More trouble piled up for Bank of America Corp. on Monday, as American International Group Inc. sued it for more than $10 billion, saying the bank cheated it by selling residential mortgage-backed securities that were overvalued.

The suit comes on top of similar suits, which together put the bank in a precarious position, analysts say. The bank’s stock dove 20 percent, or $1.66, to $6.51, revisiting levels seen at the nadir of the recession, in March 2009

AIG said Bank of America and two companies that were later gobbled up by the bank, Countrywide and Merrill Lynch, sold the insurance company $28 billion in securities backed by home mortgages between 2005 and 2007, at the height of the housing boom. It said it looked at more than 260,000 of the underlying mortgages, and found that the bank’s “stated metrics” for 40 percent of the securities were false.

In one case, a borrower said she had been the owner of a construction business for 25 years, which would have made her 10 years old when she took ownership, AIG said.

Bank of America denied the allegations, saying AIG was big enough and sophisticated enough to know the risks.

“AIG recklessly chased high yields and profits throughout the mortgage and structured finance markets. It is the very definition of an informed, seasoned investor, with losses solely attributable to its own excesses and errors,” Bank of America spokesman Lawrence Grayson said.

AIG spokesman Mark Herr shot back: “It is disappointing but unsurprising that Bank of America continues to attempt to blame others for its own misconduct. Investors, no matter how sophisticated, were entitled to rely on its numerous written representations about the securities it sold.”

AIG shares fell $2.52, or 10 percent, to $22.58. They hit a 52-week low of $22.10 earlier in the day.

In June, Bank of America agreed to pay $8.5 billion to a group of investors for selling them poor-quality mortgage securities. AIG’s suit is separate, but the company is raising questions about whether the settlement went far enough. On Friday, New York Attorney General Eric Schneiderman urged the judge to reject the settlement, calling it unfair.

Read more here

The SEC announced on Tuesday that J.P. Morgan Securities LLC will pay $153.6 million to settle SEC charges that “it misled investors in a complex mortgage securities transaction just as the housing market was starting to plummet. Under the settlement, harmed investors will receive all of their money back.”

This settlement is a significant win for JPMorgan and its CEO Jamie Dimon, who once again has managed to avoid the reputational and financial damage done to other banks with very similar problems. My sources say that other large Wall Street banks with similar problems related to complex mortgage deals are likely to settle SEC claims shortly. But this is only one battle won in a longer war for survival for JPMorgan and other top banks.

Why is the icky SEC settlement a win for JPMorgan? For one thing, Goldman Sachs got tagged with a $550 million fine for the “ABACUS 2007-1″ transaction, a deal that looks a lot like the “Squared CDO 2007-1″ deal that earned JPMorgan one third of the fine. Of course in the case of the former, Goldman was the sponsor and John Paulson was the beneficial party shorting the deal as it was sold to investors.

With JPM, the bank was the sponsor of “Squared CDO 2007-1″ and Magnetar Capital was the winning, hidden short seller against the deal. Edward Steffelin seems the designated fall guy for JPM, while Fabrice Tourre seemed to play this role in the Goldman transaction. ACA Management was the collateral manager for the Goldman deal, while the now bankrupt GSC Capital played that role in the JPM deal, in effect picking the assets that went into the transaction.

In these deals, investors bought what they thought was AAA-rated security. The investors were told that a neutral collateral manager had picked the assets. But as with Paulson and Goldman in the ABACUS 2007-1 deal, the SEC says that Magnetar had undisclosed influence in picking what assets went into Squared CDO 2007-1. Apparently they really wanted to put inferior assets into the pool in order to profit.

Read more here

As we’ve noted in several posts, one player that has been featured in the foreclosure scandal and is currently under federal investigation is the Mortgage Electronic Registration System, or MERS.

Despite the fact that MERS keeps electronic records on about half of all home mortgages in the country, the system is hardly a household name. The New York Times published a lengthy piece about MERS over the weekend, the Washington Post has also written about it, as have ProPublica and other outlets. But given the many questions surrounding this creation of the mortgage banking industry, it’s worth reviewing what we know about what MERS was intended to do, how it works and why the controversy surrounding it has grown in the wake of the foreclosure scandal.

