Nye Lavalle 10675 Pebble Cove Lane Boca Raton, FL 33498 561/860-7632 mortgagefrauds@aol.

com

October 9, 2011 Mr. Edward DeMarco Acting Director Mr. Steve A. Linick Inspector General Mr. Alfred Pollard General Counsel Mr. Stephen Cross Acting Chief Operating Officer (COO) and Deputy Director for FHL Bank Regulation FEDERAL HOUSING FINANCE AGENCY 1700 G Street 4th Floor Washington, DC 20552 RE: FHFA Office of Inspector General Reports AUD-2011-0041, September 30, 2011 and EVL-2011-0042, September 23, 2011 Gentlemen: By way of introduction, my name is Nye Lavalle3 and I am the shareholder/investor, referenced in the above reports that warned Fannie Mae’s board and CEO of foreclosure and legal abuses almost a decade ago. For over a year, I worked closely with Fannie Mae and Mark Cymrot of Baker Hostetler, who was the independent counsel appointed by Fannie Mae, to investigate allegations contained in my 2004 report.4 As such, as a concerned shareholder and citizen, I thought it would be prudent to open a direct line of communication with each of you for a variety of reasons. First, I do not know if Fannie has disclosed my name to you and each of the above facts. Second, I would like to shed the real facts and address holes in the reports that would by no means be the OIG’s fault, but perhaps a lack of candor on Fannie’s behalf.

                                                                                                               
1  http://www.fhfaoig.gov/Content/Files/AUD-­‐2011-­‐004.pdf     2  http://www.fhfaoig.gov/Content/Files/EVL-­‐2011-­‐004.pdf     3  http://en.wikipedia.org/wiki/Nye_Lavalle     4  http://www.scribd.com/doc/35680546/2004-­‐Report-­‐on-­‐Predatory-­‐Lending-­‐amp-­‐Servicing-­‐Practices-­‐amp-­‐

Their-­‐Effect-­‐on-­‐Corporate-­‐Compliance-­‐Conduct-­‐Ethics-­‐amp-­‐Accounting  .  

      1  

I want to share with you who else was warned; a series of possible next steps; and suggestions and ideas on how we can assist each other in attaining our respective objectives. I wish to share with you my prior research, reports, warnings, concerns, and issues, but most importantly, some insights and ideas that may assist this great nation of ours and the current and/or next administration remedy such abuses and make right from wrong for the American people we each seek to protect. To that end, this letter will share my experiences, thoughts, and recommendations and I stand ready to work with each one of you to make your agency, our nation, the GSEs, and the housing market stronger. First, I want to commend and applaud the work and effort by Mr. Steve Linick and his entire staff on the recent reports they have prepared and released. It took political courage and dedication for all involved to participate in these good deeds and work. I hope each member of your agency not only heeds the recommendations, but also works with Steve, his staff, and hopefully myself and a number of other fine advocates and lawyers, who are on the front lines, in eradicating this abuse. However, Steve and your agency’s work are far from over. There is rampant fraud and abuse that remains in the system, including new discoveries we unearth each day that pose serious operational, legal, compliance, and reputational risk to each GSE as well as the secondary mortgage market. To that end, attached with this letter or footnoted herein, you will find my prior reports and new evidence and testimony I stand able to provide at a moment’s notice. I welcome participating in any review, investigation, examination, and would be willing to provide affidavit, deposition, or even congressional hearing testimony at any time. However, let me clarify for the record facts that only a handful of people and I would have knowledge of. I am aware that at Fannie Mae, virtually the entire board was made aware of my allegations as well as executives for a number of years. I purchased one share of Fannie Mae and many other mortgage companies to highlight these abuses and frauds that I first discovered from 1989 to 1999. FANNIE MAE INDEPENDENT COUNSEL INVESTIGATION The only people I know who can comment on the investigation are Mark Cymrot and Ambika Biggs of Baker Hostetler who worked with me on my reports of securitization, servicing, and foreclosure fraud and abuse. My allegations were not only detailed in my report to the board, but the 2000 reports I provided to them that included Predatory Grizzly “Bear” Attacks Innocent, Elderly, Poor, Minorities, Disabled & Disadvantaged5 and 21st Century Loan Sharks.6

                                                                                                               
5  http://www.scribd.com/doc/25848869/Predatory-­‐Grizzly-­‐Bear-­‐Attacks-­‐Innocent-­‐Elderly-­‐Poor-­‐Minorities-­‐

Disabled-­‐Disadvantaged-­‐With-­‐Predatory-­‐Lending-­‐Scams-­‐Frauds     6  http://documents.jdsupra.com/197d1b59-­‐e33e-­‐47e0-­‐92b0-­‐d61992e9ed22.pdf    

 

2  

My concerns then were centered on these primary areas: • The GSEs, servicer, lenders and their law firms were intentionally concealing the identification of Fannie, Freddie, and FHLB’s ownership of promissory notes and loans; They were behind false lawsuit complaints, affidavits, and assignments of mortgages and deeds to create standing and authority to foreclose in MERS or the servicers’ names who claimed ownership of the promissory notes that I knew were supposed to owned by the GSEs; The ownership and use of MERS to cloud and conceal ownership of the notes, loans, chain of title, and claims by MERS to own and hold notes which I knew were owned by the GSEs; Duel and multi-pledging of promissory notes to multiple parties and lenders as well as pledging of the original notes by servicers for servicing advances that were owned by the GSEs; The claims of tens of billions, if not hundreds of billions, in alleged lost notes in foreclosure actions in Florida and across the nation; The failure to return the original “wet-ink” promissory note to borrowers when they paid off their note or refinanced with another note; The continued reporting, selling and pledging of original “wet-ink” promissory note from borrowers after they paid off their note or refinanced with another note; The effects of these actions had on the financial reporting, accounting, and books of the GSEs such as how were contingent liabilities regarding the lost and missing notes being booked; The tax and gift tax implications of “handing off” bearer paper notes to servicers and MERS who claimed ownership of the notes; The lack of a “true sale” and the financing of receivables and the effect of this in the GSE’s reporting; Financial engineering schemes used by servicers; Predatory servicing, securitization, and foreclosure practices; and Retaliation against advocates and victims.

• • •

In the 2004 report to Fannie and Freddie, I also drafted a set of servicing “best practices” that would remedy these known abuses. These were not isolated occurrences, but   3  

“industry-wide practices” that I began identifying in 1989 and documenting from 1993 to 2000. If not for a Dallas, Texas judge issuing a gag order on me in 1996, I would have started releasing my findings and reports then. MY REPORTS, WARNINGS, & FORECASTS Anyone at Fannie and Freddie as well as their servicers and the entire network of Fannie and Freddie law firms who claim they were not warned of such abuses for over a decade by me is simply lying. These reports were widely distributed by me to the likes of Gerald Shapiro of Logs; the partners of Barrett Burke; Stephen Baum; and the infamous David Stern. Paragraph 55 of page six of my 2004 report stated “furthermore, it poses additional liability to the mortgage pools since each and every loan that may go to foreclosure could raise affirmative defenses to the amount of the payoff and a wrongful foreclosure action or bring in the investors.” Paragraphs 63 and 64 stated “via conferences, attorney summits and vendor outings, members of the mortgage banking and servicing industries get together and conspire on how to keep information away from borrowers and their lawyers as well as how to support one another and destroy valuable evidence” and “the industry has created and put various industry players in business and adhere to a common set of underwriting guidelines, foreclosure practices, assignment and custody of mortgage loans.” The following are additional highlights from my 2004 report: 71. In the majority of cases, notes when required to be produced in judicial foreclosure states such as Florida are claimed to be lost, stolen or destroyed and the servicer claims to be the only owner of the note and the only one with a beneficial interest in the note or mortgage. 72. In reality, as evidenced via the document located at the industry’s MER’s web site under foreclosure at http://www.mersinc.org/Foreclosures/index.aspx [click on state of Fla.] the servicer acts as an agent for the investor in foreclosure and in bankruptcy proceedings and conceals the investor’s ownership. 73. Furthermore, the chain of assignments to the mortgage are often missing or are handled via the industry only electronic system call Mortgage Electronic Registration Systems located at http://www.mersinc.org/. MERS, which was created by Fannie, Freddie and the MBAA as well as is owned by the industry. 74. MERS refuses to give the public access to their records telling them who only services the note, but not who may have any beneficial interest in the note itself and other parties in interest to a potential lawsuit.

