At the time of the now famous Ibanez decision, in which the Massachusetts Supreme Judicial Court dealt the securitization industry a not-all-that-surprinsing loss by saying that lenders and servicers had to be able to produce reasonable evidence that the mortgage had indeed been transferred to the party that was trying to seize the house. The court wrote:
When a plaintiff files a complaint asking for a declaration of clear title after a mortgage foreclosure, a judge is entitled to ask for proof that the foreclosing entity was the mortgage holder at the time of the notice of sale or foreclosure…. A plaintiff that cannot make this modest showing cannot make this modest showing cannot justly proclaim that it was unfairly denied a declaration of clear title.
Also note this section of the concurring opinion by Judge Cordy:
Foreclosure is a powerful act with significant consequences, and Massachusetts law has always required that it proceed strictly in accord with the statutes that govern it….The plaintiff banks, who brought these cases to clear the titles that they acquired at their own foreclosure sales, have simply failed to prove that the underlying assignments of the mortgages that they allege (and would have) entitled them to foreclose ever existed in any legally cognizable form before they exercised the power of sale that accompanies those assignments.
We were reminded of an outstanding mystery in the Ibanez case by a story tonight by Abigail Field on the role of carelessness by lawyers in the mortgage mess. She mentions a stunning aspect of the Ibanez case, one that quite a few observers, including yours truly, discussed privately at the time: that neither of the banks involved in the case produced a decent set of transaction documents (US Bank didn’t even provide a copy of the pooling and servicing agreement).
It is hard to convey how surprising this revelation is. If you have participated in any kind of corporate transaction, even at the small business level, your attorney as a matter of course will keep a signed copy of the agreement and any important related documents. The servicers and trustees would know that full well. So why did no one call issuer’s counsel and get the paperwork?
Field puzzles through this lapse and comes up with an incomplete list of possibilities:
So, the issue of partial deal documents that came to light in Ibanez and continues to crop up elsewhere means one of three things:
1. Securitization deals were so carelessly done that, despite all the proper documents being created, closing sets don’t exist.
2. Securitization deals were so carelessly done that not all the proper documents were created (such as lists of the mortgages involved) and so closing sets don’t exist.
3. All the documents and closing sets are fine, and the big banks have grown so incompetent they can’t give their foreclosure attorneys deal documents that they do have or could get from their securitization counsel.
I have trouble with her theories 1 and 2. The firms that did securitizations were white shoe firms, some of them of the cusp of top tier, the others just a wee notch below. And this was a bread and butter business. The donkey work of making sure all the documentation is in order is junior level time, which is marked up fully and thus nicely profitable. There would be no reason for the law firm to scrimp on it, and no reason for the client to want the law firm to cut corners.
MBS Guy has an opinion much more in keeping with mine:
I am even more convinced that the failure of the banks’ attorneys to track down the actual legal documents was not “carelessness”. I find it too hard to believe that the attorneys were this incompetent on an appeal of a major issue to the state’s supreme court. They had plenty of time (over a year).
Every deal I ever worked on had a full set of closing documents prepared in a binder. The issuer’s counsel law firm typically sent all of the documents to us via CD. We had stacks of them.
I suspect the foreclosing attorneys requested the documents and the requests were rejected by clever attorneys for the issuers who saw the potential liability and didn’t want to create a clear paper trail back to them.
If the low level foreclosing attorney looks incompetent in assembling his case, that’s one thing. If a big Wall Street law firm made a major mistake about the legal basis for selling loans without proper title in Massachusetts or any other state, well, that’s a whole different story.
Professor Adam Levitin has similarly pointed out that the major securitization law firms are in a sticky position, since they have legal liability on opinion letters.
But how would that operate? Those opinion letters were in an “if-then” form, “if you followed the steps you set forth, then you have a true sale.” But it now appears that much if not all of the securitzation industry opted, sometime after 2002, to change its procedures for how it handled promissory notes and liens without changing its contracts. That means, as we have pointed out repeatedly, that the parties in the origination process made very specific commitments to investors that they violated repeatedly, as a matter of business practice. Yet astonishingly they didn’t change the agreements to reflect what appears to have been a widespread adoption of new practices. Instead, they let the disparity, and the attendant liability, go unremedied.
