Imagine a lending system where you can manipulate the system so neither the borrower nor the actual lender know they have been cheated. The perfect setup for a crime, but when nobody goes to jail for the conduct, what’s the danger? If you do not participate as the middle man you are only missing out on profits. Foreclosed borrowers and worthless investments are just collateral damage that do not affect the middle man who has no skin in the game. As soon as the borrowers and the real lenders have signed and paid, the middle man has no more liability, just money in the bank for brokering the deal. Because these “pretender lenders” can sell off their defective loans immediately after origination, the mortgage industry no longer has financial accountability for its conduct.

When we “purchased” our home in 2005, the original lender on the note was Najarian Loans, Inc. (who since changed its name NL, Inc.). Najarian Loans (NL) is also listed as the Lender on the Deed of Trust we signed. At the time, RPM Mortgage, Inc. (RPM) was a wholly owned subsidiary of NL. RPM and NL are apparently owned and operated by the same people: Rob and Tracey Hirt. NL was a correspondent lender for Countrywide, or had another contractual relationship, meaning they had a contract with Countrywide to provide loans of a particular quality. Not until we filed suit did we learn that the note and mortgage might have been purchased by a securitized trust put together by Lehman Brothers Holdings, Inc. (LBHI) called Structured Adjustable Rate Mortgage Loan Trust Mortgage Pass-Through Certificates, Series 2005-15 (Trust). The Standard Underwriting guidelines for the Trust (as detailed in the Prospectus for the Trust) permitted a monthly debt to income ratio based upon the borrower’s total monthly housing expenses (mortgage plus taxes and insurance) of 33%, but they also had expanded guidelines that allowed a maximum of 36%. Any loan that came to the Trust that did not show conformance with these guidelines would be considered defective and the “lender” (like NL) would be obligated to buy the note back from the Trust.

Most likely it was someone in the NL/RPM family who forged and backdated the loan application used to obtain our loan. What we did not know at the time was how the numbers on the loan application were tweaked to make the loan look good to the investors. Just a small tweak up in income, small enough we did not notice when we were shown the loan application after signing the note, combined with understating the monthly property taxes by $100 were all that was needed to make the numbers work. As explained in this earlier post, we still do not know who holds the note; in other words who actually now owns a note that is defective and does not meet the underwriting guidelines. As others have detailed in the past, Countrywide has a well known history with the “Hustle” and other questionable acts.

“Investors,” like the Trust that might have our note, still do not know how many defective loans they purchased. If someone forged, altered and backdated our loan application, then redacted the application presented to us for signing, you can safely assume it happened with other loans. The investors do know how many bad loans they purchased because of the sleight of hand played on both ends of the system. Defective loans like ours, which has not gone into default, help to mask how great the fraud actually was. But some lenders have brought suit over bad loans.

In July 2012 LBHI filed a lawsuit against RPM and NL for selling LBHI defective loans. Among other things the complaint alleges that NL sold LBHI loans that became “Early Payment Defaults.” NL agreed with LBHI to make payments for defective loans, but never made any payments and that led directly to the lawsuit. CitiMortgage previously brought an action in 2009 against the NL/RPM group alleging violations of the agreement between them. The LBHI suit settled in  September 2012, and the CitiMortgage litigation settled in February 2013. Terms of the settlements are not available to the public.

Both lawsuits were based upon obvious flaws in the loans. In the case of the LBHI litigation, the loans in question went into default almost immediately after origination and sale to LBHI. The CitiMortgage lawsuit involved more loans and a demand for more extensive damages. Both of these involve our “lender” but there are many more out there. Just in the last month MBIA and Bank of America settled their longstanding litigation over this issue.

MBIA will not get back all that they lost, but they will be able to continue on in business, barely. There are still thousands of defective loans in the hands of unknowing investors and they do not know it, just as many of the borrowers who took out the loans do not understand how they were manipulated into agreeing to loans that exceeded their capacity to repay.

As this previous post explained, our mortgage servicer, Bank of America has been having a hard time determining just who holds the Note for our mortgage. The answers have been inconsistent and convinced us they do not really know who owns the Note. We just received  a copy of the “Milestones” for our note that was generated by the MERS system.

As the document clearly shows, the Note was sold by Najarian Loans, Inc.(now NL, Inc.) to Bank of America (BAC) on May 27, 2005. At the time it was actually sold to Countrywide and we assume the records were later changed to reflect BAC’s purchase of the rotting corpse of what had been Countrywide.BAC then sold the Note to Lehman Brothers Holdings, Inc. (LBHI) on June 30, 2005. And the final sale was from LBHI to Wells Fargo as Trustee. This information is all consistent with what the MERS system has shown over the years we have been checking.

We filed our lawsuit in February 2012 and named Wells Fargo N.A. (WF) as a party because BAC sent us a letter in October 2011 saying WF was the investor on the Note. BAC, WF, and MERS all demurred together to our complaint on March 22, 2012, and in that demurrer alleged for the first time that the investor on our Note is “Wells Fargo Bank, as trustee on behalf of Structured Adjustable Rate Mortgage Loan Trust Mortgage Pass-Through Certificates, Series 2005-15 (erroneously sued as ‘WELLS FARGO BANK. N.A.’).” After all the different answers we had been provided over the years, we now had another answer. The problem now is that the MERS system did not show Wells Fargo as Trustee as the investor on the Note until September 12, 2012. And BAC is still claiming Wells Fargo Bank, N.A. is the investor. If the investor is Structured Adjustable Rate Mortgage Loan Trust Mortgage Pass-Through Certificates, Series 2005-15, then the MERS system is wrong, because Wells Fargo as Trustee is not the Trust that is the true investor on the Note.

In 2009 Congress passed legislation that included Title 15 United States Code section 1641 (g) requiring that after May 20, 2009 “In addition to other disclosures required by this subchapter, not later than 30 days after the date on which a mortgage loan is sold or otherwise transferred or assigned to a third party, the creditor that is the new owner or assignee of the debt shall notify the borrower in writing of such transfer, including—

(A) the identity, address, telephone number of the new creditor;

(B) the date of transfer;

(C) how to reach an agent or party having authority to act on behalf of the new creditor;

(D) the location of the place where transfer of ownership of the debt is recorded; and

(E) any other relevant information regarding the new creditor.”

We have not received this required disclosure that was generated by the September 2012 transfer of the Note from LBHI to Wells Fargo.

So here we are again, right where we were before. No one knows and no one cares who you owe all that money to.

To finish today, one of the worst examples of what banks can do to a borrower. A Southern California man died in the courtroom while fighting Wells Fargo and now Larry Delassus’ friends and family have sued Wells Fargo for wrongful death. “Wells Fargo placed Delassus into default after the bank incorrectly charged Delassus for back property taxes. Wells Fargo made the mistake after its tax-monitoring subcontractor First American Real Estate Tax Services, otherwise known as CoreLogic, used a wrong assessor’s parcel number to identify Delassus’s home. The parcel number was for the home of Delassus’s neighbor, who had not paid his property taxes. The bank then billed Delassus for more than $13,000 in back taxes after the bank paid the neighbor’s delinquent property taxes.” The full story here.