Origins of MERS

MERS is a confidential electronic registry that banks helped create in 1997 in order to keep track of mortgage paperwork. As we noted in our primer on the foreclosure scandal players, MERS saved the banks time and money by providing a private, electronic alternative to the public system used by local government recorders. By using the MERS registry, they largely avoided the recording fees.

Local government offices play important roles in recording changes in land ownership, the same way they record births, marriages, and other essential records. Having a public entity holding onto original documents is handy, after all—for instance, if you can’t find your marriage license, you can request a copy from the county you were married in. Or if you need those documents authenticated, the government can help do that too.

But for Fannie Mae, Freddie Mac and the banks, the local government recorders weren’t speedy enough—especially as the mortgage industry moved into the business of securitization, or bundling and selling mortgages. To facilitate securitization, they created MERS, a private database that relied on its members to enter data about mortgage transfers on their own.

How MERS works as recordkeeper

The creation of this system allowed mortgage companies to list MERS as the proxy for the true mortgage holder in local government records and to record subsequent changes of ownership in the MERS system only. Here’s what one expert told us about how it works:

“It’s like a Microsoft Excel spreadsheet, only bigger. It doesn’t have images of documents, it doesn’t have signatures in it. It doesn’t have copies of original documents,” explained Christopher Peterson, a law professor at the University of Utah who has written several research papers on MERS.

A member of the MERS system can put information in the database “if it feels like it,” Peterson said. “MERS uses the word ‘track,’ they say they track servicing rights or ownership rights, but that’s not really what they do. They’re more of a passive information receptacle.”

Read more here

Foreclosure defense attorneys better bring their “A” game with them to court because McCalla Raymer is not afraid to litigate the following types of cases:

• Defense of Wrongful Foreclosure and Eviction Actions
• Defense of Regulatory Compliance challenges (i.e., TILA, RESPA, HOEPA, FDCPA, FCRA claims)
• Title Curative Litigation and suits to clear Junk Filings from the real estate records
• Prosecuting large Mortgage Fraud cases, Mortgage Fraud Prevention, Loss Mitigation and Asset Recovery
• Commercial Foreclosure and Complex Loss Mitigation
• Receiverships
• Foreclosure Confirmations and Suits on Notes
• HOA Litigation
• Landlord/Tenant Litigation
• Adversarial Proceedings in Bankruptcy Court
• Civil Trials and Appellate Practice in State and Federal Courts in Georgia, Alabama and Florida
• Municipal and County Disputes
• Securitization, Pooling and Servicing Agreements

• Warehouse and Correspondent Lending Arrangements
• Loan Sale and Repurchase Obligations
• Repurchase Demands
• Lender Licensing & Regulatory Compliance
• Office, Retail and Multifamily Real Estate
• Sale-Leaseback Transactions
• Small Business Mergers and Acquisitions
• Asset Purchases, Sales & Due Diligence
• Certifying Titles

DS News quoted Marty Stone, McCalla Raymer’s managing partner as saying, “Florida represents a key market for McCalla Raymer, our clients have expressed the need for additional support and quality legal guidance to adequately protect their interests. We are proud to be that provider and look forward to continuing to strengthen our partnerships with clients nationwide.”

The actions and eventual downfall of David Stern and the investigations of  five other foreclosure mill law firms by the Florida Attorney General’s office has put GSEs, mortgage servicers and the Mortgage Backed Securities which own nearly 90% of the housing debt into such a weak position that these entities have had to actually cancel thousands of foreclosure complaints against homeowners costing them billions of dollars.

So its is not surprising and it was only a matter of time before mortgage servicers and mortgage lenders brought in the heavy hitters to not only defend them in foreclosure cases in Florida but to clean up the mess made by the foreclosure mills.   Some will argue that the banks brought this on themselves by attempting to do foreclosures on the cheap and that may be true.  However, the days of a foreclosure defense attorney going up against a clueless kid who just graduated from one of Florida’s many sub-par law schools is over.

Firms like McCalla Raymer are only the beginning. Major litigation firms in New York and Washington D.C. are in the process of expanding into Florida and foreclosure defense attorneys, many of whom were starving title attorneys or who thought they could make easy money doing foreclosure defense are going to be slaughtered by firms like McCalla Raymer.

