Sixty Million Mortgages Kaput?

The idea that a commercial contract can be entered into such that one side of the agreement is shielded totally from discovery is outrageous and an invitation to abuse.

Yet a straw man called MER was central to the securitization of mortgages. A judge has now ended this nonsense.

I said months ago that the lenders needed to renegotiate their mortgages to ensure that they retained their customers. That is now their only escape, once the legal profession takes this and runs with it.

They were dumb enough to create this disaster, and dumber still to make it a dominant part of their business. Even dumber is to stand around waiting for the sheriff to come.

Most shocking to me is the stunning lack of vision and ability been demonstrated for all the world to see. The invisible hand of the market is shifting the balance of power back to the borrowers very decisively and perhaps the lenders will learn the type of humility learned by their great grandfathers in the early twentieth century.



Landmark Decision: Massive Relief for Homeowners and Trouble for the Banks

By Ellen Brown

URL of this article: www.globalresearch.ca/index.php?context=va&aid=15324

Global Research, September 21, 2009
Web of Debt

A landmark ruling in a recent Kansas Supreme Court case may have given millions of distressed homeowners the legal wedge they need to avoid foreclosure. In Landmark National Bank v. Kesler, 2009 Kan. LEXIS 834, the Kansas Supreme Court held that a nominee company called MERS has no right or standing to bring an action for foreclosure. MERS is an acronym for Mortgage Electronic Registration Systems, a private company that registers mortgages electronically and tracks changes in ownership. The significance of the holding is that if MERS has no standing to foreclose, then nobody has standing to foreclose – on 60 million mortgages. That is the number of American mortgages currently reported to be held by MERS. Over half of all new U.S. residential mortgage loans are registered with MERS and recorded in its name. Holdings of the Kansas Supreme Court are not binding on the rest of the country, but they are dicta of which other courts take note; and the reasoning behind the decision is sound.

Eliminating the “Straw Man” Shielding Lenders and Investors from Liability

The development of “electronic” mortgages managed by MERS went hand in hand with the “securitization” of mortgage loans – chopping them into pieces and selling them off to investors. In the heyday of mortgage securitizations, before investors got wise to their risks, lenders would slice up loans, bundle them into “financial products” called “collateralized debt obligations” (CDOs), ostensibly insure them against default by wrapping them in derivatives called “credit default swaps,” and sell them to pension funds, municipal funds, foreign investment funds, and so forth. There were many secured parties, and the pieces kept changing hands; but MERS supposedly kept track of all these changes electronically.

MERS would register and record mortgage loans in its name, and it would bring foreclosure actions in its name. MERS not only facilitated the rapid turnover of mortgages and mortgage-backed securities, but it has served as a sort of “corporate shield” that protects investors from claims by borrowers concerning predatory lending practices. California attorney Timothy

McCandless describes the problem like this:

“[MERS] has reduced transparency in the mortgage market in two ways. First, consumers and their counsel can no longer turn to the public recording systems to learn the identity of the holder of their note.

Today, county recording systems are increasingly full of one meaningless name, MERS, repeated over and over again. But more importantly, all across the country, MERS now brings foreclosure proceedings in its own name – even though it is not the financial party in interest. This is problematic because MERS is not prepared for or equipped to provide responses to consumers' discovery requests with respect to predatory lending claims and defenses. In effect, the securitization conduit attempts to use a faceless and seemingly innocent proxy with no knowledge of predatory origination or servicing behavior to do the dirty work of seizing the consumer's home. . . . So imposing is this opaque corporate wall, that in a “vast” number of foreclosures, MERS actually succeeds in foreclosing without producing the original note – the legal sine qua non of foreclosure – much less documentation that could support predatory lending defenses.”

The real parties in interest concealed behind MERS have been made so faceless, however, that there is now no party with standing to foreclose. The Kansas Supreme Court stated that MERS' relationship “is more akin to that of a straw man than to a party possessing all the rights given a buyer.” The court opined:

“By statute, assignment of the mortgage carries with it the assignment of the debt. . . . Indeed, in the event that a mortgage loan somehow separates interests of the note and the deed of trust, with the deed of trust lying with some independent entity, the mortgage may become unenforceable. The practical effect of splitting the deed of trust from the promissory note is to make it impossible for the holder of the note to foreclose, unless the holder of the deed of trust is the agent of the holder of the note. Without the agency relationship, the person holding only the note lacks the power to foreclose in the event of default. The person holding only the deed of trust will never experience default because only the holder of the note is entitled to payment of the underlying obligation. The mortgage loan becomes ineffectual when the note holder did not also hold the deed of trust.” [Citations omitted; emphasis added.]