 

4  

75. In fact, Fannie Mae and MERS go to great lengths to hide and conceal the true holders in due course and the entity, trusts or owners of beneficial interests to the notes. Paragraph 82, I foresaw the following: “The threat is that in a case of a major collapse or bankruptcy of a Wall Street firm like Bear Stearns ala LTCM derivative crisis, systemic risk among counter parties to these transactions could make the market fall like a stack of cards.” At I reference before, at the 2000 National Consumer Law Conference in Broomfield, Colorado I released two white papers and reports. The first report was titled Predatory Grizzly "Bear" Attacks Innocent, Elderly, Poor, Minorities, Disabled & Disadvantaged and detailed Bear Stearns and its EMC Mortgage unit's predatory practices in the marketplace. The introduction of this report states “this report documents what is now known to be one of the largest predatory lending, servicing and financial scandals in America. The report documents and provides conclusive proof of widespread corruption, accounting fraud and abuse existing at Bear Stearns & Co., a major Wall Street investment bank and related subsidiaries.” EMC Mortgage who serviced loans for the GSEs was later found by the FTC to be in widespread violation of various consumer laws and abuses I detailed in my report and was fined $28 million. However, more pertinent predictive quotations in my report on Bear Stearns included: “This report also details what could be one of America's largest financial scandals ever, resulting from the development, placement and sale of various mortgage backed securities and ‘derivative’ products by Bear Stearns. “This report is the story of one of America's largest Wall Street investment bank's ‘direct’ involvement in the development, making, and support of a nationwide system of predatory lending practices, frauds and abuses.” “The effects of Bear's behavior has a wide range effect on many, not just the EMC customers being abused. This includes Bear Stearns’ own shareholders, investors, government and the public.” I predicted the effects of Bear Stearns’ actions on financial markets would include: (a) devaluing of various mortgage derivative products; (b) failure of major banks and wall street firms; and (c) reluctance of corporations, mutual funds and other investors to invest in legitimate mortgage backed securities. However, my most dire forecasts came from my second report (21st Century Loan Sharks) in which I foresaw the impending collapse of the mortgage and credit markets and the failure of major Wall Street firms and banks over their subprime mortgage investments. On pages 30 to 33 of my 21st Century Loan Sharks Report, I wrote: “The effects of a predator's behavior has a wide range effect on many, not just the borrowers being abused. This includes the predator's own shareholders, investors, government and the public. The effects of predatory lenders and the subprime mortgage market on these constituencies and the financial markets include: 1) devaluing of various mortgage derivative products; 2) failure of major banks and Wall Street firms; 3) reluctance of corporations, mutual funds and other investors to invest in legitimate mortgage backed

 

5  

securities; 4) increased government regulation and supervision; 5) illegal stripping of equity of customer's homes; 6) outcries from shareholders and constituents; 7) credit downgrading of mortgage backed securities; 8) reduced value and marketability of mortgage backed securities; 9) reduced stock and option prices; 10) elimination of jobs due to cuts and layoffs; 11) overpayment of false and fraudulent claims by federal government; and 12) increase in foreclosed and abandoned homes in communities across America.” Virtually each of my forecasts came true in the collapse of the international mortgage and financial markets that was precipitated by the collapse of two Bear Stearns hedge funds specializing in MBS products in the summer of 2007. As you know, in the fall of 2010, major U.S. lenders such as JP Morgan Chase, Ally Financial f/k/a GMAC, and Bank of America suspended judicial and non-judicial foreclosures across the United States over the potentially fraudulent practice of robosigning, a practice first identified and reported by me in 2000, but identified by me from 1993 to 2000. I am credited with first identifying and reporting on this the robo-signing abuse in the mid-nineties. Robo-signing is a term used by fellow advocates to describe the robotic process of the mass production of false and forged execution of mortgage assignments, satisfactions, affidavits and other legal documents related to mortgage foreclosures and legal matters being created by persons without knowledge of the facts being attested to. It also includes accusations of notary fraud wherein the notaries pre and/or post notarize the affidavits and signatures of so-called robo-signers. On page 2 of my 21st Century Loan Sharks report, I wrote “well-known banks and mortgage companies in Florida are lying and providing perjured testimony, false affidavits and frivolous pleadings in cases involving mortgage foreclosure to courts in Florida.” On pages 27–28, I described several robo-signing practices including the: • “filing of fraudulent and false affidavits by predatory lenders claiming that they own the note when in fact they are only the servicer;” “filing of fraudulent and false affidavits by predatory lenders claiming that they lost the note when in fact they never had control of the document;” “filing of fraudulent and false affidavits by predatory lenders claiming an indebtedness that is not owed;” “filing of fraudulent and false affidavits by predatory lenders claiming amounts owed that are non-recoverable from the borrower;” “filing of fraudulent and false affidavits by predatory lenders claiming control and custody of documents that are not in their control and custody;”

• •

 

6  

“filing of fraudulent and false affidavits that claim to support knowledge of facts not known by the affiant;” “supporting motions for summary judgment with fraudulent and false affidavits;” “using corporate dummies as corporate reps that are trained to avoid questioning and obstruct justice;” and “witness tampering.”

• •

In a follow-up report I authored in 2008, titled “Sue First, Ask Questions Later,” I detailed the wide-scale practice of robo-signing in the mortgage servicing industry. On page 1 of the report I state “one of the many predatory servicing practices developed was the use of known false, fraudulent, and forged affidavits, assignments, and satisfactions of mortgages.” On page 5 of the report, I state that I reviewed over 10,000 assignments of mortgages, powers of attorneys, affidavits, and satisfaction of liens in public records across the nation that resulted in the following findings: • That servicers, default servicing outsourcers and their lawyers are forging documents with “squiggle marks” that are not the marks or signatures of the actual officer that is notarized to be the signatory; Squiggle marks with “initials only” are designed so that anyone can sign an officer’s or vice president’s signature, instead of the signatory; Dozens of variations of a squiggle mark that are consistently different than several or a dozen other squiggle marks of the same signatory, notary, and/or witness to the document; Squiggle marks and full signatures that are diametrically opposed to the known signature of the signatory; The same “officer” or “vice president” of a bank or lender being an officer and/or vice president for dozens of other banks and lenders; The same “officer” or “vice president” of a bank or lender signing and being located in various cities across the United States; The named “officer” or “vice president” of a bank or lender being a notary public or witness on other identical assignments, affidavits, and satisfactions; Pre-stamped assignments and notary signatures on assignments, affidavits and proof of claims; Second page notarizations that are attached to documents that do not conform in type and style to the first page of the document; 7  

 

• •

Automated signatures on computer of “both” the notary and the signatory; and Backdating of dates on assignments and signatures of officers dating years after a company has been out of business or gone bankrupt.

A Washington Post article about the robo-signing foreclosure crisis on October 7, 2010, concluded with my warning to the industry when the Post wrote “several years ago (2003), on a message board still active on the MERS Web site, one participant (me) accused the company of participating in fraud and concealing the transfer of loans from public scrutiny.” “The company's president and chief executive, R.K. Arnold, responded by insisting that MERS actually increased the transparency of the mortgage system and reduced the cost of homeownership by making the industry more efficient.” “We're not perfect,” Arnold wrote, “but there's nothing sinister about who we are and what we do.” Each of these reports and continual e-mail, document, and phone warnings by me were made to Fannie, Freddie, OFHEO, and other regulators. However, most importantly I provided the reports to the heads of the law firms in each network, the CEOs and board of major banks and servicers, individual lawyers in each GSE’s “network,” accounting firms, especially Deloitte, each of the ratings agencies and virtually every intermediary I and other advocates could find. FACTS RELATED TO OIG REPORTS CONCERNING FANNIE COUNSEL REPORT I do not know what information the OIG had at his disposal, but knowing of Fannie’s culture and that of their servicers and law firms, I am sure that all information was not forthcoming and that some may have been subject to spoliation. To that end, let me share with you my knowledge of the investigation. First, you may wish to order Fannie and Freddie to retrieve from their systems ALL communications, documents, and data that reference my name, Nye Lavalle or Aneurin A. Lavalle as well as my email address, mortgagefrauds@aol.com from 1996. You may also wish to order that Fannie and Freddie seek the same information from each agent, servicer, vendor, and law firm they employ. This would be especially true of Baker Hostetler and while communication between Fannie and Cymrot may be privileged, my communications certainly are not and you have my permission to retrieve all of my documents and emails. I contributed many suggestions on best practices and operational procedures to be followed that Mr. Cymrot at Fannie’s behest had asked me to contribute to new policies Fannie was to implement after the report. Initially, I was promised a copy of the final report for my comments, additions, and edits, but this promise was not kept in the end and my requests for the report were met with deaf ears.