The dismissal concerns Central Mortgage Co’s assertion that Morgan Stanley Mortgage Capital Holdings repurchase loans it allegedly failed to screen properly before selling them to Fannie Mae and Freddie Mac.

After Fannie Mae and Freddie Mac demanded that CMC, the Little Rock, Arkansas-based servicer, repurchase mortgages, Morgan Stanley repurchased or repaid CMC for about half of the loans, the filing showed. Morgan Stanley refused further repurchases, and CMC sued for breach of contract.

The dispute is a vignette in the larger fight Fannie Mae and Freddie Mac are waging against mortgage lenders, servicing companies and insurers over loans that failed to meet strict underwriting requirements. As the two government-chartered companies have stepped up their efforts, banks and insurers have boosted defenses and increased reserves.

But the lawsuit also shows risks faced by the hundreds of servicing companies used by Fannie Mae and Freddie Mac. Between March 2006 and August 2007, CMC purchased servicing rights on six pools of loans, mostly between $232 million and $636 million, the filing showed.

The court, in its ruling last week, found that CMC failed to provide required notice to Morgan Stanley of breach of contract, among other things, the filing showed. But CMC “appears to have otherwise viable breach of contract claims,” so the servicer could “replead” the case if the proper protocols are followed, the ruling stated.

Steven Fineman, an attorney with Richards, Layton & Finger who is representing Morgan Stanley, did not return a call seeking comment. R. Judson Scaggs, a CMC attorney with the firm Morris, Nichols, Arsht & Tunnell, declined to comment.

(Editing by Dan Grebler)

Andy Kroll, Mother Jones

LATE ONE NIGHT IN February 2009, Ariane Ice sat poring over records on the website of Florida’s Palm Beach County. She’d been at it for weeks, forsaking sleep to sift through thousands of legal documents. She and her husband, Tom, an attorney, ran a boutique foreclosure defense firm called Ice Legal. (Slogan: “Your home is your castle. Defend it.”) Now they were up against one of Florida’s biggest foreclosure law firms: Founded by multimillionaire attorney David J. Stern, it controlled one-fifth of the state’s booming market in foreclosure-related services. Ice had a strong hunch that Stern’s operation was up to something, and that night she found her smoking gun.

It involved something called an “assignment of mortgage,” the document that certifies who owns the property and is thus entitled to foreclose on it. Especially these days, theassignment is key evidence in a foreclosure case: With so many loans having been bought, sold, securitized, and traded, establishing who owns the mortgage is hardly a trivial matter. It frequently requires months of sleuthing in order to untangle the web of banks, brokers, and investors, among others. By law, a firm must execute (complete, sign, and notarize) an assignment before attempting to seize somebody’s home.

A Florida notary’s stamp is valid for four years, and its expiration date is visible on the imprint. But here in front of Ice were dozens of assignments notarized with stamps that hadn’t even existed until months—in some cases nearly a year—after the foreclosures were filed. Which meant Stern’s people were foreclosing first and doing their legal paperwork later. In effect, it also meant they were lying to the court—an act that could get a lawyer disbarred or even prosecuted. “There’s no question that it’s pervasive,” says Tom Ice of the backdated documents—nearly two dozen of which were verified by Mother Jones. “We’ve found tons of them.”

This all might seem like a legal technicality, but it’s not. The faster a foreclosure moves, the more difficult it is for a homeowner to fight it—even if the case was filed in error. In March, upon discovering that Stern’s firm had fudged an assignment of mortgage in another case, a judge in central Florida’s Pasco County dismissed the case with prejudice—an unusually harsh ruling that means it can never again be refiled. “The execution date and notarial date,” she wrote in a blunt ruling, “were fraudulently backdated, in a purposeful, intentional effort to mislead the defendant and this court.”

More often than not in uncontested cases, missing or problematic documents simply go overlooked. In Florida, where foreclosure cases must go before a judge (some states handle them as a bureaucratic matter), dwindling budgets and soaring caseloads have overwhelmed local courts. Last year, the foreclosure dockets of Lee County in southwest Florida became so clogged that the court initiated rapid-fire hearings lasting less than 20 seconds per case—”the rocket docket,” attorneys called it. In Broward County, theepicenter of America’s housing bust, the courthouse recently began holding foreclosure hearings in a hallway, a scene that local attorneys call the “new Broward Zoo.” “The judges are so swamped with this stuff that they just don’t pay attention,” says Margery Golant, a veteran Florida foreclosure defense lawyer. “They just rubber-stamp them.”

