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The Tipping Point

It seems like a million years ago that I first advanced the theory that the wholesale separation of mortgage deeds (the lien against your land) from the promissory notes (the evidence of the debt) by depositing most of this country’s mortgage deeds into MERS (Mortgage Electronic Registration Systems) might mean that most mortgages had thusly been converted into unsecured debt. That means you still owe the money, but they can’t foreclose against your house. I called it Mortgage Fractionalization. It wasn’t a million years ago, it was 2009 and I was waaaay out there on a limb with that legal analysis. This means that the offering documents for the securities based on these mortgages are riddled with material misstatements, since they were supposed to be bundled secured debt, not unsecured debt.

Since then, I have read I don’t know how many Pooling and Servicing Agreements and found that the banks appear to have routinely not followed the rules set down in the PSAs. This means that the mortgages that were supposed to have been bundled into these securities might not have even been deposited in them, or that the same mortgage may have been deposited into more than one security. Some of those trustees may be holding a whole lot of nothing in those trusts. The law does not favor giving one creditor rights that are superior to another and has strict rules that a creditor must follow to create and maintain its rights against specific collateral.  Massacio did a great explanation of these strict requirements which are contained in the Uniform Commercial Code. LINK and LINK

Understand this, if the banks do not have a lien against collateral for all this mortgage lending AND they never properly transferred the debt into the RMBS (Residential Mortgage-Backed Security) trusts, then the buyers of those securities can force the banks to buy back the debt, debt that homeowners could discharge in bankruptcy, and the banks will have to take a write downs in the trillions of dollars. As BMAZ pointed out, this would be a much bigger banking crisis than in 2007-2008. Further, the RMBS problem is magnified geometrically, because there are derivatives that are pegged to these RMBS. That means the derivatives are also worthless, as the Salvation Army just found out.

So, Tim Geithner threw the banks a lifeline with HAMP and HARP, or as Marcy likes to call them, extend and pretend. By accepting a mortgage modification, the homeowners would sign a new set of mortgage documents, recreating the extinguished security interest on their property and giving the bank with which they were dealing a new lien on their house. I hope to heaven that people who have done these mods turn out to have been dealing with the correct bank. Actually they may have, because the best success rate for mortgage modifications were with banks that originated the loan and then kept it, so everybody knew who owned the loan. But the banks were too stupid or incompetent to seize this opportunity to lure homeowners back into land peonage.

Instead, they went on a rampage of forgery founding document mills to create and backdate phony documents which purported to evidence transfers and assignments of mortgages that just never happened.

I worried that the banks would succeed in spinning this, that DOJ would just not prosecute, that the state Attorney Generals would get punked in their investigation and negotiation, that the Mainstream media would tell the story the wrong way and judges would go back to the bad old days when they just accepted any bullshit a bank’s lawyer represented without proof as gospel. An army of individual homeowners challenged the banks in court and started winning.

So, we at FDL kept plugging away at this story, as did others like Yves Smith and a real trench warrior, Lynn Syzmonic. Over and over, we batted back the lies, the spin. The commentors contributed every bit as much as the front pagers and, lord knows, kept me going on this story. This was a real community effort. We assembled our research and work on a single foreclosure fraud page, so that any judge, homeowner or journalist looking for link supported analysis could enjoy one stop shopping.

Last night, I think we hit a tipping point. 60 Minutes told the story, and they pretty much got it right. By the time a story gets to 60 Minutes, it’s become conventional wisdom. We did it guys.

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Cynthia Kouril

Cynthia Kouril

Cynthia Kouril is a former Special Assistant United States Attorney in the Southern District of New York under several different U.S. Attorneys, former counsel to the Inspector General for the N.Y.C. Department of Environmental Protection where she investigated threats to the New York City water supply and other environmental crimes, as well as public corruption and fraud against the government, former Examining Attorney at the N.Y.C. Department of Investigation and former Capital Construction Counsel at New York City Parks and Recreation.
She is now in private practice with a colleague whom she met while at the USA Attorney's Office. Ms. Kouril is a member of the Steering Committee, National Committeewoman and Regional Coordinator for the New York Democratic Lawyers Council, a member of the Program Committee of the Federal Bar Council and a member of the Election Law Committee at the Association of the Bar of the City of New York. She is active in several other Bar Associations.
Most important of all, she is a soccer mom.