Eric Mains: “Acceptable Casualties”
Posted on March 25, 2015 by Neil Garfield
At the request of Eric Mains, former FDIC employee, I am publishing his comments on the foreclosure situation and the the banking crisis.
I thought quite a bit about what I would say regarding the experience of battling with a large bank for the last 6 years in a foreclosure action. One could complain about the forgery, the fraud, the denial of due process and equal protections under apathetic state court system(s), the shifty attorneys, etc. One could, but frankly it’s not worth the time or waste of space writing about it in just my particular case. You can read the complaint(s) I filed in both State and Federal court, read the trial transcripts, and draw your own conclusions as to the whole situation and legalities.
What is remarkable to me, and what is worth discussing, is not that my case has been the exception to large bank conduct in foreclosure cases, but how all too common it is. Now in hindsight, I am sure corporate counsel for Chase (and Citibank) is going to sternly chastise the law firm(s) involved for not checking into my background enough to realize I worked for the FDIC, in the division that closed down WAMU (after all it is all public information, along with our grade level and salaries). However, in their defense, they did do a pretty good job of keeping hushed up that they were employed/contracted with/ Black Knight (formerly LPS). LPS, for those not familiar, helped robo-sign loan documents and paid out a $120 million settlement with various state attorney general’s offices back in 2013. All in all though, I think most people would agree that mine is the better surprise. In any case, it is hardly shocking for anyone who reads the news to be aware that the banks have been involved in robo-signing and other creative activities to push through foreclosure cases, even after paying millions of dollars in fines to regulators and AG’s offices who gladly accepted their money. The thing that seems to attract the media’s and public attention is the robo-signing and fraudulent documents, and the focus tends to be solely on the HOW of it all being done. When the media does bother to pay attention (which sadly is very rarely, but we will get to that shortly) they don’t delve into the WHY of it being done. They need to, as that is the real story. It is the one that every homeowner and non-homeowner needs to be informed about.
If one digs deep enough, then one will realize why the financial crash of 2008 never went really away, regardless of claims to the contrary. The symptoms of the crash have been eased by the sheer amount of money being tossed at banks through programs like TARP and by mortgage bond buying by the Fed, but the cancer is still there. It does not take one long to realize that with fraud and forgery running rampant as it was in 2002-2008, that you can’t really “fix” an underlying 30 year residential note and mortgage that is already most likely fatally defective. You can’t assign something that was designed to have been assigned to a REMIC trust 90 days after closing (per IRS rules and the Trusts own PSA) and do it years after the fact… actually, you can try, it will just cause your investors to lose their tax exempt status and tick them off. Hence, we have a lot of lawsuits that talk vaguely about the “quality” of the investments, the “misrepresentations” of the Sellers, etc. Quite frankly it is time to put away the euphemisms and call what happened what it is. The “investors” (as in my case, whoever they may actually be) are suing because in a majority of the cases the “loans”, their “investments”, were simply never legally delivered to them. To put in nicely, they don’t hold jack squat. They are suing the bank “Servicers” involved, and the “Trustee’s”, because they did not do their jobs and now the problem simply cannot be fixed (at least not without first admitting that there is a problem). They need to work with the government and homeowners to fix the problem correctly, but it seems everyone involved have decided illogically that the homeowners are not involved in the equation. Now if you noticed all the “”quotation marks”” there is a good reason for that. You cannot be an investor in an investment that was never delivered to you. You cannot be a servicer on a loan that was not delivered to the entity you claim to be servicing it for. Nor can you be a Trustee for an insolvent Trust that does not hold any corpus. What the banks, government, and various agencies apparently have done for the last 8 years is use legal fiction to pretend the transactions have occurred. They have allowed the banks to account for transactions that are stated to have occurred, regardless it seems, in face of the facts.
