The lawsuit that appears immediately below is a fantastic read for any party involved in the foreclosure process. For the last several days I’ve been talking about capacity and both the latent and outright fraud and questionable practices that permeated the whole subprime originating process and which is now part of the foreclosure process. The lawsuit spells out in plain language how the different players in a mortgage security agreement interact with one another. (If you think they’re screwing homeowner’s over, you should read what they do to one another, according to the lawsuit.)
While the improper conduct alleged in the complaint are just that, allegations, similar allegations could probably be made in the vast majority of similar transactions. The bottom line is the complaint alleges that the Fat Cats and The Wall Street Wizards were all lying to one another when they concocted this deal and sold it off to one another. In this complaint, they allege that:
- 85% of all loans reviewed breached the warranties and representations
- 51% were charged off within two years of the transaction closing
And importantly, something that I’ve said all along is now being stated by one of the parties to one of these complex mortgage deals:
The number and nature of the defects identified indicate clearly that the loans included in the transaction were systematicaly originated with virtually no regard or the borrower’s ability or willingness to repay their obligations, the fundamental precept of mortgage lending. Rather, the review cleraly indicates that borrowers were permitted or encouraged to take out loans they obviously could not afford to repay.
And when things went bad, the servicer, Select Portolio Servicing did “almost nothing” to contact borrowers or work on mortgage modifications.
To understand how all the pieces fit together, I’ve attached below a Pooling and Servicing Agreement I’m reviewing in preparation for a case that I’m getting ready for this week. Give it a read through and get familiar with the language and terms. Later in the week, I will annotate it to include important comments and point out areas of special concern and interest.
Finally, here is the prospectus that was pimped out to investors. Reading it now, it just shocks me that any relatively sophisticated party would invest in vehicles that were so obviously deficient. It was questionable then and based on what we know now, just flat out insane…..