Securitization Workshop for Attorneys March 19th 2011 in San Francisco

Securitization Workshop for Attorneys March 19th 2011 in San Francisco

By Daniel Edstrom

Join us for our 3rd Securitization Workshop for Attorneys being held in San Francisco on March 19th, 2011.  Visit the event website for more information:

This workshop has been approved for Minimum Continuing Legal Education (MCLE) by the State Bar of California.  Total credit hours approved are 6.75 hours.

Description of event:

March 19th, 2011 – in San Francisco, CALIFORNIA

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Realized Losses in Securitization

Realized Losses in Securitization

By Daniel Edstrom
DTC Systems, Inc.

It is of interest to note that no loss is calculated in securitized transactions until the loan is liquidated.  It is also of value to note that usually the principal and interest is advanced until the loan is liquidated (as I saw in a case where it was stated by Deutsche Bank National Trust Company in an answer to discovery).  So principal and interest payments are made by the servicers and/or trustees, and no loss is actually realized until after the house is foreclosed upon and sold to a 3rd party.  So what came first, the default or the loss?  No default occurs until the loan is liquidated, which doesn’t occur until after the foreclosure sale.  This means the homes are sold while the loans are current.  I would venture to say that nearly ALL foreclosures in at least the last 10 years on homes with securitized transactions, have been fraudulent and invalid.  This is because the paperwork used to foreclose is VOID.  Not voidable, but VOID.

Take a look at these definitions from the Argent Securities Inc. 2003-W6 Trust:

State Principal Balance
As to any mortgage loan or manufactured housing contract, the principal balance of the mortgage loan or manufactured housing contract as of the cut-off date, after application of all scheduled principal payments due on or before the cut-off date, whether or not received, reduced by all amounts, including advances by the master servicer, allocable to principal that are distributed to securityholders on or before the date of determination, and as further reduced to the extent that any realized loss thereon has been, or had it not been covered by a form of credit support, would have been, allocated to one or more classes of securities on or before the determination date.

As to any Mortgage Loan or REO Property, any advance made by the Master Servicer or a successor Master Servicer in respect of any Distribution Date representing the aggregate of all payments of principal and interest, net of the Servicing Fee, that were due during the related Due Period on the Mortgage Loans and that were delinquent on the related Determination Date, plus certain amounts representing assumed payments not covered by any current net income on the Mortgaged Properties acquired by foreclosure or deed in lieu of foreclosure as determined pursuant to Section 4.03.

Determination Date
With respect to each Distribution Date, the 10th day of the calendar month in which such Distribution Date occurs or, if such 10th day is not a Business Day, the Business Day immediately preceding such 10th day.

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Securitization Workshop for Attorneys January 29th 2011 in Los Angeles

Securitization Workshop for Attorneys January 29th 2011 in Los Angeles

By Daniel Edstrom

Join us for our 2nd Securitization Workshop for Attorneys being held in Los Angeles on January 29th, 2011.  Visit the event webiste for more information: and visit our product page for a super early registration price if you sign up by December 31, 2010:

Description of event:

 January 29th, 2010 – in Los Angeles, CALIFORNIA

 [Location will be determined soon]


Auburn, CA 95603; ph: 530.888.9600

DTC Systems, Inc.


 Presented by:

Secure Document Research and DTC Systems, Association with the Garfield Continuum and Neil F. Garfield, Esq.

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Understanding the Governing Documents 1

Understanding the Governing Documents 1

by Daniel Edstrom

Wall Street financial engineering is a thing to behold.  Of course most of it is in complex legal terms difficult to comprehend.  Let’s take a look at a few definitions in a Prospectus Supplement and break them down.  This is from the RASC Series 2005-EMX4 Trust put out by GMAC.

Subordination. So long as the Class M Certificates remain outstanding, losses on the mortgage loans which are not covered by amounts payable under excess cash flow or overcollateralization will be allocated to the Class M Certificates that remain outstanding with the lowest payment priority, and the other classes of certificates will not bear any portion of such losses. If none of the Class M Certificates are outstanding, all such losses will be allocated to the Class A Certificates as described in this prospectus supplement.

What this means: Numerous classes of certificates are issued.  In this trust the Class A certificates are paid in priority first while any losses first come out of the Class M certificates.  Once the Class A certificates principal is paid in full, the principal is applied to the Class M certificates.  Once the Class M certificates absorb all losses and the principal is reduced to zero, the Class A certificates will suffer losses.  The diagram to the left shows what this looks like.  Is there a loss?  Only if the loss is not covered by “amounts payable under excess cash flow” or “overcollateralization.”

DEBT SERVICE REDUCTION–Modifications of the terms of a mortgage loan resulting from a bankruptcy proceeding, including a reduction in the amount of the monthly payment on the related mortgage loan, but not any permanent forgiveness of principal.