That is part of the WHY of the situation. It is hardly controversial topic in that multiple writers have discussed securitization fail (as Adam Levitin has put it) in recent years. One can’t blame the government for its initial reaction to the crisis when it began in 2007-2008, knowing what they knew at the time. The REMIC Trusts, which are supposed to hold a majority of homeowner loans, are hopelessly cross collateralized and cross defaulted, covered by hedges, swaps, insurance policies, etc., affecting parties too numerous to count. I am sure when summit meetings between the largest banks and regulators were held, they realized the underlying issue. It was not simply that the banks or investors were going to lose money (or collapse) because homeowners were going to default on their loans, it was the huge tangle of commitments that had been made regarding loans and homeowner payments that threaded through multiple parties. This tangle was never disclosed or discussed with homeowners, even though it was central to their loans and should have been disclosed under Federal regulations such as TILA, RESPA, and REG Z. Banks and regulators hold the position the securitization does not involve the homeowners; that it is an investor to seller issue, and homeowners are third party interlopers. This is where one, again, must call a very loud and emphatic, B.S.
Imagine if a mortgage broker had told a soon to be homeowner in 2007, ” By the way, just so you know, your loan may currently involve— or will very soon involve— a potential undisclosed third party. You will not be dealing with a traditional bank to homeowner loan if that is what you are expecting from this loan contract which you will be obligated under for the next 30 years to submit a large portion of your income under. Your “bank” will merely be a servicer in the transaction, and will in fact be incentivized to NOT work with you should you run into financial trouble in the next 30 years. This is because of fee’s that were not discussed with you that your bank (now “servicer”) will make if your loan starts to default. There are probably fees involved in this transaction that effect the pricing your loan that even I as broker am not aware of due to this structure…… But let’s skip that for now. Anyway, your bank will actually be incentivized through fee’s to see that you do go into default, rather than modify your loan or help you. Your loan payments are going to be so hopelessly commingled after you submit them, sliced, diced, and sent to other parties you never envisioned (and with insurance payments and cross collateralizations of your payments and your home as security for this transaction to boot) that a Rubik’s cube will seem easy in comparison to untangling the mess. By the way, this process involves shoddy processes we have already become aware of as mortgage broker(s), but we can’t even keep up with the demand for buying these loans from Wallstreet. So to the extent there might be forgeries or other problems that might affect title to your loan and home should you ever want to refinance it, sell it…… or Heck, if you ever buy one of them involved with one of these transactions, you might be screwed. But Hey, just ignore that for now! Oooops! Almost forgot, your monthly loan statement, which purports to reflect the transaction and payments you are giving monthly on your loan….. Yep, that will be a legal fiction, and not accounted for accurately. It will supposedly reflect the money that is going to the undisclosed third party that is supposed to be receiving your loan payments, but in fact the Trustee claiming ownership (on behalf of the undisclosed third party investors to your loan) does not audit or claim to know the veracity of the information and accounting for your payment as provided by the bank you thought was your lender (but who is now in fact your servicer). Now this matters, because perversely enough, when this party comes forward and claims to be damaged should you cease to make payments you can no longer afford to make, they may in fact still be receiving payments known as servicer advances from your servicer. These come out of the massive fees he is making from your commingled pool of loan payments. Yep, the claimed holder of the rights to your loan payments may not have even been damaged at all. Your bank, as servicer, may also have sold your loan and information multiple times, collected insurance payments and other compensation from your loan contract that it has not disclosed to anyone, even the Trustee claiming to hold your loan, so in fact they have been unjustly enriched as to you and the investors………Got it so far? Now, this is the kicker, and Trust me, you will love this part!!! The only one that will have been monetarily cheated will be you, but they will still claim they have been damaged and try to foreclose on your home in court and thereby double dip on their profits. Should you argue or try to get to the bottom of the transaction in court by exercising your due process rights, you will be painted as a deadbeat, someone trying to get a “Free House”, and shamed to the point of a possible full blown depression and suicide. Heck of a process, wouldn’t you agree? Now just sign, here, here, and here….”
Would the borrower have entered into that transaction with full disclosure? Was there a meeting of the minds between all known parties if he did sign? These are things that hundreds of years of laws regarding real estate and contracts, including the statute of frauds, cover and don’t look favorably on. The Banks will claim this was a buy –sell transaction, the funding of a loan occurred using their money (or table funded in some instances), and that the loan was then sold to the REMIC Trust. If we are finally allowed to look under the sheets, what we are likely to find is that the REMIC was in fact NEVER funded, that the banks pooled the investor money and funded the transactions directly, skipping the REMIC’s altogether. Simply put, the REMIC Trust entity claiming to be holding your loan, or foreclosing on it, never purchased your loan on top of not having been legally assigned the loan documents for the transaction.