 

8  

I was also informed that Armando Falcon and others at OFHEO at the “highest levels” were not only aware of the report, but monitoring its progress. Thus, there is a major question of fact here as to who was aware of Cymrot’s report at OFHEO. I also copied a number of emails to officials at OFHEO. Cymrot asked me to provide a listing of firms in Florida and around the nation that included each member of Fannie and Freddie’s network. The report was also sent to Freddie’s board who responded that they received the report, but failed to act and investigate my allegations as Fannie had. You should seek the same info on my name and email from Freddie. Allegations did include so-called “robo-signing” practices, but in reality, this is just a symptom of a much larger problem in transparency in accounting and financial reporting. The concerns provided above, were also provided to Fannie, Freddie, and Mr. Cymrot. Obviously, he focused in on the “missing note” issue and false pleadings in Florida, but to what extent, I cannot comment on since the promised report was never provided to me. If you can provide me the report either via an FOIA request or under a confidentiality agreement I would be willing to execute, then I would be willing to dissect the report and give you my analysis of its findings compared to my warnings and contributions to the report. Mr. Cymrot also told me of a couple of disturbing facts. First, he told me that Fannie had a system of “destroying original wet-ink promissory notes” and that he was “comfortable” with their procedures and practices in that regard. I was and am still disturbed by that fact. He also informed me that except for 14-states, it was not required by law, to return the original wet-ink promissory note executed by the borrower when they paid off or refinanced their loan. Fannie’s board and CEO as well as that of Freddie also refused to answer a few simple questions that I had posed to them and the CEOs and boards of other Wall St. firms and banks. These questions included: • Can Fannie/Freddie or any bank, sell, pledge, trade, or hypothecate an original wet-ink promissory note after its been paid off or refinanced with another note? Does Fannie/Freddie or any bank, sell, pledge, trade, or hypothecate an original wet-ink promissory note after its been paid off or refinanced with another note? Is a borrower entitled to the return and cancellation of their original wet-ink promissory note after its been paid off or refinanced with another note? Will Fannie and Freddie agree to the return and cancellation of a borrower’s original wet-ink promissory note after its been paid off or refinanced with another note?

 

9  

Why are ALL wet-ink notes via Fannie and Freddie’s policy endorsed in Blank and not directly to Fannie and Freddie? Under what circumstances and why would Fannie or Freddie ever intentionally destroy promissory notes?

To date, I’m still awaiting answers to these questions and perhaps you each can secure the answers for me since I feel they are vital to our mutual concerns and understanding of Fannie, Freddie, and the FHLB’s business practices. DEFINING ROBO-SIGNING & ITS IMPLICATION IN MORTGAGE PROCESS As the person to identify the robo-signing practice and its effect on the legal process, I shared a definition with fellow advocates and the lawyers here in Florida who coined the term and the advocates who exposed it the masses. My group included Max Gardner, April Charney, Dan Junk, Jacqulyn Mack, Matt Weidner, Tom Ice, Lynn Szymoniak, Lisa Epstein, and Micheal Redman. We agreed upon the following definition: Robo-signed documents are indicia of fraud when used in the conveyance of property or securitization, servicing, and foreclosure of mortgages. The term “robo-signing” describes a number of manufacturing line type processes utilized in the creation, execution, witnessing, and notarization of legally necessary property, foreclosure, and bankruptcy required paper documents; e.g. notices of default, foreclosure complaints, notices of sale, assignments of mortgages and deeds of trust; satisfaction of mortgages and deeds; promissory note endorsements and allonges; affidavits of lost notes; affidavits of the amount of the indebtedness; affidavits of the amount of the alleged default in mortgage payments; and other legally required property and mortgage-related paper documents. Robo is short for the robotic steps and processes that are controlled, directed, and automated by computer programs that contain formulas, database fields, and algorithms, many of which have been patented by foreclosure law firms, banks, servicers, and their vendors. The paper documents are executed by persons who lack the requisite authority, facts, personal knowledge, history, data and information that is otherwise required by legal regulations and evidentiary rules in both State and Federal Courts; or wherein signatures are placed on such paper documents using inanimate digital signature application software and autopens, laser printers, and photocopy machines; or wherein surrogate signers execute and place the marks or signatures on behalf of other designated authorities and have such signatures notarized as if that person was present.

 

10  

Using this definition, there are serious legal implications that will continue to plague the GSEs, their servicers, and lawyers in the foreclosure process since robo-signing is the “most human interaction” that goes into the “patented” default servicing models that the GSEs and their servicers program into their systems. Simply, there is little transparency and the speed and sophistication of the computers, algorithms and financial products that were not only created, but even patented, create a black Pandora’s Box of financial alchemy that is not only destroying borrowers, investors, and the U.S. economy, but each of the GSEs and U.S. taxpayers. Some may wish to obfuscate the process with additional layers of opaque frosting in a web of interconnectivity, or we can open the box and get to simple documents that prove ownership of a note and a clean chain of title for borrowers, the GSEs, and the Courts. Due to the prior decades-old industry-wide processes, nothing a servicer or foreclosure mill law firm places on a “piece of paper,” in a pleading, affidavit, assignment, satisfaction, or complaint cannot be accept as real, accurate, and truthful without a forensic examination of known records to exist in the GSE’s various “patented” computerized systems. THE GSE’S ROLE & RISK IN MARKETPLACE The purchase of a home is typically the largest investment a person will make. Because most Americans do not have the amount of money necessary to purchase a home, most homebuyers cannot buy a home outright on a cash basis so they take out a mortgage loan. In addition, homeowners who have already purchased a home may wish to refinance their home. Therefore, potential homebuyers consult lenders such as banks, credit unions, mortgage companies, savings and loan institutions, state and local housing finance agencies, and so on, to obtain the funds necessary to purchase or refinance their homes. These lenders offer mortgage products to potential homebuyers. The lenders who make (originate and fund) mortgage loans directly to homebuyers comprise the “primary mortgage market.” When a mortgage is originated in the primary mortgage market, the lender can: (i) hold the loan as an investment in its portfolio, or (ii) sell the loan to investors in the "secondary mortgage market" (e.g., pension funds, insurance companies, securities dealers, financial institutions, and various other investors) to replenish its supply of funds. The loan may be sold alone, or in packages of other similar loans (i.e. “pools”), for cash or in exchange for mortgage-backed securities (MBS) which provide lenders with a liquid asset to hold or sell to the secondary market. By choosing to sell its mortgage loans to the secondary mortgage market for cash, or by selling the mortgage-backed securities, lenders get a new supply of funds to make more home mortgage loans, in order to offer homebuyers a continual supply of mortgage credit. By  obtaining  favorable  funding   through  pooling  many  individual  mortgages,  the  mortgage  originator  may  be  able  to   offer  competitive  interest  rates  on  mortgages  for  its  customers

 