MERS as straw man lacks standing to foreclose, but so does original lender, although it was a signatory to the deal. The lender lacks standing because title had to pass to the secured parties for the arrangement to legally qualify as a “security.” The lender has been paid in full and has no further legal interest in the claim. Only the securities holders have skin in the game; but they have no standing to foreclose, because they were not signatories to the original agreement. They cannot satisfy the basic requirement of contract law that a plaintiff suing on a written contract must produce a signed contract proving he is entitled to relief.

The Potential Impact of 60 Million Fatally Flawed Mortgages

The banks arranging these mortgage-backed securities have typically served as trustees for the investors. When the trustees could not present timely written proof of ownership entitling them to foreclose, they would in the past file “lost-note affidavits” with the court; and judges usually let these foreclosures proceed without objection. But in October 2007, an intrepid federal judge in Cleveland put a halt to the practice. U.S. District Court Judge Christopher

Boyko ruled that Deutsche Bank had not filed the proper paperwork to establish its right to foreclose on fourteen homes it was suing to repossess as trustee. Judges in many other states then came out with similar rulings.

Following the Boyko decision, in December 2007 attorney Sean

Olender suggested in an article in The San Francisco Chronicle that the real reason for the bailout schemes being proposed by then-Treasury Secretary Henry Paulson was not to keep strapped borrowers in their homes so much as to stave off a spate of lawsuits against the banks. Olender wrote:

“The sole goal of the [bailout schemes] is to prevent owners of mortgage-backed securities, many of them foreigners, from suing U.S. banks and forcing them to buy back worthless mortgage securities at face value – right now almost 10 times their market worth. The ticking time bomb in the U.S. banking system is not resetting subprime mortgage rates. The real problem is the contractual ability of investors in mortgage bonds to require banks to buy back the loans at face value if there was fraud in the origination process.

“. . . The catastrophic consequences of bond investors forcing originators to buy back loans at face value are beyond the current media discussion. The loans at issue dwarf the capital available at the largest U.S. banks combined, and investor lawsuits would raise stunning liability sufficient to cause even the largest U.S. banks to fail, resulting in massive taxpayer-funded bailouts of Fannie and Freddie, and even FDIC . . . .
“What would be prudent and logical is for the banks that sold this toxic waste to buy it back and for a lot of people to go to prison. If they knew about the fraud, they should have to buy the bonds back.”

Needless to say, however, the banks did not buy back their toxic waste, and no bank officials went to jail. As Olender predicted, in the fall of 2008, massive taxpayer-funded bailouts of Fannie and Freddie were pushed through by Henry Paulson, whose former firm Goldman Sachs was an active player in creating CDOs when he was at its helm as CEO. Paulson also hastily engineered the $85 billion bailout of insurer American International Group (AIG), a major counterparty to Goldmans' massive holdings of CDOs. The insolvency of AIG was a huge crisis for Goldman, a principal beneficiary of the

AIG bailout.

In a December 2007 New York Times article titled “The Long and Short of It at Goldman Sachs,”

Ben Stein wrote:

“For decades now, . . . I have been receiving letters [warning] me about the dangers of a secret government running the world . . . . [T]he closest I have recently seen to such a world-running body would have to be a certain large investment bank, whose alums are routinely Treasury secretaries, high advisers to presidents, and occasionally a governor or United States senator.”

The pirates seem to have captured the ship, and until now there has been no one to stop them. But 60 million mortgages with fatal defects in title could give aggrieved homeowners and securities holders the crowbar they need to exert some serious leverage on Congress – serious enough perhaps even to pry the legislature loose from the powerful banking lobbies that now hold it in thrall.

Ellen Brown developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, her latest book, she turns those skills to an analysis of the Federal Reserve and “the money trust.” She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her earlier books focused on the pharmaceutical cartel that gets its power from “the money trust.” Her eleven books include Forbidden Medicine, Nature's Pharmacy (co-authored with Dr. Lynne Walker), and The Key to Ultimate Health (co-authored with Dr. Richard Hansen). Her websites are

www.webofdebt.com and www.ellenbrown.com.

