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MERS and Securitization

livinglies.wordpress.com | June 27, 2017

by Neil Garfield

Investors and borrowers were thus left in a transaction they didn’t know existed and without any documentation to show for it. MERS was essential to fill that void with the creation of fabricated written instruments that appear to be facially valid.

In the end all claims of every nature whose validity relied upon the existence of legal documents and actual transactions were and remain false if those documents and transactions were tied to false claims of securitization.

Excerpt from Garfield’s Guide to Foreclosure Defense

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There are three flavors of securitization of loans:

  1. The concept of sharing risk in a large pool of loans

  2. The documents creating the infrastructure for securitization

  3. The actual transactional behavior of the participants

There is nothing wrong, illegal, immoral or unethical with the concept. In theory it creates an environment in which loans become more readily available. The drawback is that loans are generally not approved at the local level. And once the originator sells the loan into the secondary market, workouts of defaults become more difficult or even impossible because it is in the interest of the participants to avoid dismantling the securitization structure around any loan or group of loans. Thus in theory it does create a conflict between laws governing servicing and modification (workout) of loans.

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The documents created are generally in three different classes — (a) sales of securities issued by a REMIC Trust or other Special Purpose Vehicle created by a trust instrument or other organizing document (b) the documents of transfer of the loans and the trading of loans and the securities issued by the REMIC Trust and other securities whose value is derived from the certificates issued by the REMIC Trust and (c) the documents prepared for an originator to close and sell the loan being securitized. As we shall see below, a fourth class was created in real life: documents fabricated for foreclosure actions.

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In practice it is a virtual certainty that none of the transactions in the above three classes of documents were ever properly settled, thus obscuring the identity of and even the existence of the investors, the Trusts and any group that could be considered a real party in interest. Thus the sale of trust certificates were in fact sham transactions because it wasn’t the Trust who was selling them. Instead of being settled in favor of the issuer the investors money was settled to the benefit of the selling agent. And the “trading” and “transfer” documents of loans and securities were therefore, of necessity, sham transactions because they derived their value from a nonexistent transaction with the issuing Trust. And the money given to or paid on behalf of the homeowner at the “loan closing” was memorialized in loan closing documents that failed to identify the investors or the Trust as the lender and instead identified parties who did not make the loans nor did they have any contractual agency relationship with the Trust or the investors.

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The principle around which the securitization of debt revolves is the creation of multiple layers, each of which has multiple entities associated. The bank narrative is that this was required in order to reduce the risk of loss in the event of a default by the borrower. Part of that narrative is true. However the main purpose of each layer was to create “derivative” instruments that could be sold based upon each layer.

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Each entity associated with each layer was a conduit, broker or trader. Goldman Sachs coined the term “laddering” to describe the process. Theoretically there is nothing wrong with such an infrastructure ‐ provided that there is an identifiable debtor and an identifiable creditor each of whom are connected with an identifiable loan contract.

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The other purpose of layering was to shield all associated entities from liability with respect to the sale of derivative instruments and contracts based on the legitimacy of the original loan and the original “mortgage bond” issued by an entity that existed only on paper, sans bank account or any actual business activity, and “administered” by a trustee who had no duties and who was prohibited from asking about the status of the trust assets.

*

The “sales” included mortgage bonds, and the sale of increasingly ornate loan products for homeowners. Many participating entities were referred to as “bankruptcy remote”, but in fact the primary purpose was to present an obstacle for liabilities attending to claims of misrepresentation, fraud, fabrication, forgery etc. from either investors or homeowners.

*

The design of the infrastructure of securitization enabled all associated entities to obscure the movement of actual money and and fill the voids with paper instruments in which entities were named that were several steps removed from any actual movement of money. Such entities had no contractual or other authority between them — or any of the conduits with whom they were passing paper — and the investors or the Trust.

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In order to accomplish this goal the strategists on Wall Street created a hub and spoke business plan in which multiple hubs served multiple functions.

We will use MERS as one of the largest hubs and discuss LPS and DocX as another hub, each contributing to the illusion of legal documentation which thus leads to the presumption of actual transactions even in the absence of actual evidence of those transactions. Legal documentation means documentation that refers to real transactions in the real world. Virtually none of the documentation qualifies as legal documents starting from the creation of the REMIC Trust and ending with the supposed loan to homeowners and eventually foreclosure.

