Foreclosuregate: Time to Break Up the Too-Big-to-Fail Banks?

[Joanne98]

With risky behavior by big finance again threatening economic stability, how can we get things right this time?

Courtesy of Ellen Brown

Originally published in YES! Magazine

Although downplayed by most media accounts and popular financial analysts, crippling bank losses from foreclosure flaws appear to be imminent and unavoidable. The defects prompting the “RoboSigning Scandal” are not mere technicalities but are inherent to the securitization process. They cannot be cured. This deep-seated fraud is already explicitly outlined in publicly available lawsuits.

There is, however, no need to panic, no need for TARP II, and no need for legislation to further conceal the fraud and push the inevitable failure of the too-big-to-fail banks into the future.

Federal regulators now have the tools to take control and set things right. The Wall Street giants escaped the Volcker Rule, which would have limited their size, and the Brown-Kaufman amendment, which would have broken up the largest six banks outright; but the financial reform bill has us covered. The Kanjorski amendment—which slipped past lobbyists largely unnoticed—allows federal regulators to preemptively break up large financial institutions that pose a threat to U.S. financial or economic stability.

http://www.zerohedge.com/article/foreclosuregate-time-break-too-big-fail-banks

[laughingliberal]

1. Way past time. But better late than never. nt

[dkf]

2. What is sad is that problems are industry wide.

You would think that you can diversify away risk by having more than one company, but if you have many companies but many are using the same flawed process have you really prevented systemic failure?

The bottom line is we don't seem to have any way to prevent fraud.

[blue97keet]

6. Reminds me of the melamine poison dog food scandal.

[The Uncola]

3. I'll believe it when I see it.

I was angry 2 years ago, but hopeful.

Now. I'm angry and VERY skeptical.

Do I need to explain why?

[lonestarnot]

4. K & R!

[DoctorK]

5. we already have a 'process' to disolve

big banks and any other failed enterprise. It is called bankruptcy. There are laws and courts to handle this process. What we've watched is that 'too big to fail' are really just big donors and can get politicians to bail them out.

Let the losers sink and the winners buy their assets and manage them instead of those who have failed. Rewarding failure invites more failure, and is itself the biggest 'systemic risk' we face.

[truedelphi]

8. + 1. n/t

[pokercat999]

12. But, but, that sounds like capitalism.......nt

[truedelphi]

7. This was quite an interesting segment of that article;

The reason the mortgage notes were never assigned may be that there was no party legally capable of accepting the assignments. Securitization was originally set up as a tax dodge; and to qualify for the tax exemption, the conduits between the original lender and the investors could own nothing. The conduits are “special purpose vehicles” set up by the banks, a form of Mortgage Backed Security called REMICs (Real Estate Mortgage Investment Conduits). They hold commercial and residential mortgages in trust for the investors. They don’t own them; they are just trustees.

The problem was nailed in a class action lawsuit recently filed in Kentucky, titled Foster v. MERS, GMAC, et al. (USDC, Western District of Kentucky). The suit claims that MERS and the banks violated the Racketeer Influenced and Corrupt Organizations Act, a law originally passed to pursue organized crime. Bloomberg quotes Heather Boone McKeever, a Lexington, Ky.-based lawyer for the homeowners, who said in a phone interview, “RICO comes in because the fraud didn’t just happen piecemeal. This is organized crime by people in suits, but it is still organized crime. They created a very thorough plan.”

The complaint alleges:

53. The “Trusts” coming to Court are actually Mortgage Backed Securities (“MBS”). The Servicers, like GMAC, are merely administrative entities which collect the mortgage payments and escrow funds. The MBS have signed themselves up under oath with the Securities and Exchange Commission (“SEC,”) and the Internal Revenue Service (“IRS,”) as mortgage asset “pass through” entities wherein they can never own the mortgage loan assets in the MBS. This allows them to qualify as a Real Estate Mortgage Investment Conduit (“REMIC”) rather than an ordinary Real Estate Investment Trust (“REIT”). As long as the MBS is a qualified REMIC, no income tax will be charged to the MBS. For purposes of this action, “Trust” and MBS are interchangeable. . . .

56. REMICS were newly invented in 1987 as a tax avoidance measure by Investment Banks. To file as a REMIC, and in order to avoid one hundred percent (100%) taxation by the IRS and the Kentucky Revenue Cabinet, an MBS REMIC could not engage in any prohibited action. The “Trustee” can not own the assets of the REMIC. A REMIC Trustee could never claim it owned a mortgage loan. Hence, it can never be the owner of a mortgage loan.

57. Additionally, and important to the issues presented with this particular action, is the fact that in order to keep its tax status and to fund the “Trust” and legally collect money from investors, who bought into the REMIC, the “Trustee” or the more properly named, Custodian of the REMIC, had to have possession of ALL the original blue ink Promissory Notes and original allonges and assignments of the Notes, showing a complete paper chain of title.

58. Most importantly for this action, the “Trustee”/Custodian MUST have the mortgages recorded in the investors name as the beneficiaries of a MBS in the year the MBS “closed.”

Only the beneficiaries—the investors who advanced the funds—can claim ownership.
####
I keep reading in a lot of places about the RICO Lawsuit out of Kentucky. Those folks may be making history!

[westerebus]

9. Can you post this in a new OP.

So we can rec it to the front page where it needs to be seen. thanks

[Warpy]

14. The problem with the trusts, which are considered legal holders

of those chopped up mortgages, is that nobody bothered to get them all the paperwork, either.

We're in this mess because nobody was doing his job. Why bother? Laws weren't being enforced for 8 years so anything went.

There is now a huge amount of housing stock in this country that is basically unowned, even with oblivious mortgagees paying their monthly payments.

[dixiegrrrrl]

15. YES!!!!!!!!!!!

Unfortunately a little known key of the issue, tho.
but not for long.

bottom line: "Only the investors who advanced the funds—can claim ownership."
and they have no way of knowing whose mortgage ( house) they own!

a fact I am reminded of every month when I write that mortgage check over to Bank of America.
Who also has no way of knowing who owns MY mortgage.

[DAlnB]

10. Home Sales

I believe that in the initial home melt down there were a lot of people loosing their homes because of the failing economy and obvious overpricing of homes. That followed by what is now just a home owners desire to get out of their contracts. It is easy for them to just walk away allowing foreclosure with little consequences. The more foreclosures the lower home prices slip.
As long as the media continues to tell people we have not yet hit bottom on sliding home values we will continue to slip. People respond to what the media tells them. They are waiting for word that prices have stabilized and people will then start buying again. The major problem right now is banks that are making it almost impossible to get home loans.
The Stimulus money should have gone to lower banks that better service the public and let the big banks earn their share.

[westerebus]

11. Hi Welcome to DU.

Pretty good summation.

[Warpy]

13. Break 'em up or nationalize them

until they manage to get their houses in order. Nationalizing would be the best way of destroying that culture of corruption fostered by 8 years of refusing to enforce even the lax regulation we still had. Breaking them up would only regionalize the corruption.

They've been playing games with our money to fatten the rich for too long. They are unsound. Something has to be done about it.

Just don't expect the lunatic House to act.