FULL Mortgage Payoff Rejected, Broken Entry (2), FORECLOSURE JUDGEMENT REVERSED…PRICELESS! Fed. Deposit Ins. Corp., as Receiver of WAMU v. TRAVERSARI, 2010 Ohio 2406 – Ohio: Court of Appeals, 11th Dist., Geauga 2010

2010-Ohio-2406

Federal Deposit Insurance Corporation, as Receiver of Washington Mutual Bank, Plaintiff-Appellee,
v.
Robert Traversari, et al., Defendants-Appellants.

No. 2008-G-2859.

Court of Appeals of Ohio, Eleventh District, Geauga County.

May 28, 2010.

Karen L. Giffen and Kathleen A. Nitschke, Giffen & Kaminski, L.L.C., 1300 East Ninth Street, #1600, Cleveland, OH 44114 and Donald Swartz, Lerner, Sampson & Rothfuss, P.O. Box 580, Cincinnati, OH 45210-5480 (For Plaintiff-Appellee).

Edward T. Brice, Newman & Brice, L.P.A., 214 East Park Street, Chardon, OH 44024 (For Defendants-Appellants).

OPINION

COLLEEN MARY O’TOOLE, J.

{¶1} Appellants, Robert Traversari (“Traversari”) and B & B Partners (“B & B”), appeal from the August 5, 2008 judgment entry of the Geauga County Court of Common Pleas, granting summary judgment in favor of appellee, Washington Mutual Bank, and entitling appellee to a judgment and decree in foreclosure.

{¶2} In 1994, appellant Traversari borrowed $190,000 from Loan America Financial Corporation which was memorialized by a promissory note and further secured by a mortgage on property located at 9050 Lake-in-the-Woods Trail, Bainbridge Township, Geauga County, Ohio. Appellant Traversari obtained the loan individually and/or in his capacity as the sole member and principal of appellant B & B, a real estate based company. The mortgage at issue was subsequently assigned to appellee.

{¶3} On January 8, 2007, appellee filed a complaint in foreclosure against appellants and defendants, JP Morgan Chase Bank, N.A., Charter One Bank, N.A., Jesse Doe, and Geauga County Treasurer. In count one of its complaint, appellee alleges that it is the holder and owner of a note in which appellant Traversari owes $149,919.96 plus interest at the rate of 7.75 percent per year from September 1, 2006, plus costs. In count two of its complaint, appellee alleges that it is the holder of a mortgage, given to secure payment of the note, which constitutes a valid first lien upon the real estate at issue. Appellee maintains that because the conditions of defeasance have been broken, it is entitled to have the mortgage foreclosed. Appellee indicated that appellant B & B may have claimed an interest in the property by virtue of being a current titleholder.

{¶4} Appellants filed an answer and counterclaim on February 16, 2007. In their defense, appellants maintain that appellee failed to comply with Civ.R. 10(D) and is estopped from asserting a foreclosure by its waiver of accepting payment. According to their counterclaim, appellants allege the following: on or about September 25, 2006, appellant Traversari sent a check in the amount of $150,889.96 to appellee for payment in full on the loan, which included the principal of $149.919.96 plus $970 of interest; on or about November 17, 2006, appellee issued a new home loan statement to appellant Traversari indicating the amount due was $5,608.95; appellant Traversari contacted appellee stating that a check had been sent for payment in full; appellee failed to respond; appellant Traversari mailed a check to appellee in the amount of $155,000; no stop payment was issued on the first check; because the house was vacant, appellant Traversari went to check the residence on December 26, 2006, and discovered that it had been broken into; an orange placard was placed on the premises indicating that a representative from appellee would secure the home; appellant Traversari immediately purchased new lock sets, secured the premises, and called and left a message for appellee to inform them to not enter the home; on December 31, 2006, electronic transmission was sent to appellee concerning the break-in and requested appellee to stop breaking into the home as well as to locate the two checks and to send a copy of a letter to a credit bureau; appellee did not respond; appellant Traversari then mailed a check from a separate account in the amount of the last payment demanded by appellee; appellee sent the $155,000 check back with a form letter to the address of the vacant property stating that personal checks were not accepted for payoff; appellee also rejected the $5,674.41 check; appellant Traversari then contacted appellee regarding the rejected checks; on January 11, 2007, appellant Traversari went to the home again, finding the kitchen door open, furnace running, new lock set taken out, garage door openers unplugged, and worse dings in the steel door; and appellant Traversari emailed appellee again, however, appellee indicated it could not give appellants any information because the case had been moved to foreclosure.

{¶5} Appellee filed a reply to appellants’ counterclaim on March 19, 2007, and an amended reply on September 6, 2007.

{¶6} According to the deposition of Maritza Torres (“Torres”), an employee of appellee in its senior asset recovery, loss prevention department, she was assigned to appellants’ case. Torres testified that appellee has no record of having received a check in the amount of $150,889.96 from appellant Traversari on September 25, 2006. However, she indicated that appellee received a check from appellant Traversari on September 30, 2006, in the amount of $102,538.74 (“Check #1”), which was returned to him due to appellee’s policy not to accept checks for early payoffs that are not certified funds.