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The strategists on Wall Street knew that they were going to use mostly conduits and brokers as the apparent originators of loans, but obviously did not want to leave any significant assets in the hands of a thinly capitalized entity. They also knew that the “originators” would not be lending any money of their own even if it appeared that they were underwriting the alleged loans.

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Thus they came up with the notion of a “nominee.” Most major financial institutions and several quasi public institutions including government sponsored entities formed MERS, which is ultimately owned and controlled by the international commodities exchange in Iceland. By having an offshore entity control and onshore hub the banks could be sure that regulation would be virtually impossible. Unfortunately with certain Government Sponsored Entities (GSEs) in the list of MERS founders, it was already unlikely that anything would actually be regulated in the United States.

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MERS is nothing more than an IT platform that is maintained by about three dozen persons. But it is accessible to tens of thousands of people who work for banks and self-proclaimed servicers. The bank narrative is that MERS is an electronic tracking system for the ownership of mortgage loans. In effect, however, it is essentially a bulletin board that virtually anyone can access, load data, download data as if it was official data from a quasi Government agency, and create instruments that appear to be facially valid designating the user as an officer with signing authority of MERS. First and foremost it must be remembered that the actual purpose of MERS was to provide a credible vehicle to create the illusion of purchases and sales of loans and avoiding the need to record such transfers under the State statutory scheme of recording all transfers of any interest in real property to be recorded — and providing for fines and criminal penalties for recording false documentation or uttering a false instrument.

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MERS is named on millions of mortgages as the beneficiary under a deed of trust or the mortgagee under mortgage deed. MERS is not named on any note. MERS does not handle any money from any source in connection with any loan. MERS disclaims any interest in any debt, note or mortgage in which it is named as a nominee. No actual officer of MERS has ever signed any documents in connection with the assignment or transfer of any debt, note, deed of trust or mortgage. No actual authority can or ever has been granted by MERS to parties who were not named on the note or mortgage. It is only the appearance of authority that supports the signature of the employee of an unrelated entity. That authority is created by the person seeking it and it is never withheld.

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The bank narrative has successfully argued that MERS is necessary for the securitization of debt and that the securitization of debt creates more open access to capital. In truth, however, if there was an identifiable borrower, and identifiable creditor, and an identifiable loan contract, the existing system within each county of each state in which mortgages and deeds are recorded would have been completely sufficient in an honest system. The argument for “access to capital” was a ruse and remains so. The access only worked to the advantage of the underwriting banks and sellers of certificates issued by nonexistent or empty trusts. And it worked to the distinct disadvantage of all investors and borrowers who, under the single transaction doctrine or the step transaction doctrine were the only real parties in interest in transaction that gave rise to the debt from the homeowner to the investors.

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The objective of the false claim of securitization was to throw money at the unwary borrowers so as to create the illusion of a loan contract in which the identity of the creditor was withheld from everyone at the “loan closing table.” The purpose was to create the illusion of a marketplace in which loans were in high demand. In truth, the heavy advertising and the tens of thousands of people who served in a sales capacity to get homeowners or prospective homeowners to affix their signatures speaks loudly to the opposite conclusion — the Banks needed loans so they could make false claims of securitization and then sell multiple layers of derivative products based upon the “value” of loan documents that reflected a nonexistent transaction between the originator named on the note and mortgage and the homeowner.

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This enabled the banks to sell “mortgage loans” to unwary investors in transactions that were settled only to the benefit of the banks and not to the benefit of the investors or the vehicles that were used as a pretense for the issuance of marketable securities that were not regulated as securities.

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The net result was that investors and homeowners were dragged into a soup of fabricated documents that in the end, left both of them without any documentation for the loan and without any knowledge of who would be paying the real parties whose money was used at the “loan closing” and without any knowledge of the existence of each other. Investors and borrowers were thus left in a transaction they didn’t know existed and without any documentation to show for it. MERS was essential to fill that void with the creation of fabricated written instruments that appear to be facially valid.

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In the end all claims of every nature whose validity relied upon the existence of legal documents and actual transactions were and remain false if those documents and transactions were tied to false claims of securitization.

 

 

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