Uh Oh – Securitization Trustees in the Crosshairs in Mortgage Mess

Securitization Trustees in the Crosshairs in Mortgage Mess

by Yves Smith

Tom Adams pointed to an article in American Banker by Kate Berry which discusses how mortgage securitization trustees are increasingly coming under scrutiny in the foreclosure crisis. By way of background, the trustee is the party responsible for securing the assets (the borrower promissory IOUs, liens, and various other documents related to the securitization). The trustee in theory is also responsible for overseeing the servicer. In practice, the trustee does very little, and the pooling and servicing agreement has all sorts of carveouts and indemnifications with the intent of severely limiting (cynics might say eliminating) any risk trustees might have by virtue of their supposed supervisory role.

The biggest mortgage securitization trustees are Bank of New York, Deutsche Bank, Wells Fargo, and US Bank.

The interesting thing about the American Banker article is that the trustees appear to be in a great deal of denial as to how much hot water they are in. No where does the story mention their biggest exposure: that they gave multiple certifications to the investors in the mortgage securtizations that they did indeed have the trust assets. If, as it now appears to be the case, that many mortgage loans were not properly conveyed to the trust (as in endorsed by the originator and all the intermediary parties specified in the contract governing the deal, the pooling and servicing agreement, and finally over to the trust), then all those certifictions were patently untrue. Since investors relied upon these certifications (no one in their right mind would have ponied up for these deals if they had had any doubt that the trust owned the mortgage loans) and the failure to convey the notes is a big cause of problems with foreclosures, it would seem that the trustees are very logical targets for investor litigation.

Let’s begin with a meaty section of the American Banker story (sadly, no online version):

Deutsche Bank AG, the second-largest trustee of asset-backed securities in the U.S. according to Thomson Reuters, recently demanded that the servicers of its deals indemnify the German bank, and the investors it represents, against any “liability, loss, cost and expense of any kind” from “alleged foreclosure deficiencies or from any other alleged acts or omissions of the servicer.”

The Financial Crisis Inquiry Commission is also investigating trustees’ role in the foreclosure mess, according to several people with knowledge of the body’s work. The commission, which was created last year and has held a number of hearings, has no real teeth, but it plans to issue a report Dec. 15 on its findings about the causes of the financial crisis. The report is expected to include some discussion of trustees in securitizations, the people said.

In an Oct. 8 letter, Deutsche cautioned the major mortgage servicers that had halted foreclosures to examine their processes — including Ally Financial Inc. and JPMorgan Chase & Co. — of the need to ensure ownership of loans was properly transferred to trusts when securitizations were formed.

Deutsche Bank told the servicers to “comply with all applicable laws relating to foreclosures,” and requested additional information about alleged loan defects and any actions taken by servicers to fix them.

Thomas Hiner, a partner at Hunton & Williams LLP, said Deutsche Bank, which forwarded the servicer warning to investors on Oct. 25, was trying to appear proactive. “They are attempting to show a good face to the bondholders, that they are in front of the issue and they’re telling the servicers to comply with the law and the documents,” Hiner said.

He also said Deutsche bank was trying “to disclaim responsibility for” servicers’ paperwork blunders.

“Proactive”? This is comical. It appears that Deutsche is trying awfully hard to shift blame to servicers for its own failures. And a misleading letter to investors looks to be a device to get them off Deutshe’s trail.

This is the section, if Thompson Reuters has recounted it correctly, that is dishonest:

Deutsche cautioned the major mortgage servicers that had halted foreclosures to examine their processes — including Ally Financial Inc. and JPMorgan Chase & Co. — of the need to ensure ownership of loans was properly transferred to trusts when securitizations were formed.

Ahem! It was the TRUSTEE’S job to…

Find out here…



I sure could use some…

4 Responses to “Uh Oh – Securitization Trustees in the Crosshairs in Mortgage Mess”
  1. First I read: Foreclosure Fraud -” It’s Worse Than You Think “…A speaker at the conference was quoted as saying..” Mortgages and Property Titles are transferred several times in the process of a home purchase from orginators to securitiztion, from sponsors to depositors to the trusts. Trustees hold the note and security instruments.”
    With that in mind and digging deeper to gain all information on my daughters foreclosure (ARM’s optional 2003) , I went back to read the Prospectus supplements with the AR’s series filings. I picked one out at ramdom…Washington Mutual Series 2005 – AR 8 – prospectus supplement filing date 07-14-2005. It said Deutache Bank National Trust Co. Delaware Trustee, Deutache Bank National Trust Co., trustee, Washington Mutual Bank – servicer, WMMSC – depositor. Now comes the prize: The Trust will own a pool of mortgage loans. WMMSC will sell the mortgage loans to the Trust. Each loan will be an adjustable-rate mortgage. NOW here is the kicker: The Trustee WILL NOT have physical possession of the Mortgage Notes and Mortgages related to the mortgage loans owned by the Trust. INSTEAD Washington Mutual Bank fsb will retain possession of the Mortgage Notes and Mortgages as custodian for the Trusts. The loans will be sold to the Trusts on July 15, 2005. There will be NO documents stamped in blank and NO assignments of transfer given to the Trust.
    So back in 2005, Deutache Bank was the trustee..yet was given no Notes or Mortgages….nothing transferred on assignments….didn’t the bells sound an alarm? On top of that Washington Mutual Bank said they kept the Note and Mortgages to cut administration costs. And they did the same ‘routine’ on other AR’s prospectus that I glanced thru. One wonders just how many times did Washington Mutual sell these Notes and Mortgages? And kept the originals to themselves. Who would know the difference..nobody was watching the chicken coop. If I am on the wrong track to seeing fraud, Please correct me.

  2. housemanrob says:

    Is it DEUTSCHE BANK or DOUCHE BAG!!!!!!!

  3. msg says:

    Yes, Deutsche Bank want everyone to believe that they want or wa doing the right thing to keep the AG’s and OCC from off their trail. They knew exactly what these lawyers/servicers were doing. They purposedly hired them knowing they didn’t have legit paperwork and told them to get these properties by any means necessary. It wasn’t till after Brian Davies, myself and others informing the OCC of their illegal practices that they sent the letters out. Yeah right!!!! They guilty right along with everyone else. All the cases they’ve lost due to the lies, bogus and fabricated documents prove such. Deutsche Bank/Deutsche Bank National Trust – YOU’RE NEXT DEVILSSSSSSSSSSSSSSSS

    • Alabama John says:

      One problem all these trustees will have that is overlooked is the Title Companies issuing title.

      When someone wants to buy these foreclosed homes, then we the little people are out of it and the Title Companies owned by big money companies step in.
      In order for anyone to buy one of these properties they must have a Title Insurance Policy and all questions of who has the note, who has the right of ownership, who has the authority to transfer title, all our questions and request for proof we ask will come up again and now MUST be answerred or no policy guaranteeing the new homeowners right to own this home will be issued.

      This will be the next phase judges and courts will have to face.

      How important is this?
      Buy one of these foreclosed homes and then try to resell it without a clear title and see who will issue a title policy to your buyers, who will lend them the money not knowing if all problems have been cleared?

      Gonna be lots of empty houses with screwed up titles all over the USA!

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