Another Resource Corroborating Our Securitization Model
See Asset Securitization Comptroller’s Handbook
The basic model we have developed tracks the money and with that, the intent behind seemingly irrational decisions.
For example, why would any lender seeking to make a profit grant a loan whose interest payments were greater than the gross income of the borrower? That is not taking a risk. That is betting on a sure thing. The loan will fail. It follows that if the parties creating these loans had a betting vehicle to make money based upon the guaranteed failure of a specific pool of loans, the premiums paid for such a bet would be chump change compared to the payoff.
For example, assume a loan for $250,000 with a 10 (10%) percent interest which means that the Note says the borrower will be paying $25,000 per year in interest, plus principal, taxes and insurance. Further assume that the borrower has a gross income of $20,000. Unless the borrower hits the lottery or an inheritance we know as a certainty that this loan and all others like will fail as soon as the teaser payment of $300 per month is reset to normal amortization.
First the intermediary securitizers go out and sell the $25,000 interest income to a hedge fund or pension fund seeking to get a couple of points over the money market rates. If the Hedge Fund is satisfied with 5% return, rated AAA (investment grade) and “insured” then the Hedge Fund will purchase $500,000 in 5% mortgage backed bonds yielding the same $25,000. Note that funding of the loan is only $250,000 while the Wall Street underwriters have pocketed the balance ($250,000) of the $500,000 invested by the pension fund or hedge fund. That is a $250,000 profit on a $250,000 loan. Get it? Of course the essential strategy here is to make absolutely certain that the hedge fund never meets the borrower and vica versa. Imagine the attitude of a hedge fund manager who finds out that his $500,000 bought a $250,000 mortgage.
Now in order to cover the difference between the amount invested and the amount funded, they must purchase a “bet” on the base loan of $250,000 and then a naked “bet” on the $250,000 that was not funded (except into the underwriter’s pocket). AIG (among many others) was more than happy to accommodate since they couldn’t pay off any of these bets anyway and were just collecting premiums. While there are numerous ways of betting the principal bet of choice was the credit default swap, which was excluded from regulation under a 1998 law passed by congress. The players were planning this a long time before all this mess surfaced.
Now assume that the underwriter is intentionally setting up some pools that are weighted extra heavily with the bad loans. This presents an opportunity they could not pass up. If you knew that a horse was going to break a leg mid way through the race and you had the ability to bet on that how many bets would you place on the that horse losing? ANSWER: as many as you could if you really knew for sure. That is precisely what happened on Wall Street. Certain pools were weighted extra heavily with loans that could not perform. Everyone piled in with the purchase of Credit Default Swaps betting against those pools (at the same time they were selling to hedge funds as investors on one end and homeowners as investors on the other end of the securitization chain). Goldman Sachs reversed position in 2006. They stopped creating the pools and started buying insurance on pools of assets that never involved them. They made a killing because AIG and others were given the money (courtesy of Secretary Paulson, ex CEO of Goldman) to make good on those bets.
The relevance of this to foreclosure defense and offense is that the intermediaries not only knew, they intended the loans to fail — even the good loans that were in bad pools. Those loans HAD to fail in order for them to make a killing. If the loans were somehow saved, then the money spent on premiums would have been a loss and the stock of the investment banks would have plummeted permanently.
Which brings us to loan modifications. If the loans are successfully modified the insurance doesn’t pay off. So the money they expect to make evaporates. Hence they have left the modifications in the hands of servicers who have no right to modify a loan with the idea that the whole modification idea turns out to be a bust for reasons that nobody understood at the time — except now you do.
Gentleman
I am not quite ready to divulge names but there are more than a few moments and unbelievable things I can recall and still don’t believe heard from 2000 through 2003 from the industry elite.
As for this topic and references to lower quality, grades of assets. We need to remember that the industry is familiar with liquidating leftover loans kicked from delivery. Many of the loans seem to transfer along a scheduled path. Then a loan will take a different path – from GMAC to SAXON to Sale.
Insider terms and lingo here include algorithmic, DU fall out, 1st pay defaults, 4th payment default following seller recourse and scratch & dent, further curtailments, stales, roll over’s, hospital lines and warehouse bail out .
Remember, my firm and discount model employed was so profitable it attracted Carl Icahn, billionare and famed corporate raider. Carl wrote the book on buying assets on the cheap and selling them at a premium.
Trading “impaired” assets or poorer quality loans can
be a very lucrative career. I was told it was the most profitable segment of all GMAC businesses…ALL!
We aquired loans on a flow (one at a time) which were considered stale on a warewhouse line. Stale means the aging exceeds the time (90 days) alloted by the sellers warehouse lender .
The receivables were rejected by the investors more than once on the secondary.
Impaired assets purchased at a discount become very attractive the deeper the discount. No hedge needed here -just a willingness to move the loans by the seller.
Loans that underwrote to a real 50 percent debt to income ratio would calculate at 75% of the principal balance and we would price it 10% below that figure.
No analytics here or algorithmics used for hedging and coverage.
What is interesting however is what a CEO for a GIANT told me in a one on one meeting. He liked my business model and thought he had a better way to go than the 10% margins booked as a gain on sale.
We discussed buying deeply impaired (crap) non performng at a deep discount and then dumping into a performing security …at par. I said your eating up the O/C before the pool is even out of the gate (ramp period) .Unbelievable – not really.
msoliman
borrowerhotline.com
In the request for admissions the pretender lender admitted that the original note was securitized.
They also admitted they acquired the original note and mortgage from from the originating lender and are the holder in due course.
Freddie Mac also claims they are the owner of the mortgage.
Can the pretender lender become the holder in due course if the note was securitized by the originating lender (who was paid in full) then later assign the mortgage (mers as nominee) to the pretender lender from the originating lender to process the foreclosure?
Fraud in Florida
It is very simple actually. The Pretender Lender “A,” closed the table funded loan, by the time you were at the table the loan had been pre sold, meaning, the Pretender Lender “A”, had a satisfied note, your promissory note was paid in full even before you signed it. Granted not paid by you but by some one you were not even aware of, and the fact that the loan was paid in full and the identity of the true source of the funds was not and has not been disclosed to you yet. The Pretender Lender “A” had you sign a mortgage to their benefit even though the note had been satisfied and the mortgage you signed to their benefit should not be enforceable.
The flow of money down stream and upstream is very important. You follow the money and you will see the fraud.
it would be very telling if you look into the initial Bankruptcy filing for First Magnus Financial Corporation from Tucson AZ, in that filing (Chapter 11, Arizona District, case# 4:07-bk-01578). Most of the pretender lenders are either in Bankruptcy or some sort of receivership or reorganization.
In this BK filing you will be able to read that this particular pretender lender was pre-paid as ma regular part of their lending business all their loans, up to or in excess of 80% of the originations and brokered loans.
Once again can some one explain logically and in accordance to our federal laws and state laws, how can a “lender: assign a note that has been fully satisfied, or transfer a mortgage that is no longer due.
Confused-IF Bank XYZ closes the loan in its name and now the loan is in ABC Trust XYZ-2005, how can i use this to defend? Quiet tilte action? or a defense to foreclosure saying the loan has been paid in full already? How can Bank XYZ, that remained servicer even declare a default as master servicer if the loan was paid in full already…It would be great to have a detailed HOW TO STEP by STEP to defend a foreclosure with the Securitization scenerio