Fake mortgage-backed securities prompt AIG to sue Bank of America
Newscast Media NEW YORK, New York –Bank of America’s problems continue to grow ever since the financial giant purchased Countrywide and its assets. On June 29, BofA settled an $8.5 billion lawsuit with investors for selling them mortgage-backed securities that were never mortgage-backed. The Attorneys General for all 50 states opened investigations with the bank, and inside sources speaking on condition of anonymity say a settlement in the neighborhood of $25billion by Bank of America will soon be reached, in exchange for immunity from prosecution by individual states.
Bank of America also faces several class action lawsuits, and now has to deal with the most recent lawsuit by insurer AIG seeking to recover more than $10billion in losses from Bank of America on $28 billion of investments, in what could be the largest mortgage-security-related action filed by a single investor, the report said. The AIG lawsuit is American International Group Inc et al v. Bank of America Corp et al, New York State Supreme Court, New York County No. 652199/2011.
Here’s how it works:
The homeowner expects to be a “Borrower” receiving a “Loan” from the bank. The bank then sells the loan to a Special Purpose Vehicle (a shell company) and gets paid in full without recourse, and also gets a commission as a finder’s fee, but the bank never funded the loan. The homeowner was tricked into believing the bank funded the loan, when the bank was just paid for finding a homeowner willing to sell the debt obligation. The bank’s commission was also for the bank to allow its name to be on the instrument, and often to act as Servicer to get monthly fees.
The homeowner was never told truth about who funded the transaction, because a Deed of Trust would not normally be allowed for a Financial Asset purchased by a Securitization Trust (a Security covered by security laws), or a Commercial Paper which is covered by the Uniform Commercial Code Division (UCC) 8, whereas Securitized Transactions with a Deed of Trust are covered under UCC 9.
The “Lender” named on the instrument did not fund the transaction, and therefore was not really the “Lender” at all. They acted only as a “Nominal Lender”, named on the debt instrument only to facilitate the creation of a Deed of Trust or Mortgage to secure the debt obligation as an alleged “Loan”, when it was not a “Loan”, but rather the receptacle for an Asset-Backed Investment Security. The “Pretender Lender” was paid in full, plus a commission, and lost interest in the debt obligation.
Also, the Deed of Trust or Mortgage can’t secure an Asset-Backed Investment Security, and homeowners were tricked into thinking they were “Borrowers” of “Loans”,when they were actually SELLERS of a debt instrument to a Securitization Special Purpose Vehicle. An invalid Deed of Trust or Mortgage, was fraudulently procured under the guise of a “Loan”, when it wasn’t a Loan, but rather the “Purchase of a Note” into an Asset-Backed Investment Security.
The investor on the other hand, who put up the money was never told that the mortgage-backed security was never mortgage backed because the majority of them do not make it into the trust, as they are resold over and over again. The pretender-lender holds on to the Note and in most cases never delivers it into the
trust as admitted by Countrywide representative in Kemp v. Countrywide, Case No. 08-18700-JHW.
None of this is revealed to the homeowner or investors at closing, hence the fraud lawsuits that are being filed. Insurers like AIG were taken for a ride, because most of these mortgage-backed securities that they insured never became assets of the trusts. The trusts were either empty or had bad mortgages.
The Pooling and Servicing Agreement, the document that governs the trust Section 2.01(a) states:
(a)“Each Seller concurrently with the execution and delivery hereof, hereby sells, transfers, assigns, sets over and otherwise conveys to the Depositor, without recourse, all its respective right, title and interest in and to the related Mortgage Loans…”
The Depositor then assigns the mortgage to the Trustee who deposits it into the trust for the benefit of the Certificateholders. If the mortgage is either a non-qualified mortgage delivered into a trust, or is simply not delivered into the trust, these defects can never be cured because when a mortgage is securitized the act is irreversible. You cannot unscramble the eggs.