{¶7} According to the deposition of Linda Rae Traversari (“Linda”), appellant Traversari’s wife, she is the handler of the family assets. Following the return of Check #1, appellee forwarded a delinquency letter to appellant Traversari in early November of 2006. Later that month, appellee sent a second default letter to him. Linda testified that on or around November 30, 2006, appellant Traversari sent another personal check for early payoff to appellee in the amount of $155,000 (“Check #2”). Appellee returned Check #2 with a letter explaining that noncertified funds are not accepted for early payoff. Linda stated that on January 2, 2007, appellant Traversari sent a third personal check via certified mail to appellee in the amount of $5,674.41 (“Check #3”). By the time appellee received Check #3, the loan had been referred to foreclosure. Check #3 was returned to appellant Traversari as “insufficient.”

{¶8} On March 14, 2008, appellee filed a motion for summary judgment pursuant to Civ.R. 56(b). Appellants filed a response on April 21, 2008.

{¶9} In its July 3, 2008 order, the trial court found, inter alia, that appellee was within its legal rights to reject the personal checks; appellee had the right to institute and maintain the foreclosure because appellants did not cure their default; and appellee had the right to enter the premises. Thus, the trial court indicated that appellee’s motion for summary judgment would be granted in its favor as to all issues and claims against appellants upon appellee’s presentation of an appropriate entry to be provided to the court.

{¶10} Appellee filed a “Motion For Submission Of Its Entry Granting Motion For Summary Judgment And Decree In Foreclosure” on July 11, 2008, and an amended entry on July 21, 2008. Appellants filed objections to appellee’s proposed amended entry the following day.

{¶11} Pursuant to its August 5, 2008 “Amended Entry Granting Summary Judgment And Decree In Foreclosure,” the trial court granted summary judgment in favor of appellee, entitling appellee to a judgment and decree in foreclosure. The trial court ordered, inter alia, that unless the sums found due to appellee are fully paid within 3 days from the date of the decree, the equity of redemption shall be foreclosed, the property sold, and an order of sale issued to the Sheriff directing him to appraise, advertise, and sell the property. The trial court further ordered that the proceeds of the sale follow the following order of priority: (1) to the Clerk of Courts, the costs of the action, including the fees of appraisers; (2) to the County Treasurer, the taxes and assessments, due and payable as of the date of transfer of the property after Sheriff’s Sale; (3) to appellee, the sum of $149,919.96, with interest at the rate of 7.75 percent per annum from September 1, 2006 to February 29, 2008, and 7.25 percent per annum from March 1, 2008 to present, together with advances for taxes, insurance, and costs; and (4) the balance of the sale proceeds, if any, shall be paid by the Sheriff to the Clerk of Court to await further orders. It is from that judgment that appellants filed the instant appeal, raising the following assignment of error for our review:

{¶12} “THE TRIAL COURT ERRED TO THE PREJUDICE OF DEFENDANTSA-PPELLANTS IN ITS ORDER GRANTING IN PLAINTIFF-APPELLEE’S FAVOR AS TO ALL ISSUES AND CLAIMS AND AGAINST DEFENDANTS, AND ITS AMENDED ENTRY GRANTING SUMMARY JUDGMENT AND DECREE IN FORECLOSURE TO PLAINTIFF-APPELLEE AGAINST DEFENDANTS-APPELLANTS.”

{¶13} In their sole assignment of error, appellants argue that the trial court erred by granting summary judgment in favor of appellee, and entitling appellee to a judgment and decree in foreclosure.

{¶14} “This court reviews de novo a trial court’s order granting summary judgment.” Hudspath v. Cafaro Co., 11th Dist. No. 2004-A-0073, 2005-Ohio-6911, at ¶8, citing Hapgood v. Conrad, 11th Dist. No. 2000-T-0058, 2002-Ohio-3363, at ¶13. “`A reviewing court will apply the same standard a trial court is required to apply, which is to determine whether any genuine issues of material fact exist and whether the moving party is entitled to judgment as a matter of law.'” Id.

{¶15} “Since summary judgment denies the party his or her `day in court’ it is not to be viewed lightly as docket control or as a `little trial.’ The jurisprudence of summary judgment standards has placed burdens on both the moving and the nonmoving party. In Dresher v. Burt [(1996), 75 Ohio St.3d 280, 296,] the Supreme Court of Ohio held that the moving party seeking summary judgment bears the initial burden of informing the trial court of the basis for the motion and identifying those portions of the record before the trial court that demonstrate the absence of a genuine issue of fact on a material element of the nonmoving party’s claim. The evidence must be in the record or the motion cannot succeed. The moving party cannot discharge its initial burden under Civ.R. 56 simply by making a conclusory assertion that the nonmoving party has no evidence to prove its case but must be able to specifically point to some evidence of the type listed in Civ.R. 56(C) that affirmatively demonstrates that the nonmoving party has no evidence to support the nonmoving party’s claims. If the moving party fails to satisfy its initial burden, the motion for summary judgment must be denied. If the moving party has satisfied its initial burden, the nonmoving party has a reciprocal burden outlined in the last sentence of Civ.R. 56(E) to set forth specific facts showing there is a genuine issue for trial. If the nonmoving party fails to do so, summary judgment, if appropriate shall be entered against the nonmoving party based on the principles that have been firmly established in Ohio for quite some time in Mitseff v. Wheeler (1988), 38 Ohio St.3d 112 ***.” Welch v. Ziccarelli, 11th Dist. No. 2006-L-229, 2007-Ohio-4374, at ¶40.

