MORTGAGE MAYHEM AND MERS,

HOT TUBS, AND THE FBI

PART 2 of 3

By Marilyn M. Barnewall
October 31, 2010
NewsWithViews.com
How did mortgage fraud of such national proportion happen – and why?
It was the early 1990s, after the U.S. Congress passed the Depository Institutions Deregulation
and Monetary Control Act that helped America’s former mortgage lenders fail – you remember
the savings and loans industry.
The mortgage lenders that replaced savings and loans wanted to evade title costs. They sought
ways to bypass state and county registrations that normally identify and assign property title
ownership.
There’s more to this story than Freddie and Fannie investing in a company called Mortgage
Electronic Registration System (MERS) to speed things up and, for a fee, reduce land title costs.
As stated in Part I, mortgage lenders and realtors decided they could profit greatly if a computer
system operated a database to track ownership – and, as part of that process, have that computer
system become the “mortgagee of record.” Foreclosure by proxy was born.
Why did it take so long to uncover all of this foreclosure corruption and fraud? Why did it take
so long for us to hear the words ‘Mortgage Electronic Registration System’ (MERS)? Why did it
take an entire industry so long to ask “Is securitization by proxy legal?”
MERS stands behind two or three giant corporate walls and people don’t know how to penetrate
those walls to protect their property. They know they can’t afford to stay in court longer than
their mortgage bank and possibly several other big, involved corporations with lawyers on staff.
Because of the walls of lawyers ready to defend clients against whom it is difficult to prove
criminal intent, MERS has successfully foreclosed without even producing original notes. It’s
very difficult to defeat a faceless enemy.
To make things worse, under the MERS program almost any “certifying officer” can come to
court, claim ownership of a lien, and proceed to foreclose. There are so many “certifying
officers” at MERS, the courts have difficulty verifying whether the entity that shows up in court
and claims ownership actually owns the lien on the property. Since MERS by-passes filing the
actual name of the lien holder in public records, normal research sources are useless. I repeat:
The “certifying officers” don’t work for MERS, they are merely registered on the computer
system as “certifying officers.” Crazy, I know.
The actual holder of the mortgage (or a certifying officer that isn’t, but wants to become, the
legally recognized lien holder) pays a fee and records the mortgage in the name of MERS. And,
when asked, MERS forecloses, acting as proxy document custodian for the stated lien holder.
But when mortgage loans have been leveraged so many times in the mortgage-backed derivative
process, who knows who the actual lien holder is? Often, the courts do not. Even more often,
innocent victims cannot fight their way through the mortgage industry’s walls of lawyers to
protect themselves against unlawful foreclosure.
It’s important to understand this process because in its custodial/proxy status, MERS has been
viewed as an investment trust. It has no customer service personnel. So if you or your lawyer ask
MERS about “the trustee” – if it can be identified – you will likely be referred to the legal
servicer, who will then direct you or your counsel back to MERS. Non-responsiveness, then, is
used as leverage to intimidate and force homeowners out of their property.
This system appears to make the theft of private property acceptable. If it works with mortgages,
it can be used for anything – maybe your pension fund. Nothing will be safe from the personal
property mafia. Are mortgages merely a test case?
Another Massive Mortgage Fraud? Judge Reverses Himself After Hot Tub Meeting.
An interesting story published on October 9th by Washington Post Staff Writer Tom Jackman
illustrates the breadth and depth of another kind of mortgage fraud.
Earlier in the year, District Judge Gerald Bruce Lee dismissed Bank of America as a defendant in
a potential Northern Virginia real estate fraud case – and in November 2010, Judge Lee reversed
his own decision.
In Virginia, 129 investors filed against Bank of America, and in North Carolina, 285 investors
filed. Both filings were about the same fraudulent act – Bank of America, again. All shouted
“foul” on lots they said had been over-valued by the appraiser. Here, mortgage fraud becomes an
issue of unrealistic, overstated loan appraisals sanctioned – even encouraged – by mortgage
lenders.
In 2006, the 414 investors claim they purchased overpriced vacant lots in North Carolina. They
didn’t know they were overpriced because appraisals supported the $400,000 price. Appraisal
fraud has become another major financial services industry problem. Investors were assured they
could buy the lots with no money down, make no payment for two years, and in the meantime
flip the properties for certain profit.
