Members of the Financial Stability Oversight Committee
c/o Secretary Geithner, Chairman of the FSOC
1500 Pennsylvania Avenue NW
Washington DC, 20220
In light of the recent report from the Congressional Oversight Panel regarding mortgage irregularities, we are writing to support the panel’s call for a new round of stress tests to examine stability issues arising from residential mortgages held in securitized pools. Stability issues that have not been included in previous stress tests include liabilities for breaches of representations and warranties in Pooling and Servicing Agreements, liabilities arising from systemic mortgage documentation irregularities, and conflict of interests for servicers affiliated with firms that hold significant portfolios of second liens. We urge the council to recommend that its members conduct specific, thorough reviews of the potential effects of these issues on the risk profiles of the institutions they regulate and also that the Federal Reserve incorporate these potential liabilities into the new round of stress tests it announced earlier this week. We urge that the Financial Stability Oversight Council consider, in light of those stress tests, requiring that some financial companies divest affiliates involved in servicing securitized mortgages.
First, we urge that the members of the Council examine a representative sample of collateral loan files of each major servicer to determine if the files contain all the documents required by contract or by law, including the note; mortgage, deed of trust or equivalent document; and all documents evidencing or constituting the necessary assignment, delivery and recording of those documents. The Council should determine if the documents satisfy contractual representations and warranties in the pooling and servicing agreement or other governing instrument for the mortgages in question, and if not, any potential liability that may result. The collateral loan files examined should be selected at random, not by the servicers.
Questions about the documentation of securitized mortgages have received much recent attention. The financial institutions involved in securitization, including sponsors, trustees and servicers, have said publicly that any problems are isolated, technical in nature and easily cured. Others contend that the problems are pervasive, incapable of cure, and may ultimately require financial institutions involved in the securitization of residential mortgages to repurchase at face value hundreds of billions of dollars of mortgages, many of which are now non-performing. Many of the financial companies with potential liability to repurchase those mortgages are on any list of systemically significant firms.
More to the story here.
Second, we urge the Council to examine the servicing of first mortgages by servicers that hold second liens or are affiliated with firms that hold second liens. The largest servicers hold almost half a trillion dollars in second liens, which are valued for accounting purposes at approximately 85 percent of face value. Those servicers, also systemically significant firms, assert that the second liens are performing, as are the first mortgages on the same property, and thus the second liens are accurately valued. The servicers contend that any interest the servicers may hold in second liens has not affected their servicing of securitized first mortgages. Others contend that there is an indefensible conflict of interest for servicers of securitized first mortgages to hold second liens on the same property, that servicers have acted contrary to the interest of the beneficial owners of first mortgages to avoid accounting losses on second liens, and that servicers face significant unrealized losses on those second liens.
An important purpose of the Dodd-Frank Act is to identify risks to the financial system as early as possible, so that regulators can take corrective action or minimize the disruption to the financial system that results from the insolvency of systemically significant financial companies. It is also a purpose of the Act to make risk to our nation’s financial system transparent in order to restore the confidence of the American people in the financial system and in their government. It would serve those purposes to examine these issues and make the result of that examination public.
Finally, we urge that the Council consider use the authority under the Dodd-Frank Act to require that financial companies divest affiliates or other holdings involved in servicing securitized mortgages. There is no apparent advantage in having financial companies that securitized mortgages also act as trustees or servicers, and there is an obvious conflict of interest. The uncertainty about the extent of the risk to our nation’s financial stability posed by the mortgage irregularities is largely the result of the control of critical information by financial companies at risk of insolvency from potential legal liability to mortgage investors and others. The control of critical information by financial companies with a possible motive to conceal systemic risks is incompatible with the intent of the Dodd-Frank Act, and is a grave threat to our nation’s financial stability.
Thank you for your attention to this matter.
Andre Carson (IN)
Stephen Lynch (MA)
Joe Baca (CA)
Jackie Speier (CA)
Danny K. Davis (IL)
Laura Richardson (CA)
Barney Frank (MA)
John Conyers (MI)
Luis Gutierrez (IL)
Maxine Waters (CA)
Showing posts with label fraud. Show all posts
Showing posts with label fraud. Show all posts
Monday
MERS demystified by Christoper Peterson
This is the summary from a working paper written by Christopher Peterson. You can find the paper in its entirety
here .