{¶16} “The court in Dresher went on to say that paragraph three of the syllabus in Wing v. Anchor Media, Ltd. of Texas (1991), 59 Ohio St.3d 108 ***, is too broad and fails to account for the burden Civ.R. 56 places upon a moving party. The court, therefore, limited paragraph three of the syllabus in Wing to bring it into conformity with Mitseff. (Emphasis added.)” Id. at ¶41.

{¶17} “The Supreme Court in Dresher went on to hold that when neither the moving nor nonmoving party provides evidentiary materials demonstrating that there are no material facts in dispute, the moving party is not entitled a judgment as a matter of law as the moving party bears the initial responsibility of informing the trial court of the basis for the motion, `and identifying those portions of the record which demonstrate the absence of a genuine issue of fact on a material element of the nonmoving party’s claim.’ Id. at 276. (Emphasis added.)” Id. at ¶42.

{¶18} In the case at bar, the record establishes that appellant Traversari sent personal checks to appellee for payment on the loan at issue. However, appellee returned the checks with letters indicating they would not be accepted as payment because they were not certified, and foreclosure proceedings commenced.

{¶19} There is no genuine issue of material fact that appellants executed and delivered a note and mortgage to appellee. However, a genuine issue of material fact does exist with regard to the fact that appellant Traversari tendered the entire principal payment and appellee rejected it because the payment was made by personal check. See Chase Home Fin., LLC v. Smith, 11th Dist. No. 2007-P-0097, 2008-Ohio-5451, at ¶19. The dates and amounts of the personal checks are conflicting due to the testimony and/or evidence submitted by the parties.

{¶20} “A cause of action exists on behalf of a damaged mortgagor when, in conformity with the terms of his note, he offers to the mortgagee full payment of the balance of the principal and interest, and the mortgagee refuses to present the note and mortgage for payment and cancellation.” Cotofan v. Steiner (1959), 170 Ohio St. 163, paragraph one of the syllabus.

{¶21} Appellant Traversari did not place any conditions on the personal checks tendered to appellee. We note that “[t]he essential characteristics of a tender are an unconditional offer to perform, coupled with ability to carry out the offer and production of the subject matter of the tender.” Walton Commercial Enterprises, Inc. v. Assns. Conventions, Tradeshows, Inc. (June 11, 1992), 10th Dist. No. 91AP-1458, 1992 Ohio App. LEXIS 3081, at 5. (Emphasis sic.)

{¶22} “It is an implied condition of every contract that one party will not prevent or impede performance by the other. If he does prevent or impede performance, whether by his prior breach or other conduct, he may not then insist on performance by the affected party, and he cannot maintain an action for nonperformance if the promises are interdependent.” Fed. Natl. Mtge. Assns. v. Banks (Feb. 20, 1990), 2d Dist. No. 11667, 1990 Ohio App. LEXIS 638, at 8-9, citing 17 American Jurisprudence 2d, Contracts, Sections 425, 426.

{¶23} In the instant matter, paragraph 3 of the Open-End Mortgage provides:

{¶24} “3. Application of Payments. Unless applicable law provides otherwise, all payments received by Lender under paragraphs 1 and 2 shall be applied: first, to any prepayment charges due under the Note; second, to amounts payable under paragraph 2; third; to interest due; fourth, to principal due; and last, to any late charges due under the Note.”

{¶25} Here, there was no new note and mortgage, nor agreement for application of payments, when the mortgage at issue was subsequently assigned from Loan America Financial Corporation to appellee. Rather, it was the policy of appellee to require mortgagors to pay by certified check for any amounts over $5,000. According to appellee’s employee, Torres, she indicated that any amount over $5,000 not paid by certified funds puts the company at risk because it can take anywhere between 7 to 10 days for a personal check to clear. We note, however, that the mortgagee has up to 90 days to verify the sufficiency of the underlying funds before satisfying and releasing its recorded mortgage. R.C. 5301.36(B). In the instant case, it would have been reasonable for appellee to have either waited 7 to 10 days for appellant Traversari’s checks to clear or to have inquired with his bank, see, generally, Hunter Sav. Assn. v. Kasper (Sept. 25, 1979), 10th Dist. No. 78AP-774, 1979 Ohio App. LEXIS 11777, at 13, if there were sufficient funds before returning any of his 3 personal checks and commencing foreclosure proceedings.

{¶26} The lender in this case unilaterally refused the debtor’s payment by check due to itsinternal policy that an amount over $5,000 had to be made by certified check. The terms and conditions of the mortgage, however, do not impose such a requirement. Under paragraph 3 of the Open-End Mortgage, it appears the lender had an obligation to apply the payment tendered, by personal check or otherwise. Its refusal to present the check for clearance and apply the payment on the ground of internal policy appears to have violated the debtor’s rights.

{¶27} Construing the evidence submitted most strongly in favor of appellants, we must conclude that genuine issues of material fact remain. Again, a genuine issue of material fact exists with regard to the fact that appellant Traversari tendered the entire principal payment and appellee rejected it because the payment was made by personal check. Also, the dates and amounts of the personal checks are conflicting due to the testimony and/or evidence submitted by the parties. Thus, the trial court erred by granting appellee’s motion for summary judgment.

{¶28} For the foregoing reasons, appellants’ sole assignment of error is well-taken. The judgment of the Geauga County Court of Common Pleas is reversed and the matter is remanded for further proceedings consistent with this opinion. It is ordered that appellee is assessed costs herein taxed. The court finds there were reasonable grounds for this appeal.