11  

The  mortgage  loan  from  the  originating  lender  produces  both  a  principal  return  and   an  interest  stream  of  income.    Individual  mortgages  may  be  pooled  and  the  interest   stream  from  the  mortgages  may  be  bundled  to  create  mortgage-­‐backed  securities   which  may  be  sold  by  the  mortgage  originator..     As  mentioned  above,  mortgage  originators  typically  have  two  choices  with  regard  to   issued  mortgages.    The  institution  can  hold  the  mortgage  in  a  portfolio  or  it  can  sell   the  mortgage  for  securitization.    When  it  holds  the  mortgage  in  a  portfolio  (i.e.   “portfolio  loan”),  the  mortgage  originator  must  hold  the  interest  rate  risk  involved   in  the  mortgage  portfolio.    If  interest  rates  increase,  the  mortgage  originator  risks   incurring  higher  funding  costs  on  the  mortgages,  the  revenues  from  which  are   locked  in  at  a  lower  interest  rate.    Additionally,  regulatory  capital  requirements  may   discourage  portfolio  lending  since  a  mortgage  originator  might  have  to  hold  twice  as   much  capital  against  a  whole  loan  as  it  does  against  a  mortgage  backed  security,   thereby  requiring  twice  the  net  return  to  achieve  the  same  return  on  equity.    A   mortgage  portfolio  owner  also  has  an  options  risk  since  mortgagees  may  prepay  the   principal  more  rapidly  than  expected.     As  an  alternative  to  holding  mortgages,  most  mortgage  originators  sell  many  of  the   mortgages  they  originate  into  the  secondary  market.    Today,  due  to  current  market   conditions,  the  primary  purchasers  of  mortgages  are  the  GSEs  with  Federal  National   Mortgage  Association  (Fannie  Mae)  and  the  Federal  Home  Loan  Mortgage   Corporation  (Freddie  Mac)  being  the  two  largest  purchasers  of  home  mortgages  in   America  today.    In  this  process,  the  originating  lender  pays  a  guarantee  fee  to  the   GSE.     The  guarantee  fee  is  paid  by  the  mortgage  originator  to  either  Fannie  Mae  or   Freddie  Mac  to  take  the  credit  risks  associated  with  the  mortgage.    The  guarantee   fee  is  typically  calculated  as  20-­‐25  basis  points  of  the  outstanding  principal  on  the   mortgage.    The  payment  of  the  guarantee  fees  results  in  a  lower  capital  requirement   but  provides  a  lower  profit  to  the  mortgage  portfolio  seller.    Mortgage  originators   also  obtain  funds  to  finance  a  mortgage  they  own  from  a  funding  institution  such  as   one  of  the  twelve  Federal  Home  Loan  Bank.     However,  due  to  intense  competition  for  mortgage  loans  and  the  high  cost  of   managing  interest  rates,  the  return  on  holding  mortgage  loans  is  often  not   acceptable  and  the  loan  is  sold  into  the  secondary  market  as  described  herein.     Typically,  when  a  seller  delivers  a  loan  to  a  purchaser,  the  pricing  and  any  errors  or   ineligible  terms  in  loan  data  of  a  delivered  loan  are  only  determined  after  the  loan   has  been  submitted  to  the  purchaser.    As  a  result,  the  seller  does  not  know  the  exact   price  for  the  sale  of  the  loan  until  after  deciding  to  submit  the  loan  to  the  purchaser.     The  sellers  and  purchasers  believe  that  it  is  inefficient  for  them  to  become  aware  of   errors  in  the  submitted  loan  data  after  the  loan  has  been  submitted.    Thus,  the   purchaser  may  delay  accepting  and  funding  the  loan  until  such  errors  are  resolved.     12  

  Since  we  know  that  the  vast  majority  of  loans  have  been  sold  into  the  secondary   market,  claims  now  that  lenders  “held  loans  in  their  portfolios”  are  also  patently   false  and  fraudulent.    Thus,  such  claims  are  requiring  additional  forensic  data,   financial,  and  accounting  exams  by  borrowers  and  their  lenders.       CONCERNS  &  RISKS  TO  GSES,  BORROWERS,  FHFA,  TAXPAYERS  &   MARKETPLACE     The primary legal challenge and issue plaguing the nation’s courts and the GSEs should be a relatively simple thing to fix. It involves the lawful standing and authority to foreclose on a borrower’s home. The servicers follow, use, and adapt the industry-wide “servicing practices” and guidelines adopted by Fannie Mae and Freddie Mac. There are only minor variances in the servicer’s servicing practices and most adopt Fannie and Freddie’s lead. This is why changes to the GSEs servicing guidelines, mandated by the FHFA, would be a virtual tsunami in the default servicing world for even after robo-signing scandal, there have been few changes in the default servicing and secondary mortgage markets. The major change is that the GSEs have taken on the primary share of new mortgages issued in the last couple of years, as the private label securitization market has become virtually frozen. This presents great financial, operational, legal, compliance, and reputational risk to the GSEs now and in the future. The servicers and their abusive and fraudulent foreclosure, servicing, and securitization practices must be checked and the GSEs along with the FHFA are in the best position to do so. Robo-signing is merely a “symptom” of a much larger disease. Our nation’s leading banks, if forced to truly mark their assets to market would be insolvent. The nation’s banks are plagued with overleverage, legal liabilities, underwater LTVs, and questionable financial reports. This is a pure recipe for financial engineering scheming and accounting fraud whereby trillions of dollars in blank endorsed promissory notes that have been turned into bearer paper can be allegedly pledged, sold, or traded for advances, loans, and other financings. The GSEs document custodial practices and policies allowed and continue to allow fraudulent accounting and foreclosure abuses. This was evident in the Taylor Bean Whitaker scandal with Freddie Mac. I have in my personal possession, evidence of multi-pledged and sold notes by originators. In one case, Freddie Mac is the owner. In another situation, a Wells Fargo officer informed me and a judge in Las Vegas that Wells Fargo “always owns the mortgage while Freddie Mac owns the note!”

 

13  

In another case I am aware of, that was settled with a servicer writing off a note owned by a GSE, the borrower received escrow statements reflecting tens of thousands in transactions for the prior year, two years after the note and mortgage were alleged to have been satisfied and paid off in full. In another case, a borrower who had issues with his servicer was attempting to payoff his loan in full when the note was transferred. He was not in default and he had the cash to payoff the note. In fact, he paid off his second mortgage at a 20% haircut. When paid off, the servicer claimed in a lost note affidavit and letter that his note was lost and would not be returned, but they gave him a lien satisfaction. Then, attached with the same letter and affidavit, he received the actual wet-ink original note that the affiant said was lost. The crazy part is the affiant and endorser were one in the same and the note was canceled days before by the same person before she attested to the affidavit. With such a circumstance, he sought the same deal from what he thought was his lender, since many borrowers, due to the intentional acts of the GSEs and servicers, have thought for decades that their servicer was their lender. The loan was then sold to Countrywide. When he contacted Countrywide, they informed both he and me in a phone call that Countrywide owned the note. He then made the same offer he had received from the prior servicer to Countrywide who said they would get back to him. When they got back to him, it was not with an offer or haircut, it was with a foreclosure notice. After trying to get to know who his owner was, it was only after Fannie started listing loans on its website that he found out (actually I found out) that we learned Fannie was the owner of his note. He then sends Fannie Mae’s CEO a letter explaining the situation along with not one, but two checks! One check was for the full payoff of his note on the date a year or so prior from when he sought to payoff his note and the other was for a haircut for release of all legal liabilities to all parties. They returned both checks and this case is now in Federal Court. Then, the servicer goes forward with a non-judicial foreclosure in which the borrower then shows up and buys his home back on the steps of the Courthouse for tens of thousands less than he offered a year earlier and sent in checks for. Now, Fannie and the servicer still have the liability for additional damages. This is simply crazy! In another case, a well-respected family who was hoodwinked by an unscrupulous employee of SunTrust into taking two loans out at the same time for two properties, got turned down for a very reasonable short-pay offer on their home which now the servicer admits they should have accepted. In one more case, a former lawyer in Georgia was told that CitiMortgage owned his note and mortgage and then Freddie Mac showed it owned his mortgage and loan. This has led to various lawsuits when the original dispute started with CitiMortgage and ABN Amro’s manipulation of his escrow accounts and servicing records.