Robert Higgs on Stimulus

Certainly, the stimulus package as put together is perhaps worse than doing nothing. The heart of the problem is the binge of reckless mortgage loans on the bank’s books. I have already posted on how to end that. End it properly and we can have a booming dynamic economy. End it weakly by letting it to unfold slowly will delay recovery for years. The stimulus package increases public debt to serve visibly futile political ends.

If it actually supports a rebuild of infrastructure across the country, then at least some good will come out of it. Accelerating necessary programs in place is a reasonable form of stimulus.

The Chinese have the right of it all. Let millions of migrant workers go home and help stimulate the home front for a while.

The other good news out of China is that the downswing may already be ended. Reorders have kicked in and some numbers are rising or at least standing still.

The reason that I talk about China is that 60% of their business is internal. That means that they can achieve complete recovery just on the growth of internal demand in a very few of years, even if we were all simply to disappear.

The time has come for us to rethink our macro economic assumptions. Fast tracking the mortgage industry which is the only problem facing us will fast track the economy back to health. The auto industry can go chapter 11 and end their present economic disadvantage in which their competitors are trouncing them while building product next door. Protectionism is impossible in the auto industry because of this, except in the wet dreams of the union leadership.

In fact, it would merely encourage the local operations of Toyota and its ilk to crank up a massive investment aimed at grabbing market share from the big three. It would be laughable.

Anyway, bailing out Detroit will add no new jobs unless Americans can buy cars. That means they have to clean up their balance sheets and settle obligations properly with the banks. That also means refinancing credit card debt with term loans.

The eagerness of the lending business to turn loan obligations into usury must be brought under firm regulatory control.

The best solution there is to have such debt frozen and paid out at a low interest rate until settled and blocking any further credit until fully paid out by income or the time frame of the amortization whichever is greater.
Jacking such debt with fees and charges is abusive and likely counter productive.

Again, solving the mortgage jackpot now reloads the banks to do business again. Anything else is folly and solves nothing

Instead of stimulus, do nothing – seriously

Stimulus is unconstitutional. And history shows that the economy can recover strongly on its own, if politicians stay out of the way.

By Robert Higgs
from the February 9, 2009 edition

Oakland, Calif. - As we wait to see how the politicians in Washington will alter the stimulus package the Obama administration is pushing, many questions are being raised about the measure's contents and efficacy. Should it include money for the National Endowment for the Arts, Amtrak, and child care? Is it big enough to get the economy moving again? Does it spend money fast enough? Hardly anyone, however, is asking the most important question: Should the federal government be doing any of this?

In raising this question, one risks immediate dismissal as someone hopelessly out of touch with the modern realities of economics and government. Yet the United States managed to navigate the first century and a half of its past – a time of phenomenal growth – without any substantial federal intervention to moderate economic booms and busts. Indeed, when the government did intervene actively, under Herbert Hoover and Franklin D. Roosevelt, the result was the Great Depression.

Until the 1930s, the Constitution served as a major constraint on federal economic interventionism. The government's powers were understood to be just as the framers intended: few and explicitly enumerated in our founding document and its amendments. Search the Constitution as long as you like, and you will find no specific authority conveyed for the government to spend money on global-warming research, urban mass transit, food stamps, unemployment insurance, Medicaid, or countless other items in the stimulus package and, even without it, in the regular federal budget.

This Constitutional constraint still operated as late as the 1930s, when federal courts issued some 1,600 injunctions to restrain officials from carrying out acts of Congress, and the Supreme Court overturned the New Deal's centerpieces, the National Industrial Recovery Act and the Agricultural Adjustment Act, and other statutes. This judicial action outraged President Roosevelt, who fumed that "we have been relegated to the horse-and-buggy definition of interstate commerce." Early in 1937, he responded with his court-packing plan.

Although Roosevelt lost this battle, he soon won the war. As the older, more conservative justices retired, the president replaced them with ardent New Dealers such as Hugo Black, Stanley Reed, Felix Frankfurter, and William O. Douglas. The newly constituted court proceeded between 1937 and 1941 to overturn its anti-New Deal rulings, abandoning its traditional, narrow view of interstate commerce and giving the federal government carte blanche to spend, tax, and regulate virtually without limit.