Trapp, P.J., Rice, J., concur.

Defendants are not named parties to the instant appeal.

The matter was stayed. On November 26, 2008, the Federal Deposit Insurance Corporation was substituted for appellee Washington Mutual Bank. This court instructed the Clerk of Courts to correct the docket by removing “Washington Mutual Bank” and substituting “Federal Deposit Insurance Corporation, as Receiver of Washington Mutual Bank” as appellee in this appeal. The stay order automatically dissolved on August 29, 2009.

SEC KNEW ABOUT SUBPRIME ACCOUNTING FRAUD A DECADE AGO

by Elizabeth MacDonald FoxBusiness

The Securities and Exchange  Commission is missing a bigger fraud while it chases the banks. Even though it knew about this massive, plain old fashioned accounting fraud back in 1998.
Instead, the market cops are probing simpler disclosure cases that could charge bank and Wall Street with not telling investors about their conflicts of interest in selling securities they knew were damaged while making bets against those same securities behind the scenes, via credit default swaps.
Those probes have gotten headlines, but there aren’t too many signs that this will lead to anything close to massive settlements or fines.

For instance, the SEC doesn’t appear to be investigating how banks frontloaded their profits via channel stuffing — securitizing loans and shoving paper securitizations onto investors, while booking those revenues immediately, even though the mortgage payments underlying those paper daisy chains were coming in the door years, even decades, later. Those moves helped lead to $2.4 trillion in writedowns worldwide.
The agency said it  believed banks were committing subprime securitization accounting frauds back in 1998 and claimed to be ‘probing’ them.
I had written about these SEC probes into potential frauds while covering corporate accounting abuses at The Wall Street Journal. The rules essentially let banks frontload into their revenue the sale of subprime mortgages or other loans that they then packaged and sold off as securities, even though the payments on those underlying loans were coming in the door over the next seven, 10, 20, or 30 years.
Estimating those revenues based on the value of future mortgage payments involved plenty of guesswork.

Securitization: Free Market Became a Free For All
The total amount of overall mortgage-backed securities generated by Wall Street virtually tripled between 1996 and 2007, to $7.3 trillion. Subprime mortgage securitizations increased from 54% in 2001, to 75% in 2006. Back in 1998, the SEC had warned a dozen top accounting firms that they must do a  better job policing how subprime lenders book profits from loans that are repackaged as securities and sold on the secondary market. The SEC “is becoming increasingly concerned” over the way lenders use what are called “gain on sale” accounting rules when they securitize these loans, Jane B. Adams, the SEC’s deputy chief accountant, said in a letter sent to the Financial Accounting Standards Board, the nation’s chief accounting rule makers.
At that time, subprime lenders had come under fire from consumer groups and Congress, who said banks were using aggressive accounting to frontload profits from securitizing subprime loans. Subprime auto lender Mercury Finance collapsed after a spectacular accounting fraud and shareholder suits, New Century Financial was tanking as well for the same reason.

SEC Knew About Subprime Fraud More than a Decade Ago
The SEC more than a decade ago believed that subprime lenders were abusing the accounting rules.
When lenders repackage consumer loans as asset-backed securities, they must book the fair value of profits or losses from the deals. But regulators said lenders were overvaluing the loan assets they kept on their books in order to inflate current profits. Others delayed booking assets in order to increase future earnings. Lenders were also using poor default and prepayment rate assumptions to overestimate the fair value of their securitizations.
Counting future revenue was perfectly legal under too lax rules.
But without it many lenders that are in an objective sense doing quite well would look as if they were headed for bankruptcy.
At that time, the SEC’s eyebrows were raised when Dan Phillips, chief executive officer of FirstPlus Financial Group, a Dallas subprime home equity lenders, had said the poor accounting actually levitated profits at lenders.
“The reality is that companies like us wouldn’t be here without gain on sale,” he said, adding, “a lot of people abuse it.”
But this much larger accounting trick, one that has exacerbated the ties that blind between company and auditor, is more difficult to nail down because it involves wading through a lot of math, a calculus that Wall Street stretched it until it snapped.

Impenetrably Absurd Accounting
These were the most idiotic accounting rules known to man, rules manufactured by a quiescent Financial Accounting Standards Board [FASB] that let bank executives make up profits out of thin air.
It resulted in a folie à deux between Wall Street and complicit accounting firms that swallowed whole guesstimates pulled out of the atmosphere.
Their accounting gamesmanship set alight the most massive off-balance sheet bubble of all, a rule that helped tear the stock market off its moorings.
The rules helped five Wall Street firms – Bear Stearns, Lehman Bros., Morgan Stanley, Goldman Sachs and Merrill Lynch – earn an estimated $312 billion based on fictitious profits during the bubble years.