 

14  

In my family’s own case, all we ever wanted to do is payoff our legal obligation to our alleged lender to the penny and get our note returned to us paid in full. The servicer, Savings of America, who claimed to own the note, was off by $18,000 on a $100,000 approximate balance that was owed. When we got servicing records, year-end balances were thousands off the beginning year balances and the old dot-matrix histories contained whiteout and IBM Selectric typeovers. Instead of meeting me to resolve these issues, they and Bear Stearns spent over $2.5 million in litigation against my family and I to silence me and what I had learned about the entire default servicing industry which is as follows. #1 - - Banks Can’t Count Years ago when a person thought they had a problem with their bank account, there was a standard response and old adage that the consumer must be wrong because “banks don’t make mistakes.” This is true! Research of mortgage banking and servicing practices clearly shows that the mortgage industry and banks don’t make mistakes. They know exactly what they are doing, often time ignoring or in many instances covering-up sophisticated Enron-type accounting practices. While mortgage accounting should be an exact science that’s quite simple -- one plus one equals two and two plus two equals four -- often times it’s a complex weave of deception and fraud. Sophisticated computer systems in the wrong hands can manipulate numbers, formulas, and calculations to a borrower’s detriment. However, borrowers aren’t the only ones affected. Such abuses affect us all. One only has to look back a little over twenty years ago and examine the Savings and Loan crisis of the late 80s and early 90s that cost U.S. taxpayers over $150 billion. Money that could have reduced taxes for Democrats and Republicans alike or paid for needed government services, military or reduced the cost of prescription drugs for the elderly. Instead, billions of dollars went to enrich white-collar criminals in Texas, California, Arizona, and other states. These same criminals are robbing Americans and America again as the recent financial crisis has cost this nation trillions in wealth, property values, lost income, and bailouts. However, the preferred tools of these crimes are not a gun or knife, but computers, sophisticated accounting programs, analytic models, phone wires and the mail. Despite advanced sophisticated computer accounting and servicing systems, the banks have admitted to mistakes. The only problem is that as a social researcher, I understand statistical probabilities and margins of error that should be a point or two or much less. However, when analyzed, and the bank’s so-called “errors” inure to the benefit of the servicing bank, 99.999% of the time, it’s not a mistake, but a carefully planned financial engineering scheme.

 

15  

As you see, banks and mortgage companies in reality are very “calculating.” Have you ever heard the expression, he or she is very calculating? In this use, the term is not a positive one. Today, far to many bankers, CFOs, major accounting firms and Certified Cash Managers have reverted to the negative connotation of this term. They are calculating, but in a negative fashion. They simply calculate risk and cost vs. reward and liability, knowing that as of today, 95% of people being foreclosed upon don’t show up to fight and those paying off their mortgages, don’t audit the payoff figure. This is pure profit to the servicers. According to a study by MACC-TRAC, several years ago, a national firm completed an extensive audit of loans serviced by a major sub-prime lender. A total of 43,205 residential mortgage loans were thoroughly analyzed and audited for computational accuracy and quality assurance. The pool of residential loans audited consisted of 23,011 adjustable rate mortgages (ARM) and 20,194 fixed rate mortgages (FRM). The percentage of ARM loan servicing errors that created both undercharges and overcharges was 56.90%. Fixed Rate servicing discrepancies affected 49.23% of the loans. Of the discovered discrepancies, 30.14% of the total population had errors that generated borrower overcharges; 13,022 homeowners out of 43,205 had refunds due. The highest single overcharge was $21,108.62. Yes, $21,108.62! What’s most troubling is that the average seasoning (age) of these loans was only three years. The average original loan amount was $78,598 with average balance at time of audit $76,645. The frequency and magnitude of the so-called errors discovered is compelling evidence of the value and importance of critical, computational loan auditing that many mortgage servicers and Wall Street investment banks ignore. Claimed errors in Fixed Rate product were nearly five times the auditing firm’s statistical average from other engagements and almost double the firm’s average for ARM products. The company who engaged the auditing firm did the right thing for its customers and its shareholders. The problem however is that many mortgage servicers and Wall Street investment banks are afraid of the liability and what they might find if an audit is conducted. They intentionally shy away from such detailed due diligence for fear that results may open them up to future lender or shareholder liability. Original plans of this company were to continue the audit for a remaining 250,000 loans. However, the company was purchased by a major bank that elected not to pursue the audit program. If the statistics from the initial audit pool were applied to the 250,000 loans not audited, speculation would be that over 75,000 borrowers have been or continue to be overcharged by this single institution. Unfortunately, many loan servicing enterprises simply choose to deny that they may or do have a problem. Quality control generally consists of manual review of loan documents for one of every ten loans and few actually institute a diligent computational audit. In the mortgage servicing and mortgage backed security market, accounting is like horseshoes and hand grenades, close is OK!

 

16  

This is possible because banks know that borrowers are so happy to get financing, close the deal, or get keys to new home that they never analyze OR audit the closing papers and payoff figures. Banks often misapply payments; put funds into suspense accounts; accrue late fees, inspection fees and other non-recoverable advances; and even use the wrong interest rate and amortization schedules. To prove my point, several years ago, the GAO estimated error rates in servicing ARMs to be 25% to 35%. The Wall Street Journal in 1994 cited 68%. One auditing firm I interviewed said their experience is 30% on average with high of 90% and low of 15%. Borrowers only have a one-year statute of limitation to identify the issues. Sometimes, even BPOs and appraisals are conducted after the purchase of the property to determine the property’s value and if the LTV is upside down or not. These financial engineering schemes are not in compliance with the law and over represent the payoff figures provided. Payoffs often contain non-recoverable advances that accrue and ONLY dump at payoff, foreclosure, refinance, or bankruptcy as well as intentionally miscalculated principal balance and escrow payoffs that were intentionally and "financially engineered" to fraudulently increase profits, cash flow, revenue etc... I have seen payoffs off by thousands and tens of thousands to over $250,000 with the case of a major retail company we all know of. This is done due to the fact that the banks know that few, if any borrowers, audit the servicing histories prior to payoff to see if the proper applications of payments were applied in the right order as well as if the payments were properly amortized according to the note's provision. In order to address this issue, “servicing audits” or as minimum “testing” of varying degrees should be done on every loan once a year and especially in advance of any payoff or refinancing of the property or by any affiant executing an affidavit in support of summary judgment in a foreclosure case. Simply taking principal balance, interest, principal, late fee, escrow, and advance numbers placed by other parties off a computer screen and system run by thirdparty vendors and placing them into a blank space of a template affidavit, as is the industry practice, does not meet the necessary evidentiary standards required to foreclose on someone’s home and property in this nation. One issue for the GSEs is that they are overcompensating the servicers in that the servicing fee is typically calculated based upon a % or basis points of the outstanding principal balance. If the principal balance is not amortized and reduced appropriately, then both the borrower and GSE is overcharged. #2 - - Banks Can’t Account As shown, time-and-time again, banks and servicers can't tell you who your actual and lawful lender is. They can't account for chain of titles, payments, calculations, escrow

 

17  

payments, original notes, all unrecorded assignments created; proof of payment for notes; proof of ownership, possession, and control of a borrower’s note etc. They intentionally conceal records and accountings so borrowers and their lawyers can’t prove their frauds. Simply put, they can’t prove they have a right to foreclose, cancel a borrower’s note and release their mortgage and lien etc. Think of this, when was last time any of you received your original wet-ink note stamped canceled and paid in full? If you don't receive it, under the HDC theory, even if you paid it off, you're still on the hook for payments to another party if that note was not property returned, cancelled and paid in full. A must read is a recent report7 of a three-month investigation by Rupert Murdoch’s conservative New York Post. Post journalist, Catherine Curan, wrote on August 13, 2011: “the banks still just don't get it. In a staggering 92 percent of the claims brought by creditors asserting the right to foreclose against bankrupt families in New York City and the close-in suburbs, banks and mortgage servicers couldn't prove they had the right to kick the families out on the street, a three-month probe by The Post has shown. But that didn't stop the banks from trying. By robo-signing documents and pressing foreclosures without the proper paperwork, banks have attempted to steamroll their way over sometimes-outgunned homeowners, The Post has uncovered.” Increasingly, especially with wealthy borrowers who can afford the expenses and costs involved, due diligence experts are being retained to validate and review mortgage documentation to determine the true lender and any holder in due course. This is especially true of wealthy borrowers whoa re upside down to the tune of millions on their properties. As illustrated by the following decision of the Georgia Supreme Court, borrowers are responsible for conducting such due diligence. Anyone’s refusal to act upon such requests or hiderence of such requests could be constrused to be tortious interference with various contractual relationships. For example, recently we have offered to pay several servicers and their trustees $2500 to put a package of information together for our experts review at any location in the U.S. After refusing, they can’t even provide copies of a general ledger and its corresponding schedule of loans to reflect ownership of the note. Due to many warnings by me and others, it may very well be that one motive for the GSEs refusing to acknowledge ownership of various assets and notes and identifying the pools and their investors in litigation is the inability to establish holder in due course status. It could be successfully argued that the GSEs had knowledge of all the servicing and origination fraud.