I’m not a fan of real estate flipping speculators. This case is a bit different because of the
appraisals. Investors say the seller was buying the lots for $150,000, then reselling them for
$300,000 or more. It somehow escapes the “victims’” notice that they planned to buy the lots and
then do to another buyer what was done to them. Each of us deals with conscience in our own
way.
The investors say their loss could not have occurred without the help of, in this case, Bank of
America (notice how often that name comes up?). They charge that the seller of the lots and the
bank colluded to inflate appraised property values.
“That's where the hot tub comes in,” says the Washington Post, explaining the Judge’s decision
to reverse his Decision. “In March 2010, after Lee's ruling, a lawyer in the North Carolina case
obtained more than 700 pages of e-mails that hadn't been turned over in the Virginia case.”
The court records say a meeting was held to discuss the issue. The meeting took place in a hot
tub so, with everyone presumably naked, no one could wear a wire. The e-mails showed a Bank
of America loan officer discussing ‘recovery appraisals’ with the sellers of the property.
After the hot tub meeting, the emails were made available to the Court and Judge Lee reversed
his earlier decision. The emails proved the seller, who wanted $380,000 for a lot, got a first
appraisal via Bank of America for $210,000, then a second appraisal of $220,000. Suddenly, a
third appraisal of $385,000 for the same lot appeared. Investors were unaware of the first two
appraisals. After the real estate market tanked in 2008, the lots plunged to a value of $20,000
each.
“Lee also noted that Bank of America had obtained mortgage insurance for the loans, which
could have provided the bank with a safety net - except that the insurance company later
canceled many of the policies because of ‘misrepresentation’ by the bank,” the Washington Post
article said.
Insurance, huh? Hmmmm… does anyone remember AIG? The Washington Post says “the
insurance company later canceled many of the policies,” but that case is currently being litigated.
It is yet to be decided. Maybe taxpayers will be bailing out another insurance company?
Judge Lee gave the Virginia plaintiffs permission to re-file their case against Bank of America
with the new evidence, though he said "the issue of plausibility still remains. What did the bank
have to gain by entering into fraudulent loans?"
Banks used to loan their deposits. Today, the concept of fractional reserve banking rules, not
deposits. The more a bank loans, the more money it creates to lend. Deduct 10 percent (the
reserve) from a loan, and the remainder is new money the bank can loan. A $385,000 loan minus
$38,500 (10%) gives the bank $346,500 per loan at the almost zero Federal Reserve rate. Times
414 people borrowing for North Carolina lots, the bank lends $143.5 million at an interest rate
of, say, 8 percent. That’s $11.5 million in loan interest per year. If the individual loans are only
$150,000, the bank earns only $4.5 million (on $56 million, total). That’s why, Judge Lee.
How will the foreclosure fraud story end?
Many people think those who have faced unlawful foreclosure will get their homes back free and
clear. After all, fraud was perpetrated. Though there is no doubt damage has been done to
victims of unlawful foreclosures, the owners signed a mortgage loan. The loan is still a valid
contract. When one signs a loan document, one is obligated to repay the loan. An unlawful
foreclosure proceeding doesn’t change that hard, cold fact. Suing for damages is a different issue
– a different lawsuit.
In MERS cases, evidence of the chain of ownership may have been broken. Because of the way
property liens were handled, the courts may remove homes from the mortgage loan as collateral.
The mortgage lender still has a valid loan, but may have lost the house as loan collateral.
If the home as collateral is removed from the loan, the FDIC’s auditors won’t give the lender
much choice. Bank auditors will likely require the mortgage lender to call the loan, demanding
payment in full.
Every loan agreement stipulates that lenders can call loans in full if conditions change that
increase the lender’s risk. So, a new mortgage will be written and the collateral (the house) will
be properly perfected this time. Because property values have fallen so drastically, the
homeowner may be required to provide more collateral than just the house. And, if the borrower
cannot so provide – it is legitimate grounds for foreclosure by the lender.
Could this be a sneaky way for banks to get those loans on which lien ownership cannot be
determined because of the MERS and the mortgage-backed, over-leveraged derivatives mess
properly re-assigned as collateral on mortgage loans?
For more in-depth information on MERS, written by Christopher Lewis Peterson, Quinney
College of Law, University of Utah. For part three click below.
Click here for part -----> 1, 2, 3,

© 2010 Marilyn M. Barnewall - All Rights Reserved