Who Used the Rule?
Banks and investment firms including Citigroup, Bank of America and Merrill all used this “legit” rule.
Countrywide Financial made widespread use of this accounting chicanery (see below). So did Washington Mutual. So did IndyMac Bancorp. So did FirstPlus Financial Group, and as noted Mercury Finance Co. and New Century Financial Corp.
Brought to the cliff’s edge, these banks were either bailed out, taken over or went through bankruptcies.
Many banks sold those securitized loans to Enron-style off-balance sheet trusts, otherwise called “structured investment vehicles” (SIVs), again booking profits immediately (Citigroup invented the SIV in 1988).
So, presto-change-o, banks got to dump loans off their books, making their leverage ratios look a whole lot nicer, so in turn they could borrow more.
At the same time, the banks got to record immediate profits, even though those no-income, no-doc loans supporting those paper securities and paper gains were bellyflopping right and left.
The writedowns were then buried in obscure line items called “impairment charges,” and were then masked by new profits from issuing new loans or by refinancings.

Rulemakers Fight Back
The FASB has been fighting to restrict this and other types of accounting games, but the banks have been battling back with an army of lobbyists.
The FASB, which sets the rules for publicly traded companies, is still trying to hang tough and is trying to force all sorts of off-balance sheet borrowings back onto bank balance sheets.
But these “gain on sale” rules, along with the “fair value” or what are called “marked to market” rules, have either been watered down or have enough loopholes in them, escape hatches that were written into the rules by the accountants themselves, so that auditors can make a clean get away.
As the market turned down, banks got the FASB to back down on mark-to-market accounting, which had forced them to more immediately value these assets and take quarterly profit hits if those assets soured – even though they were booking immediate profits from this “gain on sale” rule on the way up.
Also, the FASB has clung fast to the Puritanism of their rulemaking by arguing a sale is a sale is a sale, so companies can immediately book the entire value of a sale of a loan turned into a bond, even though the cash from the underlying mortgage has yet to come in the door.

Old-Fashioned ‘Channel Stuffing’
This sanctioned “gain on sale” accounting is really old-fashioned “channel stuffing.”
The move lets companies pad their revenue and profit numbers by stuffing lots of goods and inventory (mortgages and subprime securities) into the system without actually getting the money in the door, and booking those channel-stuffed goods as actual sales in order to cook ever higher their earnings.
Sort of like what Sunbeam did with its barbecue grills in the ’90s.

Intergalactic Bank Justice League
Cleaning up the accounting rules is an easier fix instead of a new, belabored, top-heavy “Systemic Risk Council” of the heads of federal financial regulatory agencies, as Sen. Chris Dodd (D-Conn) envisions in financial regulatory reform.
An intergalactic Marvel Justice League of bank regulators can do nothing in the face of chicanery allowed in the rules.

Planes on a Tarmac
What happened was, banks and investment firms like Citigroup and Merrill Lynch who couldn’t sell these subprime bonds, or “collateralized debt obligations,” as well as other loan assets into these SIVs got caught out when the markets turned, stuck with this junk on their balance sheets like planes on a tarmac in a blizzard.
Bank of America saw its fourth-quarter 2007 profits plunge 95% largely due to SIV investments. SunTrust Banks’ earnings were nearly wiped out, a 98% drop in the same quarter, because of its SIVs.
Great Britain’s Northern Rock ran into huge problems in 2007 stemming from SIVs, and was later nationalized by the British government in February 2008.
Even the mortgage lending arm of tax preparer H&R Block used the move. Block sold its loans to off-balance-sheet vehicles so it could book gains about a month earlier than it otherwise would. Weee!
The company had $75 million of these items on its books at the end of its fiscal 2003 year. All totally within the rules.

Leverage Culture
The rampant fakery helped fuel a leverage culture that got a lot of homes put in hock.
Banks, for instance, started advertising home equity loans as “equity access,” or ways to “Live Richly” or as Fleet Bank once touted, “The smartest place to borrow? Your place.”
In fact, Washington Mutual and IndyMac got so excited by the gain on sale rules, they went so far as to count in profits futuristic gains even if they had only an “interest rate” commitment from a borrower, and not a final mortgage loan.
Talk about counting chickens before they hatch.

Closer Look at Wamu
Look at Wamu’s profits in just one year during the runup to the bubble. Such gains more than tripled in 2001 at Wamu, to just shy of $1 billion, or 22% of its pretax earnings before extraordinary items, up from $262 million, or 9%, in 2000.
But in 2001, Washington Mutual took $1.7 billion in charges, $1.1 billion of it in the final, fourth quarter, to reflect bleaker prospects for the revenue stream of all those servicing rights.
It papered over the hit with a nearly identical $1.8 billion gain on securitizations and portfolio sales.

Closer Look at Countrywide
The accounting fakery let Countrywide Financial Corp., the mortgage issuer now owned by Bank of America, triple its profit in 2003 to $2.4 billion on $8.5 billion in revenue.
At the height of the bubble, Countrywide booked $6.1 billion in gains from the sale of loans and securities. But this wasn’t cold, hard cash. No, this was potential future profits from servicing mortgage portfolios, meaning collecting monthly payments and late penalties.

SENATE FINDS MASSIVE FRAUD WASHINGTON MUTUAL: SPECIAL DELIVERY FOR WAMU VICTIMS!

Senate finds Massive FRAUD in SHam-MU! WaMu has allegedly defrauded hundreds of thousands of homeowners with unfair, deceptive and perhaps illegal lending policies and practices. Many of these homeowners are now facing the possibility of or are in foreclosure.