                                                                                                               
7  http://www.nypost.com/p/news/business/house_of_cards_hNdx5fNGt6oOl1U9mTW0HN#ixzz1V7KSkSWR    

 

18  

In C. W. GROOVER v. Erick PETERS, No. 28379 the Georgia Supreme Court who stated “that the borrower must be as careful in repaying the debt as the lender presumptively was in making the loan.” The relatively simple decision follows: “The maker of a negotiable note and security deed must determine at the time of payment whether the payee is the holder of the instrument or the authorized agent of the holder in order to protect himself against liability for double payment. If the original grantee has assigned the instrument to another, who is a holder in due course, the burden rests with the maker to determine same and pay only the holder or his authorized agent… The long and short of the matter is that the borrower must be as careful in repaying the debt as the lender presumptively was in making the loan.” [emphasis added] Thus, every borrower in the state of Georgia should be entitled to not only question, but demand from the GSEs and each servicer, the necessary documents, data, and evidence they and their experts require to meet the requirements that “the borrower must be as careful in repaying the debt as the lender presumptively was in making the loan!” if you think of all of the forms, applications, and paperwork a mortgage in Georgia or any state requires and then compound that with the GSE’s complex securitization and delivery systems, agreements, and data, then in order to determine HDC, and who should be lawfully paid, a review of such data and paperwork, or the word or assurances of a GSE or servicer, is not only required, but mandated by current market circumstances. No knowledgeable real estate attorney practicing today would, could, or should advise a client to payoff a note without conducting the necessary due diligence to insure clear and marketable title to their property; satisfaction of their lien by its lawful lender; and return and cancelation of the note by the lawful lender and holder in due course, if any. #3 - - When Caught, Banks Lie, Cheat, Fabricate & Destroy Evidence And Provide Perjured Testimony As evidenced by all of the recent consent orders, your reports, press and media reports, my reports, and court rulings, banks and servicers make up pleadings, assignments, affidavits, and forge documents and they can't testify to anything. You can NEVER BELIEVE ANYTHING A BANK SAYS AND PLACES ON PAPER in this business at face value. You must distrust everyone and make every one prove what they say. I created a takeoff on an old Regan motto. YOU MUST DISTRUST AND VERIFY, VALIDATE AND PROVE EVERYTHING A BANK SAYS OR PLACES ON PAPER IN RECORDS AND TESTIMONY!!!

 

19  

I have reviewed thousands of cases and the mantra of the banking and servicing industry is to create fraud and do everything they can to cover it up and destroy the borrower at any cost in complete violation and willful blindness of the law and corporate ethics and governance policies. PRELIMINARY  SOLUTIONS  &  RECOMMENDATIONS     As I mentioned at the beginning of this letter, I am offering my assistance to assist you each remediate a very broken process. The primary legal challenge plaguing the nation’s courts and the GSEs should be a relatively simple thing to fix. It involves the lawful standing and authority to foreclose on a borrower’s home. The servicers and GSEs have for years created a fraudulent foreclosure system across America by having the servicers conceal their roles as servicers and pretend to be the real lenders and owners of a borrower’s promissory note. We must stop all such references and demand that following procedures be followed. GSE NOTE OWNERSHIP IN FORECLOSURE Foreclosure Pleadings & Notices First, as for pleadings in judicial foreclosure cases, the following procedures should be made policy: 1. All GSE foreclosures should list as Plaintiff the actual GSE and its relationship to the note. For example, if a Fannie Mae securitization, JPMorgan Chase as servicer and agent for Fannie Mae, trustee of Fannie Mae Trust 2011-123; 2. The capacity of each party should be specifically pled; 3. The chain of title and dates each note was purchased and endorsed should be contained in the pleading as Lender A sold and then endorsed the borrower’s note on X/X/2011 to Lender B who then sold and then endorsed the borrower’s note on X/X/2011 to Fannie Mae (Lender C) who then endorsed the borrower’s note on X/X/2011 Trust (Lender D) as trustee. 4. Pursuant to a trust agreement located at www.xxx123.com, Fannie Mae acts as trustee for the trust. 5. Pursuant to a pooling and servicing agreement located at www.xxx123.com, JPMorgan Chase acts as servicer for the trust. 6. Exhibit A is a certified and authenticated copy of the borrower’s original wet ink promissory note containing all endorsements on the face of the note.

 

20  

7. Exhibit B are certified and authenticated copies of each check or wire transmittal used to pay for the purchase of borrower’s original wet ink promissory note from Lender B from Lender A; from Lender C from Lender B; and from Lender D from Lender C. 8. Exhibit C are certified and authenticated copies of the general ledger and books of the trust reflecting the borrower’s note as an asset or note receivable of the trust. 9. Exhibit D is a certified and authenticated copy of the corporate resolution of the Fannie Mae board authorizing JPMorgan Chase and its following officers to act as agents and attorneys-in-fact for Fannie Mae. In non-judicial foreclosure states, the below referenced recommendations for assignments should be utilized and the advertisement and notices should list the GSE as the entity foreclosing via an agent or address in c/o the servicer. However, the notice should conform to law. For example, in the state of Georgia, both the secured creditor must be listed and, as such, the trust should be referenced. Also, the party able to modify the terms of the loan must be listed which would be the GSE. Such procedures would insure and prevent a number of problem areas. First, it would be nearly impossible for servicers and lenders like TBW to multi-pledge or claim ownership of GSE notes and assets. Second, it would limit legal liability and costs to the GSEs for claims of unlawful foreclosures and fraud. Third, the cost, expense, and time taken to “get it right” from the beginning would reduce legal fees and expenses in contested foreclosures and reduce foreclosure timelines in each state dramatically. Fourth, it would reduce claims of clouded title. Fifth, it would force lawyers and borrowers into quicker settlements, deeds in lieu, modifications etc. Note Endorsements & Allonges This is the real scandal that no one is owning-up to and admitting. I believe that the FHFA and GSEs are aware of this vast problem. This was the original problem I brought to the attention of the Fannie Mae and Freddie Mac boards and CEOs. The GSEs mandate that every original wet-ink promissory note delivered to it by originating lenders be endorsed in blank. The policy towards allonges is another recipe for fraud. The following recommendations will prohibit or severely limit accounting and foreclosure fraud as well as legal challenges and losses to the GSEs. First, all intervening endorsements in the chain of title must be placed on the note as close to the date of ownership as possible. A national registry (perhaps MERS), available to the GSEs, borrowers, investors, and regulators should be established in which each transfer of a borrower’s promissory note is tracked and made transparent for all to see. Each endorsement must also be dated on the date endorsed.