Think that is an exaggeration as to what happened and is happening? If so, I urge you to read back over my case and others. Look into the ones where, sadly, an out gunned and on the ropes borrower did end up committing suicide out of despair after being denied any answers, recourse, or justice out of systems that should have been there to help them. Other families just ended up on the streets, or in shelters, or had their lives ruined in multiple other ways. These are the ones the state and Federal governments failed. The court system failed homeowners, the AG’s failed them, and the major media outlets most certainly have failed them. There are undoubtedly many in the media who understand and know what is occurring, but choose to act like collective group of officer Barbrady’s with a, “Move along, nothing to see here”, because of potential loss of advertiser revenue and lawsuits. Think their editor’s would not stop them from running such a story? Watch the movie The Insider with Russell Crowe, which ironically was based on what happened in my metro with the tobacco industry, to understand just how badly what should be disclosed by an open and free press can be suffocated. In this whole mess, homeowners have been deemed to be acceptable casualties, collateral damage, because they are not economically important to the institutions that should be helping to fix the situation.
The above is the WHY to a great extent, so what should be done? I can only offer opinion, but I think the SCOTUS recently offered homeowners, courts, and the government a good way out of this mess with the recent Jesinowski decision. The court affirmed that Homeowners who choose to rescind their loans under TILA WILL, not should, but WILL be set back into the position they were in before the transaction occurred. Even under the common law recognized right of rescission, which is less homeowner friendly, the law recognizes the parties right in an un-bargained for or fraudulent transaction to be set back to the point they occupied before the transaction occurred. It should not be, and is not the Homeowner’s, the court’s, or the government’s duty to perform an accounting for the transaction that the banks claim occurred with respect to the payments, selling, and servicing of the borrowers loan. If they cannot account for it, if they cannot show how they were damaged, if they cannot prove chain of title, then it is a speculative transaction and loss. The court can decide upon the equities of the situation after all the facts are presented, but the banks that lack the evidence to prove the preceding, by law, walk away without the home or any money from the homeowner. That would not be fair or equitable you say? That would be moral hazard? If you understand any of what has come to light in the last decade regarding these attempted, but botched, attempts at securitization then you understand that there is a good chance the banks actually made undisclosed profits or other offsets on the borrowers contract. What is occurring is that they are probably trying to double dip, not recoup a loss. If you add all the offsets and profits up, the underlying contract has probably been satisfied, and equity and the law do not allow for the confiscation of your home because it harms popular and uninformed sentiment as to what has occurred in that homeowners case. Period.
Second, it is very hard to defend oneself in court and get to an equitable remedy if the government institutions that are supposed to protect us don’t allow access to information. When they instead leave the institutions that are actively defrauding homeowners to police themselves, you are asking for problems. For instance, a question for the state AG’s in the LPS settlement, and other settlements…. When was the last time you posted a list of the loans foreclosed on (or in foreclosure currently) in your states that involved a firm involved with your robo-signing settlement? You have CONSENT ORDERS in hand, and you have access to these lists of loans (Just read the terms of your consent order). You have names of suspect robo-signers IN HAND. Out of the millions of dollars you collected, how hard would it have been to REQUIRE someone to post the most basic information regarding these transactions to a website, to REQUIRE the banks attorney’s to disclose that they used LPS or others to the court? To opposing counsel?……especially as these firms will claim, and by the terms of THEIR SIGNED CONSENT ORDERS, that they have gone back and cleaned the mess up? Also, Why so Gung Ho to go to the trouble of providing defaulting homeowners the right to attend pre-foreclosure settlement meetings, without ALSO trying to ensure that the parties involved actually belong in the meetings in the first place? Can the bank on the other side of the table even legally modify the homeowners contract? Why not loudly inform homeowners of their right to rescission under TILA? Why not this, and a lot of other remedial action that would help to ensure that homeowners attending the meetings are not being once again victimized? Well, it may be that receiving millions of dollars (in sometimes questionably allocated settlement money) tends to cloud ones vision……. it may be that forcing homeowners into settlements that may, or may not be, in the homeowners best interest saves the court system a whole lot of work through caseloads they would otherwise have to deal with…… and it may be that campaign contributions and other forms of influence tend to grease the wheels of justice, causing laws and rules of procedure to start to be ignored. FYI, just in case the media gets really curious, maybe they want to take a gander at some of the entities set up to help struggling homeowners with their loans or seek “counseling”…. Who sits on the boards? Notice any large banks predominating said entity? Not that there could be any potential conflict of interest with having an institution that may be defrauding (potentially) a homeowner sit on said board, ones who really might not want a homeowner to be aware of their rights, or the true facts underlying the contract they entered into…. but it does bring a caution with it. There can be no doubt that home counseling services have helped homeowners in struggling situations, but there can also be no doubt that the homeowners may have not been getting the full picture of their options in certain instances.