666 Pages with “Private” emails you’d like to read. Please be patient to upload.

 

 

 

 

 

 

 

 

Another “HOME RUN” in Nassau, NY! Judge awards FREE home to woman after mortgage records lost: NEWSDAY

Originally published: May 6, 2010 8:47 PM
By SID CASSESE  sid.cassese@newsday.com

The house at 517 Pinebrook

Photo credit: Newsday / Karen Wiles Stabile | The house at 517 Pinebrook Ct. in West Hempstead, which a judge awarded to Corliss Gittens, free of any liens and mortgages because nobody opposed the action. (May 6, 2010)

A Lakeview woman got an early birthday present when a Nassau County State Supreme Court Justice awarded her the house she lives in, free and clear of any liens and mortgages because nobody opposed the action.

Tuesday, Corliss Gittens, who turned 48 Friday, received the award of her six-room ranch-style house at 517 Pinebrook Ct. from Justice John Galasso.

Gittens bought the house from her parents in late 2000. But when she mailed monthly checks to the mortgage company, Homeside Lending, the checks were never cashed, said Hempstead lawyer Fred Brewington, who represents Gittens. In 2001, Gittens was told by Homeside Lending officials that it could not locate evidence of the mortgage in its records.

“She had a mortgage and a deed. She went to a closing and purchased the house,” said Brewington. “She never stopped trying to find out to whom she should pay the mortgage because the uncertainty was making her distraught.”

Eventually, Gittens learned Homeside ceased to exist, and its parent company, SR Investments, was sold to Washington Mutual in 2002. Washington Mutual was in turn acquired by JPMorgan Chase in 2008. All of the companies, as well as the Federal Deposit Insurance Corporation, were named as respondents.

None opposed Gittens’ suit.

Brewington said he reached out to Chase on the issue, only to be told the bank knew nothing about it.

Michael Fusco, a spokesman for Chase in Manhattan, said the bank “has no comment at this time.”

Gittens did not want to be interviewed for the story, but Brewington quoted her as saying: “After so many years of existing in limbo, I am happy that I will have the resources of my property available to me.”

He said Gittens once sought a second mortgage, but failed to get it because no one could get any information on the existing one. He added that her case was filed to wipe out that mortgage.

County records show the 2009 property tax on the house as $7,667.44.

In his decision Galasso said: “The Court directs the Clerk of the County of Nassau in whose office the mortgage and note were presumably recorded on or about March 6, 2001, to mark the record of the debt secured by the mortgage canceled and discharged.”

County Clerk Maureen O’Connell said Thursday she got the order Thursday and will execute it immediately.

Move Over Fannie Mae…Revealing the “TRIPLETS” Maiden Lane, Maiden Lane II and Maiden Lane III

Fed Reveals Bear Stearns Assets It Swallowed in Firm’s Rescue (Bloomberg)

By Craig Torres, Bob Ivry and Scott Lanman

April 1 (Bloomberg) — After months of litigation and political scrutiny, the Federal Reserve yesterday ended a policy of secrecy over its Bear Stearns Cos. bailout.

In a 4:30 p.m. announcement in a week of congressional recess and religious holidays, the central bank released details of securities bought to aid Bear Stearns’s takeover by JPMorgan Chase & Co. Bloomberg News sued the Fed for that information.

The Fed’s vehicle known as Maiden Lane LLC has securities backed by mortgages from lenders including Washington Mutual Inc. and Countrywide Financial Corp., loans that were made with limited borrower documentation. More than $1 billion of them are backed by “jumbo” mortgages written by Thornburg Mortgage Inc., which now carry the lowest investment-grade rating. Jumbo loans were larger than government-sponsored mortgage buyers such as Fannie Mae could finance — $417,000 at the time.

“The Fed absorbed that risk on its balance sheet and is now seen to be holding problematic, legacy assets,” said Vincent Reinhart, a resident scholar at the American Enterprise Institute in Washington who was the central bank’s monetary- affairs director from 2001 to 2007. “There is both an impairment to its balance sheet and its reputation.”

The Bear Stearns deal marked a turning point in the financial crisis for the Fed. By putting taxpayers at risk in financing the rescue, the central bank was engaging in fiscal policy, normally the domain of Congress and the U.S. Treasury, said Marvin Goodfriend, a former Richmond Fed policy adviser who is now an economist at Carnegie Mellon University in Pittsburgh.

‘Panic’ Cause

“Lack of clarity on the boundary between responsibilities of the Fed and of the Congress as much as anything else created panic in the fall of 2008,” Goodfriend said. “That created a situation in which what had been a serious recession became something near a Great Depression.”

Central bankers also created moral hazard, or a perception for investors that any financial firm bigger than Bear Stearns wouldn’t be allowed to fail, said David Kotok, chief investment officer at Cumberland Advisors Inc. in Vineland, New Jersey.

Policy makers’ resolve was tested months later by runs against the largest financial companies. Lehman Brothers Holdings Inc. collapsed into bankruptcy in September 2008. The ensuing panic caused the Fed to take even more emergency measures to push liquidity into markets and institutions. It rescued American International Group Inc. from collapse and allowed Goldman Sachs Group Inc. and Morgan Stanley to convert into bank holding companies, putting them under greater oversight by the central bank.

Early Failure

“Letting somebody fail early would have been a better choice,” Kotok said. “You would have ratcheted moral hazard lower and Lehman wouldn’t have been so severe.”

The Bear Stearns assets include bets against the credit of bond insurers such as MBIA Inc., Financial Security Assurance Holdings Ltd. and a unit of Ambac Financial Group, putting the Fed in the position of wagering companies will stop paying their debts.

