Dreamli Zs You should refer your dubious and very naive friends to the case of National Bank of Keystone, WV. One of the worst failures per $ of assets in FDIC history. The management hid a Ponzi scheme in the loan servicing area for five years. Paid interest to investors with their own principal. Two auditors missed the fraud and later were sued by the FDIC acting as receiver for the dead bank. And this was a small operation. The big five are an even worse mess. Remember, when the seller of a loan and the servicer are the same, anything can happen. And it usually does. Professor Black told me: Double pledges (as theyre typically called, though one could pledge multiple times) are a well known fraud device. It is correct that one of the key purposes of adopting Article 9 of the Uniform Commercial Code (UCC) was to reduce the risk and frequency of this form of fraud. So, double pledges in the modern era require both (A) fraud (on the part of the borrower or purchaser) and incompetence, indifference, or corruption on the part of the original secured lender or their agents if the borrower is the fraudster or the purchasers if they are the fraudsters. The two potential sources of fraud: A fraudulent borrower could pledge the same home as security for multiple mortgage loans. Title checks, by the lender/title insurer are so easy to conduct and so vital to protect the lender that this form of fraud is vanishingly rare. Alternatively, and far more likely, the lender could sell the mortgage to multiple buyers. Those buyers could have far lower incentives to check on prior pledges and less ability to check for prior pledges. The entity selling a loan to multiple parties (A) has a compelling incentive to hide the prior pledge(s), (B) is financially sophisticated, and therefore more capable of deception than a homeowner, and (C) can pick who to make the multiple sales to -- allowing them to select the most vulnerable targets for fraud. Subpart (C) provides the logical transition to the second requisite for multiple pledge frauds -- vulnerable victims. The characteristics they would exhibit include (A) growing massively, (B) purchasing nonprime loans without fully underwriting the quality of the loans (and quality in this context inherently requires superb paperwork), (C) poor internal and external controls, and (D) opaque systems that make it extremely difficult to determine the beneficial owner and locate key mortgage documents that would reveal multiple sales. Unfortunately, these four characteristics were characteristic of many purchasers of nonprime mortgages. That is why I have long stated that the process was dominated by the financial sector equivalent of dont ask; dont tell. Bottom line: the elite bankers and the anti-regulators have been so unwilling to find the truth that no one knows how bad these frauds became. Finding the facts is essential and can and should be done by reviewing samples of the loans pledged or sold to Fannie and Freddie and the Fed. zerohedge/article/how-did-banks-get-away-pledging-mortgages-multiple-buyers
Posted on: Wed, 06 Nov 2013 23:33:50 +0000
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