After World War II, the government enacted the Employment Act of 1946, codifying the government's declared responsibility for managing the economy "to promote maximum employment, production, and purchasing power," and it has actively intervened ever since, purportedly to attain these declared ends. Its shots have often misfired, however, and we have endured booms and busts, a decade of stagflation, bouts of rapid inflation, and stock-market crashes. The present recession may become the worst since the passage of the Employment Act.

Federal intervention rests on the presumption that officials know how to manage the economy and will use this knowledge effectively. This presumption always had a shaky foundation, and we have recently witnessed even more compelling evidence that the government simply does not know what it's doing. The big bailout bill enacted last October; the Federal Reserve's massive, frantic lending for many different purposes; and now the huge stimulus package all look like wild flailing – doing something mainly for the sake of being seen to be doing something – and, of course, enriching politically connected interests in the process.

Our greatest need at present is for the government to go in the opposite direction, to do much less, rather than much more. As recently as the major recession of 1920-21, the government took a hands-off position, and the downturn, though sharp, quickly reversed itself into full recovery. In contrast, Hoover responded to the downturn of 1929 by raising tariffs, propping up wage rates, bailing out farmers, banks, and other businesses, and financing state relief efforts. Roosevelt moved even more vigorously in the same activist direction, and the outcome was a protracted period of depression (and wartime privation) from which complete recovery did not come until 1946.

The US government has shown repeatedly that as an economic manager it is not to be trusted. What we need most are authorities wise enough to follow the dictum, "First, do no harm." The stimulus package will do enormous harm. The huge debt burden it entails, by itself, ought to condemn the measure. America is already drowning in debt. But the measure will also wreak harm in countless other directions by effectively reallocating resources on a grand scale according to political priorities, rather than according to individual preferences and economic rationality. As our history shows, the economy can recover strongly on its own, if only the politicians will stay out of the way.
• Robert Higgs is senior fellow in political economy for The Independent Institute, editor of The Independent Review, and author of "Depression, War, and Cold War."

Call It Treason

Enough water has flowed under the bridge in the present financial crisis that a few historical questions might be asked. It is now clear how we got here. Politicians were persuaded to throw away the governors that managed credit since the thirties. They mistook constructive deregulation of the real economy for ill thought out deregulation in the financial sector which a little reading of history warned you against. And this is not ancient history. There is the savings and loan fiasco of the Reagan administration. There was the first mutual fund bubble in the late sixties. Then there is the rest of the sorry historic record. And after all, Fannie and Freddie paid well.

This bubble was willfully created and sustained by the central bank and the compromised political sector. They have inflicted massive damage to the global financial system that has chastened US trading partners world wide who all bought into the same train wreck.

It is time to talk of crime and punishment. This was an act of treason. It should be punished as such. Not because the multitude of participants is necessarily equally culpable but because none of them had the courage to stand up and say no.

Yes it was treason, in the same way that Nazis followed orders and participated in obvious crimes. And yes the crimes were obvious. AAA bonds do not fail unless collusion existed to subvert the credit system. Everyone who signed off on these pieces of script was guilty of treason. They need to be so charged and ordered to disgorge their illegal gains for an ounce of mercy. Those proceeds were proceeds of crime. If they are lucky, they will still have a good life afterwards. A lot better than their victims, the American people, will have with upside down mortgages.

You may ask why we do not just walk away and forget about it all. Getting your hands on the levers of banking is a sacred trust that must never be compromised. Without governors, this trust must turn into a bubble. The first financial credit bubble was John Law and the Mississippi bubble that bankrupted the richest nation on Earth at the time and created the preconditions of the French revolution and ultimately the Louisiana Purchase.

The first and foremost governor is the absolute certainty that you will pay if you willfully run with it. Stripping these masters of the universe of their spoils and placing them in jail loses society nothing since none own and operate tangible job creating businesses anymore anyway. They were never entrepreneurs. In fact, they distained entrepreneurs while they preyed on their capital and ideas.

The next generation of bankers needs to see these folks off to jail, or they will also succumb to temptation. Also recall that no one in a position of leadership can ever claim ignorance of the history of this style of folly or the inevitable consequences. Why do you think that they grabbed as much personally and ran for the hills as quick as possible?

Yes it truly matters that this generation of fools go to prison for this, because the damage wrought is as devastating as the loss of several aircraft carriers.