The Fed disclosed that some of Maiden Lane’s assets were portions of commercial loans for hotels, including Short Hills Hilton LLC in New Jersey, Hilton Hawaiian Village LLC in Hawaii, and Hilton of Malaysia LLC, in addition to securities backed by residential mortgages.

More than a year after Washington Mutual, the largest U.S. savings and loan, was purchased by JPMorgan Chase in a distressed sale arranged by the Federal Deposit Insurance Corp., the home loans that helped bring down the Seattle-based thrift live on in the Maiden Lane portfolio.

Lending Standards

For example, 94 percent of the mortgages in one security, called WAMU 06-A13 2XPPP, required limited documentation from borrowers, meaning the lender often didn’t ask customers for proof of their incomes. Almost 10 percent of the borrowers whose mortgages make up the security have been foreclosed on, and almost a quarter are more than two months late with payments, according to data compiled by Bloomberg.

The portfolio also includes $618.9 million of securities backed by Countrywide, mortgages now rated CCC, eight levels below investment grade. All the underlying loans are adjustable- rate mortgages, with about 88 percent requiring only limited borrower documentation, according to Bloomberg data. About 33.6 percent of the borrowers are at least 60 days late. Countrywide is now part of Charlotte, North Carolina-based Bank of America Corp.

CDO Holdings

Maiden Lane has $19.5 million of securities from a series of collateralized debt obligations called Tropic CDO that are backed by trust preferred securities of community banks and thrifts. CDOs are investment pools made up of a variety of assets that provide a flow of cash.

Trust preferred securities, or TruPS, have characteristics of debt and equity and their interest payments are tax- deductible.

The securities created by Bear Stearns are rated C, one level above default, by Moody’s Investors Service and Fitch Ratings.

CDO securities have tumbled in value as banks are failing at the fastest rate in 17 years, according to data compiled by Bloomberg. The average price of TruPS CDO debt of this rating is pennies on the dollar, according to Citigroup Inc.

“The trust of the taxpayer was abused,” said Janet Tavakoli, president of Chicago-based financial consulting firm Tavakoli Structured Finance Inc. CDOs rated CCC and lower “have a high likelihood of default,” she said.

Bernanke Defense

Chairman Ben S. Bernanke defended the Bear Stearns deal as a rescue of the financial system. He said in a speech at the Kansas City Fed’s annual Jackson Hole, Wyoming conference in August 2008 that a sudden Bear Stearns failure would have caused a “vicious circle of forced selling” and increased volatility.

“The broader economy could hardly have remained immune from such severe financial disruptions,” Bernanke said in the speech. The Fed chief, who took office in 2006 and began his second term as chairman this year, also has repeatedly called for an overhaul of financial regulations that would allow authorities to take over a failing financial institution and oversee an orderly unwinding of its positions.

Bernanke said last year that nothing made him “more angry” than the AIG case, blaming the insurer for making “irresponsible bets” and a lack of regulatory oversight for the debacle. Officials “had no choice but to try and stabilize the system” by aiding the firm in September 2008, he said.

Yesterday’s release by the Fed, through its New York regional bank, also identified securities acquired in the bailout of AIG held in vehicles known as Maiden Lane II and III.

Market Value

Assets in Maiden Lane II totaled $34.8 billion, according to the Fed, which set their current market value in its weekly balance sheet at $15.3 billion. That means Maiden Lane II assets are worth 44 cents on the dollar, or 44 percent of their face value, according to the Fed.

Maiden Lane III, which has $56 billion of assets at face value, is worth $22.1 billion, or 39 cents on the dollar, according to the Fed’s weekly balance sheet. A similar calculation for the Bear Stearns portfolio couldn’t be made because of outstanding derivatives trades.

“The Federal Reserve recognizes the importance of transparency to its financial stability efforts and will continue to review disclosure practices with the goal of making additional information publicly available when possible,” the New York Fed said in yesterday’s statement.

Deal With Chase

The central bank said it reached agreement on “issues of confidentiality” for the assets with JPMorgan Chase, which bought Bear Stearns in 2008, and AIG. New York-based JPMorgan and AIG would incur the first losses on the portfolios.

Joe Evangelisti, a spokesman for JPMorgan, and Mark Herr, a spokesman for AIG, declined to comment.

In April 2008, Bloomberg News requested records under the federal Freedom of Information Act from the Fed’s Board of Governors related to JPMorgan’s acquisition of Bear Stearns. The central bank responded that records retained by the New York Fed “were proprietary records of the Reserve Bank, and not Board records subject” to the request, court records show.

Bloomberg filed suit in November 2008 in U.S. District Court in New York, challenging the Fed’s denial, as well as the denial of a separate request made in May 2008, seeking records of four other emergency lending programs.

The district court held that the Fed should release documents related to those four programs, and should search documents held by the New York regional bank to determine whether any of them should be considered records of the board of governors.

The U.S. Court of Appeals on March 19 upheld the district court’s ruling on the lending programs.

Representative Darrell Issa of California said in a statement that yesterday’s disclosure may “signal a new willingness to cooperate with Congress as we investigate how these bailout deals were structured and what the decision making process entailed.”

