L. Randall Wray – Anatomy of Mortgage Fraud, Part II: The Mother of All Frauds

L. Randall Wray

L. Randall Wray

Professor of Economics and
Research Director of the Center
for Full Employment and Price
Stability, University of Missouri–Kansas City

Anatomy of Mortgage Fraud, Part II: The Mother of All Frauds

In part one of this series I showed that MERS recommended that mortgage servicers retain the “wet ink” notes that borrowers signed. These notes are required in 45 states to foreclose on a home. Not only does the foreclosing party need to physically hold the note, but the note must be properly endorsed and transferred every time a mortgage is sold. A clear chain of title must be demonstrated to make the note valid. This is to protect borrowers from fraud — no one can manufacture a note, claim to be a creditor, and then take a homeowner’s property. And this is especially important when mortgages are securitized and bought and sold a dozen times — if there is no clear chain of title, the borrower can never be sure who is really the creditor.

But, in fact, the notes were never transferred, there is no clear chain of paperwork, and in many cases the notes have “disappeared” so that when the servicers or MERS tries to foreclose, they must file “lost note affidavits” claiming rightful ownership even though they do not have evidence. They have also been caught using “robo-signers” to forge documents — and sometimes they have foreclosed on the wrong properties and even seized homes on which there was no mortgage. That is precisely why the law requires proper transfers of the note. Without that, the mortgage is a fraud and foreclosure is fraudulent.

By itself, all of this is a horrific scandal, involving up to 65 million mortgages — the number of mortgages registered at MERS, most of which presumably were subjected to MERS’s guidelines and extremely sloppy record-keeping. But like Shrek’s onion, it is much more complicated than that — with layer after layer of fraud piled on fraud. There are many angles to be explored, most of them too complex and arcane to be pursued in a short column. Here, in part two, I will discuss the implications for the securities that bundled the fraudulent mortgages registered at MERS. Not only did MERS defraud the counties out of their recording fees and the homeowners out of their homes, but it also helped to perpetrate securities fraud and federal tax fraud. Fortunately for the investors in these securities, the securitization process was fatally flawed, meaning that they can return to the issuing banks and demand their money back. But that implies, of course, that the banksters are hopelessly insolvent — on the hook for hundreds of billions of dollars.

Inevitably, they will turn to Uncle Sam for more handouts. Get ready for more backroom deals made by the Fed and Treasury to rescue firms like Bank of America. If you loved the first three rounds of this financial crisis, you will love the next six rounds as markets pummel Wall Street banks, with Uncle Sam as referee applying the smelling salts to revive it for yet another round (whilst its CEOs skim more billions off the top in compensation). Ultimately, it will not work. Wall Street will go down for the count — but probably not until it drags Main Street through a great depression that your great grandkids will study in the history books. And, by the way, they will laugh at the misguided efforts of the thoroughly compromised one-term Obama administration that focused its efforts at budget-balancing in the face of the worst headwinds America had ever seen.

MERS and Securitization

Recall from part one that mortgage lenders and servicers are members of MERS, with one employee of each deputized by MERS. This allowed the fiction that…

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3 Responses to “L. Randall Wray – Anatomy of Mortgage Fraud, Part II: The Mother of All Frauds”
  1. Patricia says:

    Modifications of these toxic mortgages will not fix the problem with the clouded titles. I think we need to demand brand new mortgages based on current market values to make these mortgages legal, and hire your own attorney to be sure the documents and titles are legal. I have been at this for 3+ years with Bank of America/Countrywide, on my own mostly with some help from NACA. Sure, they were quick to give me a great modification, hoping I’d just go away, but even that does not make my mortgage or title legal. I am fighting now for a ‘principal reduction’. I want them to start over by bringing the principal back to what it should be, removing all the legal fees, ‘other fees’, interest, etc. and get a brand new mortgage @ 2% fixed for 30, that’s the least they can do after all they’ve put me through. They have also refused to show me my note, ‘where’s the note?’. My file is currently with the OCC. They regulate B of A.

  2. Well, I don’t know about Countrywide but I do know WaMu kept the Notes without any stamp…it states in the prospectus for AR’s Series 2003…. Reason they gave..so no one could steal them or lose them. LOL And no assignments.. Reason…..To cut administration costs. So was there really a ‘trust’ ? The psa ( Pool/service Agreement said ‘ all mortgages were deliberately omitted. ‘. And this was recorded in the SEC ?? I checked over a dozen AR’s and found the same thing. The rating companies were in on this fraud…giving toxic loans high ratings. From the closing table on …fraud followed. So what would Moody’s know about the Notes and standard practice. They went along with the fraud, they sure are not going to say Countrywide kept the Notes. That would prove they knew of the fraud.

  3. kravitz says:

    The ratings service company Moody’s says it looked into some documents mentioned in the Kemp v. Countrywide case. A Bank of America employee said in her testimony that Countrywide routinely did not properly transfer ‘the note’ – a securitization issue investors would be concerned about. Moody’s claims the transfers happened correctly.

    “We don’t believe as a standard practice they failed to deliver the notes to the trustee,” Yehudah Forster, a vice president at New York-based Moody’s, said today in a telephone interview.


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