But the Ices had uncovered what looked like a pattern, so Tom booked a deposition with Stern’s top deputy, Cheryl Samons, and confronted her with the backdated documents—including two from cases her firm had filed against Ice Legal’s clients. Samons, whose counsel was present, insisted that the filings were just a mistake. She refused to elaborate, so the Ices moved to depose the notaries and other Stern employees whose names were on the evidence. On the eve of those depositions, however, the firm dropped foreclosure proceedings against the Ices’ clients.

Read more here: http://motherjones.com/politics/2010/07/david-stern-djsp-foreclosure-fannie-freddie?page=1

As President Barack Obama vowed in a Sept. 14 speech in New York’s Federal Hall to correct “reckless behavior and unchecked excess” on Wall Street, Mike McMahon and Barney Frank sat in the audience discussing how to ease proposed rules for the $592 trillion over-the-counter derivatives market.

Side by side at 26 Wall St., across from the New York Stock Exchange, freshman congressman McMahon told House Financial Services Committee Chairman Frank he was worried that Obama’s derivatives plan, released in August, would penalize a wide swath of U.S. corporations and could push jobs in his home district overseas, McMahon said in an interview. Read more about derivatives lobbyists…

Let’s get one thing straight: It’s patently insane that $592 trillion in derivatives even exist. They cannot be safely unwound. The standard definition of them is that they’re derivatives of underlying assets. The underlying assets are, in some cases, subprime mortgages. These mortgages only retain value as derivatives for as long as homeowners can continue to make the payments. When homeowners default, the derivatives become worthless. See the problem?

Press Release

WEST PALM BEACH, Fla.–MFI-Miami, LLC, a mortgage fraud investigation company, announced today that it’s launching a nationwide service investigating the mortgage securitization process. The service will be managed by Elizabeth Jacobson, who will oversee this project for MFI-Miami’s sister company, MFI-DC, LLC.

MFI-Miami will investigate the pooling and servicing agreements, as well as the contents of the certificate that the trustee alleges to contain the mortgage. MFI-Miami will also determine if the certificate was part of a credit default swap that may have been paid as part of TARP or by a third party. These three items are essential for determining if the lender can legitimately enforce the terms of a homeowner’s mortgage or if the lender or trustee is committing securities fraud.

“I’m very excited about starting this new service,” says MFI-Miami President, Steve Dibert. “Not only will we be able to prove or disprove the legitimacy of any claims made by the lender, but we’ll also be able to determine if the lender is trying to collect from the homeowner after already being paid with TARP funds.”

Massachusetts Attorney Glenn Russell, Jr. agrees. “This is a valuable tool for any attorney doing foreclosure defense or loan modifications,” he says. “This report is like firing a first strike nuclear missile at the lender. With one shot, the battle is over!”

About MFI-Miami

Headquartered in Boynton Beach, Florida, MFI-Miami, LLC and its sister companies — MFI-DC, LLC, MFI-Boston, LLC, and MFI-New York, LLC — conduct compliance examinations and mortgage fraud investigations. These four companies are also the only firms that investigate the securitization instruments of clients’ mortgages. For more information, visit www.mfi-miami.com, contact 561-317-9978, or email info@mfi-miami.com.

About Glenn F. Russell, Jr.

Glenn F. Russell, Jr. is located in Fall River, MA. He’s a member of the Massachusetts and Connecticut Bars, where he specializes in foreclosure defense, bankruptcy, personal injury and divorce law. For more information, visit www.foreclosuresinmass.com, call 508-324-4545, or email russ45esq@gmail.com.

About Elizabeth Jacobson

Elizabeth Jacobson was the top retail sales manager for Wells Fargo before leaving to become a paralegal specializing in foreclosure defense. She’s now the City of Baltimore’s key witness in its multimillion dollar predatory lending lawsuit against Wells Fargo.

Contact:

MFI-Miami
Stephen Dibert, President, 561-317-9978
steve@mfi-miami.com or www.mfi-miami.com