What this means: A reduction in the monthly payment based on a bankruptcy ruling but not including any permanent principal forgiveness.  This doesn’t mean much at the moment but we will revisit this shortly.

Realized Loss–As to any defaulted mortgage loan that is finally liquidated the portion of the Stated Principal Balance plus accrued and unpaid interest remaining after application of all amounts recovered, net of amounts reimbursable to the master servicer for related Advances, Servicing Advances and other expenses, towards interest and principal owing on the mortgage loan. For a mortgage loan the principal balance of which has been reduced in connection with bankruptcy proceedings, the amount of the reduction. As to any mortgage loan that has been the subject of a Debt Service Reduction, the amount of the reduction. For a mortgage loan that has been modified, following a default or if a default was reasonably foreseeable, the amount of principal that has been forgiven, the amount by which a monthly payment has been reduced due to a reduction of the interest rate, and any Servicing Advances that are forgiven and reimbursable to the master servicer or servicer. To the extent the master servicer receives Subsequent Recoveries with respect to any mortgage loan, the amount of the Realized Loss with respect to that mortgage loan will be reduced to the extent such recoveries are received.

What this means: This is part of the Wall Street engineering genius that is difficult to understand.  Basically what it is saying is that despite what you might believe,  despite what a judge rules in bankruptcy, and despite the fact that a loan modification has been applied to a loan, the investors receive the original payment of principal and interest.  Even after a ruling by a standing bankruptcy judge the investors receive the original principal and interest based upon the original note (or at least the copy of the note allegedly pooled into the trust).  One can only imagine the book-keeping nightmares that servicers face keeping multiple sets of books and trying to keep them all straight.  This is my best guess as to why the servicers have such a hard time keeping the accounting straight for those in bankruptcy.  Just ask O. Max Gardner III how often the servicers mess up bankruptcy rulings.

Read all of the above again.  Even if the principal and interest payment are reduced in bankruptcy, the servicer is required to advance the principal and interest of the original mortgage loan as amortized.  Once the loan is liquidated (paid off), the principal loss is calculated at that time and advances which have not been paid by other forms of credit enhancements are paid back to the advancing party.   THE INVESTORS GET THEIR MONEY during the course of the loan (whether or not paid by the homeowners), then it gets ripped out of their hands all at once when the loss is calculated.  But you never know for sure whether the investors will actually suffer a loss or if the credit enhancements will pay for it.  This is one of many reasons why the homeowner is entitled to a full accounting.

Bankruptcy judges be warned: Wall Street takes your rulings with a grain of salt and applies them in their own fashion.  This can only stem from multiple sets of books that are concealed, misrepresented and not disclosed to the courts.

Disclaimer Reminder:  This is a blog for educational and informational use only and does not constitute legal advice.  Take no action without first consulting an attorney in your jurisdiction.

Patt Morrison on Southern California Public Radio

Patt Morrison on Southern California Public Radio

Listen to the recorded version of the Patt Morrison’s show on


Katherine Porter, visiting professor of bankruptcy, consumer finance & secured credit at the Harvard Law School

Daniel Edstrom, head of the securitization auditing firm DTC-Systems

Securitization issues related to foreclosures and paperwork is discussed.

Katherine Porter states that Wrongful foreclosure is when the house is foreclosed on and there  is no default.  This is an interesting definition because in nearly all cases in securitization, the loans are current.  The obligation is not in default because the Securitization Trustee and the investors have received all payments.  So nearly all Securitization foreclosures are wrongful foreclosures?  That is the elephant in the room that nobody wants to look at.

Why are the loans current in securitization?  Because the servicers and securitization trustees are required and obligated to make the payments whether or not they receive the payment from the homeowner.

Financial Control Fraud

Financial Control Fraud

By Jim Macklin
Secure Document Research

When a person or persons who own or oversee the operations of a seemingly legitimate business or Governmental Agency uses that business or agency as a “weapon”, it is known as a control fraud. The term was coined by UMKC Professor William Black (The Best Way To Rob A Bank Is To Own One, Black, 2005). The “weapon of choice” in a financial control fraud is accounting. More losses occur in financial control frauds than any other form of property crimes …combined!

In the early stages of our most recent financial crisis, the FBI had correctly identified the presence of the type of fraud, yet, the Bush administration failed to effect any real consequences, and so the fraud was swept under the rugs of the administrations’ offices. De-regulation and the advent of hyper-bonuses helped to encourage the practices of the ratings agencies, hedge fund managers, and CEO’s of the Wall Street elite, while the AAA rated “junk bonds” went out for sale with a frenzied push for more paper. Never before, in the history of Wall Street, had a AAA rated bond gone into a default. Remember, these ratings agencies hadn’t even bothered to sample the veracity or viability of the loan files upon which these ratings were issued. This is a control fraud in its’ simplest and purest form, with all of the key players indemnified against losses through trust agreements. This is the smoking gun.

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