Lawsuit in Virgin Islands (U.S. Territory) Exposes the Underbelly of Forced Foreclosures that Harmed Investors and Borrowers
I almost stopped reading this lawsuit because I thought they were casting Ocwen and Altisource as victims. And to a limited extent that is true. But upon close reading this lawsuit is about what the investors lost to the unrelenting full court press to foreclose at the expense of investors and obvious huge harm to homeowners who were ready willing and able to pay for modified loans.
“This case is about a covert criminal conspiracy perpetrated by two of the largest, most powerful financial firms in the world known as “Blackrock” and “PIMCO” (“Defendants”, as further defined below) – with the specific intent and purpose of gouging enormous profits from the forced foreclosures and confiscation of the homes of hundreds of thousands of struggling families all across the United States”
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See EX OCWEN CEO SUES OCWEN ALLEGES FORCED FORECLOSURES
Perhaps the most interesting allegation is as follows:
Defendants relentlessly sought to discredit, undermine and ultimately destroy those companies so that Ocwen would be cast aside and replaced with mortgage servicers that were unwilling or unable to perform loan modifications but instead would immediately execute foreclosures as Defendants wanted. This strategy financially benefited Defendants, who positioned themselves first in line to receive the proceeds when homes were sold in foreclosure, while seriously damaging other MBS investors, who stood to suffer greater losses than they would have if the loans were modified. Defendants were well aware that their ruthless strategy was contrary to the laws, regulations and policy of the United States, well-established industry standards and contractual obligations explicitly provided for in the governing MBS and mortgage servicing documents.
So this suit seems to be on behalf of investors. They have awakened to find that the homes were sold in foreclosure and that the intermediaries collected the proceeds. And they find that that the applications for modification were blocked, just as many of us have said, by parties who were pulling the strings. The factual basis for the suit is the proposition that homeowners could have paid a modified mortgage that would have resulted in far fewer losses to investors — something that everyone seems to know except the courts the legislatures and the executive branches of government.
Ocwen USVI and Altisource USVI are cast as victims but not Plaintiffs. The Plaintiffs are companies that you most likely never heard about. They were investors not just in RMBS Certificates but in OCwen USVI and Altisource USVI whom they say were nearly put out of business by egregious greed and overreaching by giants managing more assets than the full budget of the United States government.
If we believe the allegations, Ocwen VI and ALtisource VI were all about legally managing the loans that were being serviced and embarked upon an ambitious program to get as many of the loans modified, where they would remain in the performing category. But Blackrock and PIMCO wanted foreclosures instead of modifications. As was said in a BofA office in Massachusetts some years back by a manager of the “servicing” department — “we are not in the modification business, we are in the foreclosure business.”
A foreclosure sale conducted by the correct people raises the almost unrebuttable presumption that everything that preceded the foreclosure was legal, having been reviewed by a judge and approved. This is essential to keeping up the pretense that the RMBS certificates actually derived their value from the loans when in fact the situation was quite the reverse.
Maintaining the illusion of value for RMBS enables the “trading” market to continue where the real players are dumping all of the paper they acquired with OPM (other people’s money) and issuing ever climbing levels of synthetic derivatives supposedly deriving their value from “underlying” loans.
Maintaining the illusion of REMIC Trusts that properly issued RMBS certificates deflects from the fact that the only thing the investor received was am IOU certificate from an entity that (a) did not legally exist and (b) owned no loans; hecen there were no loans “underlying” or anywhere else. By using the illusion the intermediaries received all the profit from “trading” with assets that were supposed to be in a trust, but which were never purchased by the trust. Hecne the money that was made was never applied to investor accounts because on paper it was neither the trusts nor the investors who owned the loans and the RMBS certificates held in “street name.”
Maintaining the illusion enabled the intermediaries to report that investors had lost money and the borrowers lost their homes without anyone being the wiser because that is what happens when you have a foreclosure. It all made sense except that the reality was quite the reverse — the intermediaries owed their profits to the investors less fees. With the foreclosure it doesn’t appear that the investors are entitled to anything other than the ent proceeds of sale. But the reality is that the investors were not entitled to any proceeds of a foreclosure sale but were entitled to the windfall “profits” created by the intermediaries trading on what should have been in the investors accounts but wasn’t because the appearance of a certificate being mortgage-backed is sufficient to escape regulation.
In many cases the entire proceeds were collected straight off the top of the foreclosure sale in the category of “servicer advances.” Servicer advances were nonexistent. First, the certificate holders were not ever receiving mortgage payments; they were receiving unsecured bond payments made by third parties on behalf of the illusion of the trust. Hence since mortgage payments were not going to the trust and since the investor payments were not made by the trust, no advances were required nor paid by third parties, who were propping up an enormous PONZI scheme. Instead a book entry was made off the record as though a servicer was making payments on behalf of a homeowner who was not paying on the loan. It’s true that investors kept getting payments for a time even when the income from a purported pool of loans was insufficient, but not because the servicer was paying them as advances. When the property is sold, all or most of the proceeds goes to the servicer as a credit against nonexistent advances. The real party in interest in such circumstances is the servicer claiming recovery of servicer advances that accrue only when the property is liquidated. This leaves the investor with no business reason to foreclose since there is no injury — either way it is going to be a loss for the investor but one that won’t be revealed until far down the road. But the investor’s loss comes not from the loss of the mortgage loan, but from the loss on the certificates issued by the nonexistent trust. In all events title to the property or the proceeds of sale does not go to the investors in RMBS or the investment vehicle REMIC Trust. The reality is far down the road (at least another 10 years) when the losses catch up with investors who thought their investments were relatively safe with the risk strictly controlled.