The shell game continues. While the media picks up stories about “settlements” giving rise to the presumption that Countrywide Home Loans and Bank of America and the rest of the securitization players committed various violations of statutes, duties, rules and regulations, the main point gets lost. Where is this money going and WHY? What is the tacit or express admission in paying that money and what effect does it have on the average homeowner sitting with a loan whose obligation is being paid in these settlements?

Think about it. If Bank of America, which now owns Countrywide, is paying “fractions” to investors who purchased mortgage bonds then who is it that owns the underlying mortgages and loans? Did Bank of America pay the investors do it under a reservation of rights (subrogation) to enforce the underlying loans? If not, then why are they foreclosing? All evidence is to the contrary. There is no subrogation under these purchases, insurance, credit default swaps or any other contract — not that I ever saw and not that my sources in the industry tell me was ever even contemplated much less executed. The same holds true for all those bonds the Federal Reserve is holding.

If Bank of America is paying “fractions” to investors who purchased mortgage bonds, why was it a fraction? Is it because the value of the bond was much lower than the price paid by the investor? Is it just a convenient settlement? Or is it because the investors have also received funds from other sources?

This is what I am referring to when I address “factual constipation.” How are these payments being allocated? Did the owners of the bonds actually have any definable interest in the underlying mortgage loans? If they did, why are these payments not being allocated to the obligations or payments due under those underlying mortgage loans? If they didn’t, why did they get paid anything? How will we ever know without getting a full accounting from all the parties that claim some stake or ownership interest or receivable interest in me is underlying mortgage loans?

It is black letter law as well as common law dating back centuries that nobody can collect the same debt more than once. If they do collect more than once there is a clear right of action by the borrower to collect the excess payment through a lawsuit for unjust enrichment, breach of contract and other causes of action. Here we have an intentional act designed to collect the same debt multiple times. In my opinion this does not merely indicate the presence of an action for fraud, it clearly shows an interstate pattern of racketeering that at one time in our history had the Department of Justice and the FBI busy putting people in jail.

Only in America where the news has turned into an entertainment blitz used by those with the most power and the most money to get their message across, even if it is a total lie. Somehow many if not most people have the impression that the borrowers and the securitized mortgages executed between 2001 and 2009 are not entitled to the relief that any other debtor is entitled to receive––that is the obligation has been reduced for any reason, the borrowers should get credit and if any party receives money in excess of the net amount due after credits, the creditor becomes the debtor owing money to the former borrower.

The bullet point that is being used to distort the perception of our citizens and policymakers is that these borrowers should not get a  “free house.” Without getting a full accounting from all parties that advanced funds to and from the original investors who purchased mortgage bonds or collateralized debt obligations and related hedge products, there is no way of knowing the amount of the credit which is due to the borrower. Yes, it is possible that the amount received by the various intermediaries in the securitization chain exceeded the original obligation due from the borrower.

In that case, the borrower owes nothing to the originating lender or the successors to that lender. But if there is still a class of investor or institution that can prove a loss resulting from the nonpayment of the obligation by the borrower (as opposed to non-payment from other parties in the securitization chain) then the law allows that party to recover the loss from those that caused it.  That probably includes the borrower, which means that we are not seeking a free house, we are seeking a truthful accounting.

BUT the fact that this obligation theoretically exists does not mean and never did mean under any legal decision in existence that the obligation should be paid to anybody who claims it. By all substantive and procedural law, the obligation is payable to one who proves the obligation and to one who proves it is owed to them and nobody else.

Yet in the view of many judges the challenge by the borrower is viewed as a delay tactic or an attempt to use technical deficiencies to a gain a free house on a lawn that the borrower sought but could not pay.  No doubt this is true in some cases. But in nearly all the cases, armies of salespeople using names like “loan expert” pounded on doors and rang the phones of people who had no thought of borrowing money on homes, in many cases, that were debt-free and had been in the family for generations. Now many of those homes are bank owned property.

The simple question that needs to be posed to anyone who looks at the borrower as anything other than a victim is which is more likely? Did the owners of 20 million homes enter into a conspiracy to defraud the financial system, half society and our taxpayers? Did these people have the sophistication, education, knowledge, experience or training to pull off such a caper? Or is it more likely that the Wall Street titans stepped over the line and instead of increasing liquidity for the benefit of consumers and small businesses, used their position to deplete the resources of unsuspecting citizens, pension funds, financial institutions and governmental units from the top federal levels down to the smallest local geographical areas?

Neil Garfield

Countrywide settlement pays fraction to investors