loans into the trust) to the "REMIC" must occur on the "start up date",or at most 90 days after this date, which is also the "cut-off date" specified in the securitized trust prospectus.. As all other contributions (after the cut-off date) are considered prohibited activities, therefore, if a mortgage loan has not been identified by the cut-off date (ie placed in the securitization pipeline by the Originator), any transfer of the borrowers mortgage note and/or mortgage into the securitized trust after the cut-off date. subjects this "contribution"  to the securitized trust to a 100% penalty tax .

REMICs are subject to federal income taxes at the highest corporate rate for foreclosure income and must file returns through Form 1066. The foreclosure income that is taxable is the same as that for a real estate investment trust (REIT) and may include rents contingent on making a profit, rents paid by a related party, rents from property to which the REMIC offers atypical services, and income from foreclosed property when the REMIC serves as dealer.

My Experience

What I generally see happening is a A to D transfer, that is the Originator is transferring borrowers mortgage notes directly into the trust, by passing B and C. Additionally, I am seeing the transfer of mortgage loans into these securitized trusts well after the cut-off date identified in the prospectus. This is very problematic for the foreclosing trustee of the securitized trust for two reasons.

1. In the above scenario, even if the attorney for the servicer who is foreclosing on behalf of the Trustee (who is in turn acting for the securitized trust) produces a note, it was not conveyed into the trust under the requirements of the prospectus for the trust. The end result would be that the mortgage file, or any part thereof (mortgage note or security interest), would not have legally been tranferred to the trust to allow the trust to be considered a "holder" of your mortgage entitled to bring the foreclosure action, as they would not be a proper party before the court.
   
   The other evolving area that may help bring down this criminal enterprise is the recent case law involving MERS (Mortgage Electronic Registration System). Please see the page I have dedicated to MERS for more information of this rapidly evloving area.
   
   
2. The transfer of mortgage loans into the trust after the cut off date destroys the trust's REMIC tax exempt status, and these securitized trust's (and potentially the financial entities who created them) owe a tremendous amount of 100 percent taxation on these assets. I hope you are paying attention to this IRS.

The key to a successful foreclosure defense in a securitized mortgage transaction is to obtain the prospectus for the trust that supposdly holds your mortgage. The prospectus is usually fairly clear on the path that the mortgage note, and security interest (your house) must take to be lawfully in the trust. Most times this protocol is never followed. This provides an avenue for the borrower to challenge the foreclosing entities right to enforce the power of sale in the mortgsge.

As mentioned above there is always a "cut off date" mentioned in the prospectus, whereby the the mortgage notes and security for these notes had to be identified, and thereafter the pool is permanently closed to future transfers of mortgage assets on this date. I frequently see foreclosing lenders try to explain away the fact that the assignments of mortgage (security for the note) and /or the mortgage note were transferred to the trust after this cut off date.

The mortgage servicer may file confirmatory corrective assignments (after being challenged by me in a foreclosure defense action) that now magically attempts to change the transfer date of the borrower's mortgage to the trust to the cutoff date identtifed in the prospectus. Unfortunaely this creats a real problem for the foreclosing trust, as it cannot now legally claim that it is legally the "holder" of your mortgage or note, or that it is entitled to the REMIC tax exemption on this transfer.

If your loan is securitized and you get notices from the "bank", rest assured that the bank does not actually own your mortgage as they may try to represent to you,, The "bank" is merely servicing your loan for the Trustee of a securitized trust.

Indemnification Of The Securitized Trust

These trusts also have different levels of risk (and thus varying interest rates of return paid to the Investors) based upon the underwriting of each individual borrower. These levels are called "Tranches". The "upper tranches", are purportedly "higher quality" borrowers based on FICO scores, etc. Usually within these upper tranches there is an agreement to indemnify the trust should the borrower default on a loan within this upper tranche.

Credit default swaps were another example of ways the investors in the tranches of securitized trusts were indemnified. One of the main credit default swap"counterparties" taking on the risk of deault of these"tranches" was AIG. AIG took premiums for credit default swap "protection" when it had no possinle means to be able to meet its obligations should there be significant defaults. Unfortunately as we have seen AIG could not in fact meet its obligations therefore you, me and the rest of America had to pay dearly by throwing an
unfathomamount of money at this crooked enterprise to bail them outable 

 .    

 .    
                                                                      
Predictably the only beneficiaries of this bailout were the executives who received their bonus payments. Left unsaid however, is the fact that the homeowner who was the pawn in this massive fradulent scheme, received basically nothing from this bailout. Articles such as this 12/24/2009 story from the Boston Globe about the bonuses paid to Fannie Mae workers illustrate this point

While the securitization process in general, is a risky, but efficient investment model, the distinction in what is happening today is the fact that the mortgages procured from homeowners were purposely manipulated in order to appear to maximize return to the insitituional investors, but were designed to fail from day one..

Therefore, if the mortgage servicer/lender cannot actually produce the original contractual right for payment from the mortgage (mortgage note), the mortgage servicer/lender should not have the right to foreclose on your home. 

There is also generally  "cross-collateralization"  within the tranches of a securitized mortgage backed securitized trust. Usually what this means is that the risk of default is "subrogated (transferred) from the upper tranches downward to the lower tranches, thereby indemifying holders of mortgages within these upper tranches.

It is my theory that many of the foreclosure auctions taking place currently in America are an action by the securitized trust to collect more than once on a mortgage obligation. I have reliable sources who work on the other side of the foreclosure process and I have it on very good authority that there have been documented instances where the same borrowers loan was in more than one securitized trust.

This is the greatest fraud ever perpetrated upon America, and this information desperately needs to be publicized.

Videos

The group of videos below describe what is involved in the Mortgage Backed Security Process. Although a somewhat complicated subject, these videos provide a very good snapshot of the process in general.

Viewing this process, one can see that with all of the transfers of the original mortgage note that take place in the securitization of a mortgage, locating the original mortgage note can be a daunting task at best for the foreclosing lender . Additionally these videos vivdly point out how the possiblity of fraud could exist in this environment, and also the potential for subjectivity on the parts of the various parties involved in the mortgage securitization process.

    Mortgage Backed Securities - Part I                  Mortgage Backed Securities - Part II