 

21  

As for allonges, they should be prohibited in all cases unless there is no longer any space left on the face and then the back of the original wet ink note for endorsements, if backs are to be allowed. The allonge must be dated and reference the amount of the promissory note and conform to all recent court decisions. A approved method for permanent attachment of the allonge to the wet-ink note should also be developed such as a special permanent glue with embossing or wax seal upon the allonge and glue so that the allonge cannot be removed without evidence of tampering. Stapled and fasteners are not acceptable or applicable methods for permanently affixing an allonge to a note. To illustrate my concern, in a former Countrywide facility outside of Tampa, Florida (now BAC), I have interviewed employees who inform me that many notes then and now, are sent to the processing facility for imaging that contain endorsements in blank as their standard practice on an unattached allonge so they can be scanned into the system. Any “auto” scan or copy of an allonge and note is prima facie evidence of note and allonge removal and tampering and the substitution of endorsements in order to recreate or “remediate” known document issues and missing or intervening assignments and endorsers. Assignments & Satisfactions of Mortgages We should endorse all notes and file all assignments. The policy of not recording assignments is not only a silly one, but a nefarious one and only leads to further questions and additional legal liability. Why in the world would a real and legitimate lender not want the world to know it owns a particular asset? Hiding and concealing assets is something that money launderers, white-collar criminals, and racketeers do, not government sponsored entities. If agents, vendors, and servicers are to prepare, execute, and fie such documents, then the assignment should reference the POA and other documents evidencing authorization for such execution in the County records of the borrower’s property. However, my key recommendation is that such assignment be filed as soon as “humanly” possible after the purchase and endorsement date of the note. In all cases, full signatures, as they appear in each signatory’s license or notary application should be placed upon such documents. As for satisfactions, if agents, vendors, and servicers are to prepare, execute, and fie such documents, then the satisfaction should reference the POA and other documents evidencing authorization for such execution in the County records of the borrower’s property.

 

22  

Elimination of MERS and GSE’s Sale of All MERSCORP Stock I foresee a continued assault on MERS and increased charges of civil conspiracy, fraud, racketeering, and clouded title due to MERS’ systems, policies, and practices. The GSE’s creation of MERS and ownership of MERSCORP will become an increasing focus of new and continued litigation. I have yet to see facts contained in the MERS system and reflected in the MERS Milestone report comport to the assignments, pleadings, and securitization agreements related to any given loan. Since MERS is an empty bankruptcy-remote shell with no employees or assets that was created by and for the GSEs, you will see increasing attacks at piercing the corporate veils and bringing in MERS’ shareholders. Nothing can be done to save MERS and make it work. The only solution is to sever all relationships and salvage what could be gained from the system as a national registry and database of mortgage ownership and rights that can be accessed by anyone. This could create a profit for MERS. However, MERS acting as nominee or in any mortgagee capacity must be eliminated. It should just be a database registry open for all with no capacity to act on behalf of any lender or GSE. As for the clouded title issues, the GSEs should stop using MERS as a mortgagee or system except for e-notes which for the reasons stated herein, I would strongly suggest everyone do away with due to its propensity for further fraud. Overhaul of GSE’s Legal Departments A total overhaul of Fannie Mae and Freddie Mac’s legal departments are in order with new designs on legal policies and an increased focus on compliance and review of servicer legal actions. Any contested foreclosure should be reviewed directly by the GSE’s legal staff, not a servicer. Servicers have a deeply rooted conflict in not exposing their own short-comings, abuses, or frauds to the GSEs for fear of loss of business, reputation, or liability. Contested foreclosures and lawsuits related to a GSE owned note would be a good first warning system to potential financial, legal, operational, and reputational risks to the GSEs and FHFA that the servicers and GSEs may wish to conceal. This will require additional staffing for each GSE as well as new policies and procedures for reviewing litigation. Also, lawsuit complaints, affidavit templates, authorities, and other legal pleadings need to be developed and approved by the GSE lawyers, not the servicers or foreclosure mills. Settlement discussions and mediation should be coordinated through the GSE legal departments.

 

23  

Mediation & Settlement Conferences Here in Florida I have been a part of several mediations whereby a “representative of the lender with full authority to settle the case” is mandated to be in attendance. When a SunTrust, CitiMortgage, JP Morgan Chase, or Wells Fargo representative “appears by phone,” they are at a loss to explain what exactly is their relationship with either Fannie or Freddie and that the ONLY thing they have authority to do is “accept an application for a modification” from the borrower. They do not have final settlement authority or the ability to reduce principal, pay legal fees, allow assumption of the note, mortgage, and property, or pay legal claims. Presently, the Florida Supreme Court is questioning the current mediation process it mandated. Such a process requires decision-makers’ attendance. This is not happening. The Nevada Supreme Court recently addressed a similar concern in a decision8 concerning their foreclosure mediation program wherein they ruled the investors needed to have someone with authority present in the mediation. If the GSEs own a loan in foreclosure and in mediation, the current practice of offering an application for modification does not suffice. This is a problem in any lawsuit as well. The GSEs are going to be increasingly brought into litigation as indispensible third parties as guarantors. Per the provisions of paragraphs 8 or 9 of the uniform promissory notes, such guarantors, endorsers, and sureties are under the identical obligation of borrower to payoff the note to the Lender which can be presumed to be a trust. If a servicer, insurer, or other party is advancing payment to the actual lender, then it can be argued that “credit” insurance that the borrower paid for out of its interest payment allowed funds to be paid and advanced by co-obligors as contained in their note and thus, there has been no default in the terms of their note. Affidavit Process The current robo-signed affidavit process employed by the GSEs and their servicers is flawed at best and in my opinion, often perjurious. Garbage in is garbage out. Also, the assumption of prior servicers and originators data and claiming it as their own is troublesome. The GSEs must revamp their entire affidavit and record keeping process as I describe below, or risk additional legal, financial, compliance, operational, and reputational risks. I have been investigating and researching CPI, Alltel, and the FNF entities as well as their MSP system since 1994 and have spent thousands of hours reviewing and analyzing their systems, processes, practices, offerings, and services. CPI, Fidelity, and now LPS licenses the MSP program to banks, servicer, lenders and other businesses in the mortgage and finance industry and is available as a platform for use by any mortgage servicing operation. This system may account for over 60% of the GSE loans, if not                                                                                                                
8  http://www.nevadajudiciary.us/images/advanceopinions/127nevadvopno39.pdf    

 

24  

more. I would recommend that a final number be determined by the GSEs and FHFA due to the seriousness of this issue. Mortgage servicing operations use MSP for entering, processing and storing customer account data. There are many computer windows, data entry screens, data “snapshot screens,” and calculation, amortization, formulas, and algorithms that are at the heart and brains of the MSP system. However, based upon my knowledge, these calculation, amortization, formulas, and algorithms are not created by the GSEs, each servicer, bank, or lender, but have been created and updated over the years by CPI, Alltel, Fidelity, and LPS. In simple parlance, the GSEs, banks, servicers, and lenders have become dependent on a third-party vendor’s computer and processing system that is “licensed” and not owned. The so-called officers and employees of the servicers, banks, and lenders that act as affiants to create various affidavits such as affidavits of indebtedness for lenders and servicers foreclosing use this “third-party” system to enter “screenshot data” into fields on a template affidavit prepared by their legal counsel. Information and data related to prior payments, fees, advances, charges, delinquencies, and even note ownership were placed into this third-party system by other individuals who could have been and often are not even employees of the affiant’s company or the plaintiff or defendant in a legal matter, but of other servicers, originators, sub-servicers, and even vendors that can include overseas entities and prior servicers and lenders that are not even in existence anymore and have been found to engage in predatory and fraudulent practices by government regulators as well as state and federal courts. If there has been a “servicing transfer” or transfer of “beneficial rights” to the note and loan’s ownership, the information that is currently in the MSP system is either “assumed” into the MSP system or “boarded” from prior systems used by prior lenders and servicers that may have had different systems other than MSP. Thus, affiants of servicers, lenders, and banks not only have little if any knowledge as to how the figures, balances, amounts due, fees, charges, and information were placed into the MSP system they take their information off of, but seldom if ever know who placed such information into the system, the date the data and information were placed into the system, and most importantly, the validity and accuracy of the data and information placed into the MSP system, especially if entered by prior servicers, lenders, originators, and third parties. Furthermore, the affiants of servicers, lenders, and banks do not have the requisite knowledge to testify as to how the payment amounts due, principal balances due, escrow payments due, late fees due, and other fees claimed due were calculated, amortized, assessed, or determined since the formulas and algorithms used for such calculations and amortization were created by others, not the affiant or the affiant’s company.

