By Neil F. Garfield

EDITOR’S ANALYSIS: For those who have followed this Blog for any length of time, this news will come as no surprise. Ultimately, the proof and the relief sought by homeowners will come from investors who demand answers to what happened to their money when they purchased mortgage backed securities and pooled their money to fund mortgages.

The result is a pincer action, to put it military terms, where the creditors and the debtors are making the same allegations against the intermediaries who stole from both sides, “borrowed” the loss to claim Federal bailout money, and left both sides holding the bag.

Lawyers for the investors are clearly smelling blood and are on the hunt. Unlike the foreclosure defense side where the arguments and theories are the same, these lawyers will represent institutional investors whose credibility in court will rival, if not exceed, the credibility normally allowed to anyone with the word “Bank” in their name. These lawyers are going to make a fortune, as will any foreclosure defense lawyer who realizes the true nature of what is going on.

What they already know and they are demanding answers: that the mortgage origination process was defective in multiple ways that created fatal defects in the the quality and quantity of loans as well as the security of the collateral (the homes). The proof that will emerge is that the homes were not subject to a perfected lien because the intermediaries wanted to claim the loans themselves to create “trading profits” before they provided for any accounting to the investors and with no intention of ever providing an accounting to the borrower.

The document trail from the closing with investors, the document trail from the closing with borrowers, the actual money trail and the representations made in court are all at variance with each other. “Transfers” to the pool occurred only after the alleged default by the borrower, which was misrepresented because the default claimed did not match the actual receipt of funds that should have been reported to investors. All of this is in direct violation of the PSA and other securitization documents.

The final result will be the investors disavowing any interest in the loans, absent a broad settlement that allows for modifications of the mortgages based upon realistic values and terms. The investors will see, that the deep pockets here for recovery of their losses are where the money went in the first place — the investment banks.

The money advanced by investors was not used to fund mortgages as advertised but rather was sponged into a complex matrix of fees, trading profits for the investment banks, credit enhancements that inured to the benefit of the banks, and bets that the bonds would fail — a sure thing because the banks reserved the right exclusively to declare the failure.

All of this projects broad similar actions from investors around the world demanding answers on each and every pool. All loans will be thrown into a grey area of ownership and the end result may well be that the “free house” spin by the Banks will come back and bite them. With the creditors disavowing the transaction and making no claim against the homeowners there might be nobody to pay. Short of that, the proof will most likely provide a relatively easy way for homeowners to strip their homes of the liens of record as they relate to loans in which a securitization claim is present — because in most cases, the loan was not made or paid for by the originator who appears on the note and mortgage.

TILA rescission is most probably going to get much easier as a result of these actions. Meanwhile US Bank and Wells Fargo are going to experience the frustration that they have caused homeowners. Their attempts at foreclosure are going to met with stiff resistance as the investors emerge and have their say in foreclosure actions.

Trusts involved:

WFALT 2005-1   WFMBS 2005-9   WFMBS 2006-19   WFMBS 2007-13
WFALT 2007-PA2   WFMBS 2005-AR11   WFMBS 2006-20   WFMBS 2007-8
WFALT 2007-PA3   WFMBS 2005-AR12   WFMBS 2006-6   WFMBS 2007-9
WFALT 2007-PA4   WFMBS 2005-AR14   WFMBS 2006-7   WFMBS 2007-AR3
WFALT 2007-PA6   WFMBS 2005-AR16   WFMBS 2006-8   WFMBS 2007-AR8
WFHET 2005-3   WFMBS 2005-AR3   WFMBS 2006-AR10   WMLT 2005-A
WFHET 2006-3   WFMBS 2005-AR5   WFMBS 2006-AR13   WMLT 2005-B
WFHET 2007-1   WFMBS 2005-AR8   WFMBS 2006-AR14   WMLT 2006-A
WFMBS 2005-12   WFMBS 2005-AR9   WFMBS 2006-AR18   WMLT 2006-ALT1
WFMBS 2005-17   WFMBS 2006-11   WFMBS 2006-AR2    
WFMBS 2005-18   WFMBS 2006-13   WFMBS 2006-AR4    
WFMBS 2005-3   WFMBS 2006-14   WFMBS 2006-AR8    
WFMBS 2005-4   WFMBS 2006-17   WFMBS 2007-10


Read the article from Evan Bedard here:

Author: dmedstrom

Reverse Engineering and Failure Analysis - Reverse Engineering Wall Street


  1. Any clues as to how this will help the homeowner? Won’t we be the only people left that can still have money extorted from us?

  2. Hello, I read your blog frequently. Thank you so much. I am in CA and
    have a fed. lawsuit pending with WF, US Bank and others. The fed. judge
    did not throw out our case as WF expected. We have a court date next year! Who knows if we can hang on that long. Meanwhile, they are
    about to request a trial for an Unlawful Detainer here in local court.
    Our MBS loan is one mentioned in this article. Is there anything that would
    help substantiate our wrongful foreclosure based on what you know.
    I’m desperate, at this point, so thought I would ask.

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