TWO FACES: DEMYSTIFYING THE MORTGAGE ELECTRONIC REGISTRATION SYSTEM’S LAND TITLE THEORY
Christopher L. Peterson
"The name of MERS, a company that does not actually own any interests in land, increasingly inserts inert gaps in county recorder grantor-grantee indexes that disseminate the chain of title to millions of homes. This growing separation between actual ownership and legally recognized public notice is likely to significantly undermine the usefulness of real property recording systems over the long term. Moreover, courts have held traditionally held that a security agreement that fails to name a mortgagee is void. Because MERS is not really a mortgagee, financial institutions are, in effect, asking that courts treat lenders and their assigns as mortgagees even though their own security agreements do not. Even if courts reform void security agreements into equitable mortgages, the resulting litigation is likely to pose significant challenges for financial institutions seeking to foreclose, obtain deficiency judgments, and petition of relief from the bankruptcy law’s automatic stay. Furthermore, this inconsistent position taken by financial institutions in order to avoid paying modest fees to county recorders has the potential to be challenged. Many counties rely on fees from mortgage and deed of trust assignments to fund the vital services they provide to their communities. Courts that take offense at this use of tens of thousands of uncompensated “vice presidents” could equitably estopp financial institutions from denying liability for unpaid recording fees. Looking toward the future of American mortgage finance, counsel for financial institutions need advise their clients on the real and growing risks associated with using the MERS system. County recorders, state legislatures, and the judiciary each need to do their part to restore confidence, stability, and transparency in public land title records."
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"While the MERS system may reflect Janus in its two-faced land title theory, a demystified narrative of the company is actually more penetrably simple. Hubris was the essential theme in Greco-Roman mythic tragedies and was the vital sin of figures like Icarus, Narcissus, Andromeda, Niobe, Arachne, and Ulysses. Each found tragedy after their overweening pride showed disrespect to deity and the basic values those deities embodied. MERS and its members believed that they could rewrite property law without a democratic mandate. Although our myths have changed, many of our court houses and capital buildings continue to this day to bear resemblance to Greek and Roman temples as homage to the values of humility and respect for the rule of law. The unfolding drama of the MERS system will tell us much about whether those values endure."
More information regarding RMBS and servicing agreements here.
This is a great paper by Peterson. He digs down to the root of the Mortgage Electronic Registration System. It is clear that the banks have been playing fast and loose with the law, completely disregarding chain of title law and precedent. The issue now is whether the the government has the political will to hold the banks accountable. Even though it is becoming more evident that Mers is a shell company put in place to avoid the payment of registration and title fees, it appears that congress is more interested in burying these violations. The congress and many involved in the government have the misconception that quickly brushing this under the rug will lead to a economic recovery. But the truth is that there are too many laws that have been broken and the trust of the public has been jeopardized. People will not want to buy property if they can not get clear record of title. The laws will have to be changed or ignored to get the banks out of this situation.
here .
TWO FACES: DEMYSTIFYING THE MORTGAGE ELECTRONIC REGISTRATION SYSTEM’S LAND TITLE THEORY
Christopher L. Peterson
"The name of MERS, a company that does not actually own any interests in land, increasingly inserts inert gaps in county recorder grantor-grantee indexes that disseminate the chain of title to millions of homes. This growing separation between actual ownership and legally recognized public notice is likely to significantly undermine the usefulness of real property recording systems over the long term. Moreover, courts have held traditionally held that a security agreement that fails to name a mortgagee is void. Because MERS is not really a mortgagee, financial institutions are, in effect, asking that courts treat lenders and their assigns as mortgagees even though their own security agreements do not. Even if courts reform void security agreements into equitable mortgages, the resulting litigation is likely to pose significant challenges for financial institutions seeking to foreclose, obtain deficiency judgments, and petition of relief from the bankruptcy law’s automatic stay. Furthermore, this inconsistent position taken by financial institutions in order to avoid paying modest fees to county recorders has the potential to be challenged. Many counties rely on fees from mortgage and deed of trust assignments to fund the vital services they provide to their communities. Courts that take offense at this use of tens of thousands of uncompensated “vice presidents” could equitably estopp financial institutions from denying liability for unpaid recording fees. Looking toward the future of American mortgage finance, counsel for financial institutions need advise their clients on the real and growing risks associated with using the MERS system. County recorders, state legislatures, and the judiciary each need to do their part to restore confidence, stability, and transparency in public land title records."
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"While the MERS system may reflect Janus in its two-faced land title theory, a demystified narrative of the company is actually more penetrably simple. Hubris was the essential theme in Greco-Roman mythic tragedies and was the vital sin of figures like Icarus, Narcissus, Andromeda, Niobe, Arachne, and Ulysses. Each found tragedy after their overweening pride showed disrespect to deity and the basic values those deities embodied. MERS and its members believed that they could rewrite property law without a democratic mandate. Although our myths have changed, many of our court houses and capital buildings continue to this day to bear resemblance to Greek and Roman temples as homage to the values of humility and respect for the rule of law. The unfolding drama of the MERS system will tell us much about whether those values endure."
More information regarding RMBS and servicing agreements here.
This is a great paper by Peterson. He digs down to the root of the Mortgage Electronic Registration System. It is clear that the banks have been playing fast and loose with the law, completely disregarding chain of title law and precedent. The issue now is whether the the government has the political will to hold the banks accountable. Even though it is becoming more evident that Mers is a shell company put in place to avoid the payment of registration and title fees, it appears that congress is more interested in burying these violations. The congress and many involved in the government have the misconception that quickly brushing this under the rug will lead to a economic recovery. But the truth is that there are too many laws that have been broken and the trust of the public has been jeopardized. People will not want to buy property if they can not get clear record of title. The laws will have to be changed or ignored to get the banks out of this situation.
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