To contact the reporter on this story: Craig Torres in Washington at ctorres3@bloomberg.net

Last Updated: April 1, 2010 01:34 EDT

To ROB a COUNTRY, OWN a BANK: William Black

William Black, author of “Best way to rob a bank is to own one” talks about deliberate fraud on Wall St. courtesy of TheRealNews

Stop trying to get through the front door…use the back door…Get a Forensic Audit!

Not all Forensic Auditors are alike! FMI may locate exactly where the loan sits today.

 

This will make your lender WANT to communicate with you. Discover what they don’t want you to know. Go back in time and start from the minute you might have seen advertisements that got you hooked ” No Money Down” “100% Financing” “1% interest” “No income, No assetts” NO PROBLEM! Were you given proper disclosures on time, proper documents, was your loan broker providing you fiduciary guidance or did they hide undisclosed fees from you? Did they conceal illegal kickbacks? Did your broker tell you “Don’t worry before your new terms come due we will refinance you”? Did they inflate your appraisal? Did the developer coerce you to *USE* a certain “lender” and *USE* a certain title company?

If so you need a forensic audit. But keep in mind FMI:

DO NOT STOP FORECLOSURE

DO NOT NEGOTIATE ON YOUR BEHALF WITH YOUR BANK OR LENDER

DO NOT MODIFY YOUR LOAN

DO NOT TAKE CASES that is upto your attorney!

FMI does however, provide your Attorney with AMMO to bring your Lender into the negotiation table.

Fed Ends Bank Exemption Aimed at Boosting Mortgage Liquidity: Bloomberg

By Craig Torres

March 20 (Bloomberg) — The Federal Reserve Board removed an exemption it had given to six banks at the start of the crisis in 2007 aimed at boosting liquidity in financing markets for securities backed by mortgage- and asset-backed securities.

The so-called 23-A exemptions, named after a section of the Federal Reserve Act that limits such trades to protect bank depositors, were granted days after the Fed cut the discount rate by half a percentage point on Aug. 17, 2007. Their removal, announced yesterday in Washington, is part of a broad wind-down of emergency liquidity backstops by the Fed as markets normalize.

The decision in 2007 underscores how Fed officials defined the mortgage-market disruptions that year as partly driven by liquidity constraints. In hindsight, some analysts say that diagnosis turned out to be wrong.

“It was a way to prevent further deleveraging of the financial system, but that happened anyway,” said Dino Kos, managing director at Portales Partners LLC and former head of the New York Fed’s open market operations. “The underlying problem was solvency. The Fed was slow to recognize that.”

The Fed ended the exemptions in nearly identical letters to the Royal Bank of Scotland Plc, Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co., Deutsche Bank AG, and Barclays Bank Plc posted on its Web site.

Backstop Liquidity

The Fed’s intent in 2007 was to provide backstop liquidity for financial markets through the discount window. In a chain of credit, investors would obtain collateralized loans from dealers, dealers would obtain collateralized loans from banks, and then banks could pledge collateral to the Fed’s discount window for 30-day credit. In Citigroup’s case, the exemption allowed such lending to its securities unit up to $25 billion.

“The goal was to stop the hemorrhaging of risk capital,” said Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey. “Investors were being forced out of the securities market because they couldn’t fund their positions, even in higher-quality assets in some cases.”

Using mortgage bonds without government-backed guarantees as collateral for private-market financing began to get more difficult in August 2007 following the collapse of two Bear Stearns Cos. hedge funds.

As terms for loans secured by mortgage bonds got “massively” tighter, haircuts, or the excess in collateral above the amount borrowed, on AAA home-loan securities rose that month from as little as 3 percent to as much as 10 percent, according to a UBS AG report.

Lehman Collapse

By February 2008, haircuts climbed to 20 percent, investor Luminent Mortgage Capital Inc. said at the time. After Lehman Brothers Holdings Inc. collapsed in September 2008, the loans almost disappeared.

“These activities were intended to allow the bank to extend credit to market participants in need of short-term liquidity to finance” holdings of mortgage loans and asset- backed securities, said the Fed board’s letter dated yesterday to Kathleen Juhase, associate general counsel of JPMorgan. “In light of this normalization of the term for discount window loans, the Board has terminated the temporary section 23-A exemption.”

The “normalization” refers to the Fed’s reduction in the term of discount window loans to overnight credit starting two days ago from a month previously.

The Fed eventually loaned directly to securities firms and opened the discount window to primary dealers in March 2008. Borrowings under the Primary Dealer Credit Facility soared to $146.5 billion on Oct. 1, 2008, following the collapse of Lehman Brothers two weeks earlier. Borrowings fell to zero in May 2009. The Fed closed the facility last month, along with three other emergency liquidity backstops.

Discount Rate

The Fed also raised the discount rate a quarter point in February to 0.75 percent, moving it closer to its normal spread over the federal funds rate of 1 percentage point.

The one interest rate the Fed hasn’t changed since the depths of the crisis is the benchmark lending rate. Officials kept the target for overnight loans among banks in a range of zero to 0.25 percent on March 16, where it has stood since December 2008, while retaining a pledge to keep rates low “for an extended period.”

Removing the 23-A exemptions shows the Fed wants to get “back to normal,” said Laurence Meyer, a former Fed governor and vice chairman of Macroeconomic Advisers LLC in Washington. “Everything has gone back to normal except monetary policy.”

To contact the reporters on this story: Craig Torres in Washington at ctorres3@bloomberg.net

Last Updated: March 20, 2010 00:00 EDT