It seems inconceivable that some of the players involved did not get counsel’s advice on this issue (I’d be stunned if Goldman didn’t; the firm is obsessed with having legal cover for its actions). But the breakdown was primarily in the custodial/trustee end of the process, which is a particularly low fee activity. So it is possible that the trustees or custodians conferred with their attorneys and did not formally bring issuer’s counsel into the loop. At the same time, these bad practices appear to have become so deeply embedded that I find it hard to believe that everyone on the sell side of these deals did not know what was happening as the new procedures became widespread.
As Field intimates, and I’ve said separately, until we see lawyers disbarred and facing charges, we can be pretty certain that we are only scratching the surface of mortgage abuses. But it is beginning to look like that day is not too far off.
Here is the busy economic schedule for the coming week.
• Egpyt
From the NY Times: Military Offers Assurances to Egypt and Neighbors
From the WSJ: Egypt's Military Moves to Clear Tahrir Square
From the Financial Times: Egyptian youth groups seek army talks
Below is a summary of the previous week, mostly in graphs.
• Trade Deficit increased in December
Click on graphs for larger image in graph gallery.
The first graph shows the monthly U.S. exports and imports in dollars through December 2010.
December exports were $163.0 billion, up from $160.1 billion in November. December imports were $203.5 billion, up from $198.5 billion in November.
Imports had been mostly flat since May, but increased again in December. Exports have started increasing again after the mid-year slowdown.
The second graph shows the U.S. trade deficit, with and without petroleum, through December.
The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products. The trade deficit was $40.6 billion, up from $38.3 billion in November.
The petroleum deficit increased in December as both quantity and import prices continued to rise - averaging $79.78 in December. Prices will be even higher in January. Once again oil and China deficits are essentially the entire trade deficit (or even more).
• CoreLogic: House Prices declined 1.8% in December
This graph shows the national CoreLogic HPI data since 1976. January 2000 = 100.
The index is down 5.46% over the last year, and off 31.6% from the peak.
This is the fifth straight month of year-over-year declines, and the sixth straight month of month-to-month declines. The index is only 0.07% above the low set in March 2009 (essentially at the low), and I expect to see a new post-bubble low for this index with the January release.
• NFIB: Small Business Optimism Index increases in January
From National Federation of Independent Business (NFIB): "The National Federation of Independent Business Index of Small Business Optimism rose 1.5 points in January, a modest increase, opening the new year with a reading of 94.1."
This graph shows the small business optimism index since 1986. The index increased to 94.1 in January from 92.6 in December.
Although still fairly low, this is the highest level for the index since December 2007.
This graph shows the net hiring plans over the next three months.
Hiring plans decreased slightly in January but are still positive.
The recovery is sluggish for the small business optimism index (probably because of the high concentration of real estate related companies), but this is the highest level for the optimism index since December 2007.
• Consumer Sentiment increases slightly in February
The preliminary Reuters / University of Michigan consumer sentiment index increased to 75.1 in February from 74.2 in January.
This was at the consensus forecast of 75.0.
Sentiment is still at levels usually associated with a recession - and sentiment is well below the pre-recession levels.
• Other Economic Stories ...
• From Treasury: Proposed plan for Fannie and Freddie press release and here is the report
• AAR: Rail Traffic increases in January
• Ceridian-UCLA: Diesel Fuel index decreases slightly in January
• Bernanke Testimony: The Economic Outlook and Monetary and Fiscal Policy
• From NY Fed Vice President Brian Sack: Implementing the Federal Reserve’s Asset Purchase Program
• CoStar: Commercial Real Estate prices increased slightly in December
• From RealtyTrac: Foreclosure Activity Increases 1 Percent in January
• Unofficial Problem Bank list at 944 Institutions
Best wishes to all!
bench craft company
AOL Bolsters Local <b>News</b> Investment With Acquisition of Outside.in <b>...</b>
AOL has acquired local news aggregator Outside.in, according to multiple reports.
Good <b>news</b>: Obama now brewing his own beer at the White House « Hot Air
Good news: Obama now brewing his own beer at the White House.
Small Business <b>News</b>: Cash Flow Tips and Basics
The key to small business success has always been cash flow. With enough cash flow a small business can expand on its own with less need for credit or outside.
bench craft company
AOL Bolsters Local <b>News</b> Investment With Acquisition of Outside.in <b>...</b>
AOL has acquired local news aggregator Outside.in, according to multiple reports.