For those who might wonder, given my occupation, do I somehow hate banks, or what is my particular beef? The answer is NO. Banks are corporate entities like any others, they have thousands of good, intelligent, and caring people that work for them and who help borrowers. I could go schlepp for Chase Bank, Wells Fargo, Citibank or others, if I knew that they were being run by people who were not involved in the activities described. The problem is NOT “The Banks” as corporate entities. It’s that the culture and their adherence to laws and what is acceptable, flows from THE TOP DOWN. This goes for our regulators too, who operate in a revolving door system at the top. Greed and human nature being what it is, that is why we have regulations that are supposed to check our impulses to make bad decisions. However, herd mentality often makes the good choice a hard one to make, lines start to blur when you are about to score a multi-million dollar paycheck. I am not going to hold the moral high ground in writing all of this and in terms of being a flawed individual, as I have made plenty of screw ups in my past from DUI’s, to past due taxes, to just generally being a douchebag on certain occasions. However, I think most people are willing to forgive others flaws, as most people understand that others usually stop themselves at the point where their flaws and bad decisions might start to cost people their homes, their health, and the most basic rights we expect as Americans. My “beef” is that the board members and CEO’s of the largest banks have apparently ripped out their douchebag inhibitors, thrown then on the ground, stomped on them, then pissed on them for good measure. Their own employees and shareholders should expect, and deserve, MORE. The public deserves more. The regulators and AG’s should ENFORCE and REQUIRE more of the top management, or clean house in the form of prosecutions and consent orders when they do not. This has not happened, partly because of the illusion and threats from said banks that they will somehow take down the world economies (oooooohhh, burr, shiver) if they are effectively regulated in a way that ensures they act in an expected fashion. I have no doubt the management of the large banks thought they were justified in taking some of the actions that they did during the crisis, and indeed did so with the governments tacit consent in order to stave off the larger disaster about to happen. However, we are far enough removed from the crisis now (even though it is not gone), that the basic rule of law and consumers rights needs to be given more focus, not less. I can’t say much more. What is being allowed to occur is rotting out the heart of American business, people’s faith in banks and the government, and therefore is effecting the stability of the financial markets. It simply has to stop. Think not? Just ask a college student today if he thinks he should be required to take a course on business ethics? He will probably think it is the punchline to a joke. Why shouldn’t he? All he knows is that those who commit crime are not punished if they have enough money and power, and the government will not act unless embarrassed or called out by the media and public to do so (and even not then sometimes). If we are willing to forego our most basic constitutional rights in the pursuit of profit, and what we have laughingly twisted the word capitalism to mean, then we are quite simply and factually done for as a functioning democracy. This should scare EVERYBODY, and if not, all broadcasts of Honey-Boo-Boo, Duck Dynasty, and the Kardashians should stop, until the greater public does figure out why they should be scared. That is all I can impart as to my view of the situation, hopefully it proves to be worthwhile to those reading this. In either event, I have a sheriff’s sale to attend tomorrow, one of many as I understand it……