 

25  

Servicers, lenders, and banks who use the MSP system today, use a suite of web-based default management tools to communicate messages, images and invoices with other vendors and entities to whom the servicers, lenders, and banks have outsourced their default mortgage servicing services. One such LPS system that is tied to the MSP system and has gained widespread exposure in various Federal court decisions is the LPS NewTrak system. On August 24, 2011, Circuit Judge Fuentes of the United States Third Circuit Court of Appeals, issued an opinion in a case appealing the reversal by the District Court of sanctions originally imposed in the bankruptcy court on attorneys Mark J. Urden and Lorraine Doyle, the Udren Law Firm, and HSBC for violations of Federal Rule of Bankruptcy Procedure 9011. Highlights from this opinion, particularly regarding LPS and the servicer/lender HSBC, are set forth below. In this decision, the Third Circuit reversed the District Court and affirmed the bankruptcy court's imposition of sanctions with respect to Lorraine Doyle, the Udren Law Firm, and HSBC. The District Court's decision reversing the bankruptcy court's sanctions against attorney Mark Udren was affirmed. The appeal was taken by Acting United States Trustee Roberta A. DeAngelis, In re Nile C. Taylor, et al., Case No. 10-2154, 3d Cir. 2011. Ultimately, the Taylors lost their home. However, sanctions were originally imposed by the Bankruptcy Court, reversed by the District Court and finally affirmed by the Circuit Court. Doyle was ordered to take 3 CLE credits in professional responsibility; Udren himself to be trained in the use of NewTrak and to spend a day observing his employees handling NewTrak; and both Doyle and Udren to conduct a training session for the firm’s relevant lawyers in the requirements of Rule 9011 and procedures for escalating inquiries on NewTrak. The court also required HSBC to send a copy of its opinion to all the law firms it uses in bankruptcy proceedings, along with a letter explaining that direct contact with HSBC concerning matters relating to HSBC’s case was permissible. When banks, servicers, and lenders’ mortgage servicing operations use the MSP system, they transmit foreclosure loan file data to default mortgage service providers over the Internet using web-based applications. Often, as part of a default mortgage-servicing agreement between the banks, servicers, and lenders’ and their designated foreclosure counsel, foreclosure counsel employees have access by way of an Internet link to the bank’s computer systems and records for individual mortgage loans. Often, employees of the servicer, lender, or bank’s foreclosure law firm or vendors such as LPS are alleged to have been given authorization to enter their computerized records with MSP regarding individual loans referred by the them to LPS or the firm for mortgage default servicing. However, such authorizations, powers of attorney (POAs) and corporate resolutions are rarely, if ever, provided to the courts or Borrower’s counsel in attachments to affidavits, pleadings, motions, or in discovery.

 

26  

Thus, the lawful compliance and authenticity of each record, field of data, affidavit, assignment, and other foreclosure document is in question since not only are the data, information, facts, and figures questionable and often wrong and fraudulent, but the authorization and authority for the persons executing such documents and inputting the information is questionable as well. LPS, foreclosure law firm, and default servicing vendor employees’ access to a borrower information on the servicer, lender, or banks’ computer systems such as MSP is controlled by security protocols. These security protocols are alleged to include the assignment of unique user names and passwords to such employees for specific access authorization to the servicer, lender, or banks’ computerized customer records with the LPS MSP system. This now widely known robo-signed “affidavit process” is now subject to legal attacks that will only increase and be more significant as a Greenberg Traurig analysis9 predicted. On September 7, 2011, the Fourth District Court of Appeals issued an opinion in Glarum v. LaSalle Bank National Association, as Trustee et al., 2011 WL 3903161 (Fla. 4th DCA September 7, 2011), narrowly construing the business records exception in a residential foreclosure case. The Glarum court held that an affidavit of indebtedness of an employee of a loan servicer that relied on data from a computer system was inadmissible hearsay. Greenberg Traurig, a prominent mortgage industry law firm stated that “this decision could have broad sweeping application in the lending and loan servicing industries and affect thousands of foreclosure cases, among other types of cases, currently pending in Florida courts.” The Florida Appeals Court echoed my opinions above when it opined: Orsini did not know who, how, or when the data entries were made in Home Loan Services’ computer system. He could not state if the records were made in the regular course of business. He relied on data supplied by Litton Loan Servicing, with whose procedures he was even less familiar. Orsini could state that the data in the affidavit was accurate insofar as it replicated the numbers derived from the company’s computer system. Despite Orsini’s intimate knowledge of how his company’s computer system works, he had no knowledge of how that data was produced, and he was not competent to authenticate that data. Accordingly, Orsini’s statements could not be admitted under section 90.803(6)(a), and the affidavit of indebtedness constituted inadmissible hearsay.

                                                                                                               
9  http://www.gtlaw.com/NewsEvents/Publications/Alerts?find=152634&printver=true    

 

27  

Changes to Uniform Note & Mortgage Provisions There are many provisions of the Fannie/Freddie uniform notes and mortgage/deeds legal documents that need to be revised to deal with a modern day mortgage marketplace. First, the notice provision should provide that the servicer or whoever accepts your payment must, upon notice and the payment of a fee of no more than $10.00, disclose the current owner and holder of the borrower’s promissory note as of the date of the letter along with a designated contact person, not an agent or servicer, who the borrower may send his/her grievance or notice to. As for legal fees, legal fees must be capped and servicers not allowed to charge legal fees unto an account until a successful award of such legal fees is granted. I have seen servicers add tens to hundreds of thousands of dollars in legal fees in lawsuits and demand them from borrowers wishing to payoff their mortgages and sue the servicer for their abuses. This is akin to extortion and blackmail and prevents due process by putting the borrower on an unequal footing and provides for a virtual indemnification from the borrower for suing the servicer for its violations of law. Assumption provisions must be changed to allow for the assumption of the mortgage and property if a servicer refuses to provide evidence of the note’s ownership. FANNIE & INDUSTRY REACTION TO WARNINGS BY WHISTLE-BLOWERS Instead of heeding our warnings and addressing our concerns, Fannie, its network and related law firms, servicers, MERS, and their vendors, such as FNF and LPS, undertook an overly aggressive private and public attack against whistle-blowers. These attacks included millions in vexatious litigation to silence and ruin whistle-blowers; continual computer hacks; physical assaults and death threats; actual physical break-ins of properties; and smear campaigns. There is also evidence of bribery of local judges and politicians. In one case, one advocate’s home in Maryland was burned down by arson and his dog killed after they removed his computer. In retrospect, we have all been vindicated, yet no one has been adequately punished, for not only these unethical and unlawful practices, but their criminal acts! In Summation A home, part of the American Dream, has both financial and emotional attachments. For one, if the home is underwater, there is little motivation, except the emotional one, for a borrower to want to stay in their home and pay on their mortgage. Next, while moving or downsizing may be the most appropriate solution, the emotional tie to the home may not allow such an exercise. For example, some don’t want to disrupt their families with such issues as schooling and local friends in the neighborhood.

 

28  

There are many solutions I have devised that would assist not only the homeowners and borrowers, but the GSEs, taxpayers, investors, and even your agency. However, this will take courageous action to circumvent current housing policy as well as a total lack of confidence in Wall Street and the banking and mortgage industry. Perhaps, it is of little wonder that the youth of America protesting in the Occupy Wall Street movement listed as their first complaint in their newly published declaration “They have taken our houses through an illegal foreclosure process, despite not having the original mortgage.” The tides are turning. It’s time for government agencies and regulators in concert with the GSEs to be proactive, rather than relative to events. There must be continual monitoring of events, abuses, lawsuits, and complaints. Analytics must then be run on these complaints to identify abuses and the abusers. Only in this manner, can the GSEs and FHFA properly monitor, regulate, and control the marketplace stemming the loses at the GSEs and preventing the needless increase of this nation’s debt. The FHFA’s strong powers as conservator can quickly effect the changes necessary, without delay. I think I may of particular help as a witness in your cases against the various Wall Street firms and banks the agency has sued. I want to help my nation, but I define my nation as one controlled by the people, not the banks. I stand ready to assist you whenever and wherever possible. All you each need to do is ask! I look forward to speaking with each of you in the days to come and to working with you on solutions for not only the housing and mortgage markets, but America and Americans as well. Sincerely yours,

Nye Lavalle Copy to: Rep. Elijah E. Cummings

 

29  

 

30