Good <b>news</b>: Obama now brewing his own beer at the White House « Hot Air
Good news: Obama now brewing his own beer at the White House.
Small Business <b>News</b>: Cash Flow Tips and Basics
The key to small business success has always been cash flow. With enough cash flow a small business can expand on its own with less need for credit or outside.
bench craft company
bench craft company
AOL Bolsters Local <b>News</b> Investment With Acquisition of Outside.in <b>...</b>
AOL has acquired local news aggregator Outside.in, according to multiple reports.
Good <b>news</b>: Obama now brewing his own beer at the White House « Hot Air
Good news: Obama now brewing his own beer at the White House.
Small Business <b>News</b>: Cash Flow Tips and Basics
The key to small business success has always been cash flow. With enough cash flow a small business can expand on its own with less need for credit or outside.
bench craft company
AOL Bolsters Local <b>News</b> Investment With Acquisition of Outside.in <b>...</b>
AOL has acquired local news aggregator Outside.in, according to multiple reports.
Good <b>news</b>: Obama now brewing his own beer at the White House « Hot Air
Good news: Obama now brewing his own beer at the White House.
Small Business <b>News</b>: Cash Flow Tips and Basics
The key to small business success has always been cash flow. With enough cash flow a small business can expand on its own with less need for credit or outside.
bench craft company
AOL Bolsters Local <b>News</b> Investment With Acquisition of Outside.in <b>...</b>
AOL has acquired local news aggregator Outside.in, according to multiple reports.
Good <b>news</b>: Obama now brewing his own beer at the White House « Hot Air
Good news: Obama now brewing his own beer at the White House.
Small Business <b>News</b>: Cash Flow Tips and Basics
The key to small business success has always been cash flow. With enough cash flow a small business can expand on its own with less need for credit or outside.
bench craft company
AOL Bolsters Local <b>News</b> Investment With Acquisition of Outside.in <b>...</b>
AOL has acquired local news aggregator Outside.in, according to multiple reports.
Good <b>news</b>: Obama now brewing his own beer at the White House « Hot Air
Good news: Obama now brewing his own beer at the White House.
Small Business <b>News</b>: Cash Flow Tips and Basics
The key to small business success has always been cash flow. With enough cash flow a small business can expand on its own with less need for credit or outside.
bench craft company
AOL Bolsters Local <b>News</b> Investment With Acquisition of Outside.in <b>...</b>
AOL has acquired local news aggregator Outside.in, according to multiple reports.
Good <b>news</b>: Obama now brewing his own beer at the White House « Hot Air
Good news: Obama now brewing his own beer at the White House.
Small Business <b>News</b>: Cash Flow Tips and Basics
The key to small business success has always been cash flow. With enough cash flow a small business can expand on its own with less need for credit or outside.
bench craft company
AOL Bolsters Local <b>News</b> Investment With Acquisition of Outside.in <b>...</b>
AOL has acquired local news aggregator Outside.in, according to multiple reports.
Good <b>news</b>: Obama now brewing his own beer at the White House « Hot Air
Good news: Obama now brewing his own beer at the White House.
Small Business <b>News</b>: Cash Flow Tips and Basics
The key to small business success has always been cash flow. With enough cash flow a small business can expand on its own with less need for credit or outside.
bench craft company
AOL Bolsters Local <b>News</b> Investment With Acquisition of Outside.in <b>...</b>
AOL has acquired local news aggregator Outside.in, according to multiple reports.
Good <b>news</b>: Obama now brewing his own beer at the White House « Hot Air
Good news: Obama now brewing his own beer at the White House.
Small Business <b>News</b>: Cash Flow Tips and Basics
The key to small business success has always been cash flow. With enough cash flow a small business can expand on its own with less need for credit or outside.
bench craft company
AOL Bolsters Local <b>News</b> Investment With Acquisition of Outside.in <b>...</b>
AOL has acquired local news aggregator Outside.in, according to multiple reports.
Good <b>news</b>: Obama now brewing his own beer at the White House « Hot Air
Good news: Obama now brewing his own beer at the White House.
Small Business <b>News</b>: Cash Flow Tips and Basics
The key to small business success has always been cash flow. With enough cash flow a small business can expand on its own with less need for credit or outside.
No comments:
Post a Comment