Citigroup coins crisis "Foreclosures gone wild!"

Zero Hedge founder, Tyler Durden, and his crew have been (as usual) on point with the unfolding foreclosure/mortgage/title fraud fiasco, and yesterday they brought us another report:

"Citigroup Call on Implications on Foreclosure: "Just the Tip of the Iceburg."

You know things are getting interesting when Citigroup hosts a conference call during which their expert guest speaker, associate law professor at Georgetown University Adam Levitin, calls the current visible ramifications of the foreclosure/mortgage/title fraud crisis "just the tip of the iceberg" and suggests major unseen problems to come, and then Citi, one the largest and "most respected" (ha!) banks in the world, issues its an official report on the crisis and the conference call which the bank decides to title along the lines of "Girls Gone Wild" with a Citi spin: "Foreclosures Gone Wild."

I kid you not.

Here's the document, "Foreclosures Gone Wild," available for our scribd'ing thanks to the Village Whisperer. The following are what I think are the most telling parts of the Citi document...with a little bit of my take added for good measure:

1.) Curse those "arcane" laws-- they're always getting in the way of our fraud!

Page 1: The underlying issues which have recentlyerupted involve the proper transfer of paperwork in the mortgage securitization process. Real estate law is “arcane” and requires that paperwork be physically transferred when mortgage ownership is transferred (“assigned”) from one party to another party. It appears that in many instances during the mortgage securitization process over the past few years, the paperwork was not properly transferred. If the paperwork was not transferred in the legally required manner, it raises questions not only about who owns the mortgages in question but also about the validity and tax exempt status of the trusts in which the mortgages reside. All of these issues also bear directly on the role played by the title insurance industry.

My comment: the reason why so many "instances" over the "past few years" when "paperwork was not properly transferred" were able to manifest is because of the bank-funded MERS front operation, which "appears" to have been basically attempting not only to circumvent those "arcane" laws, but actually to supersede them. MERS was hailed as a "replacement" to these damn pesky laws--and if it wasn't for those meddling judges, it'd have gotten away with it!

2.) Don't worry--everything is under control: we'll just pay people to commit perjury!

Page 1: Banks have attemptedto remedy the aforementioned problems by having employees sign affidavits that they have personal knowledge that the trust was once in possession of the necessary documents. Two problems have emerged with regards to these affidavits. First, several news stories have reported that the people signing these affidavits had no knowledge of the matters in question despite the fact that there were legally swearing that they did. Second, the affidavits may be irrelevant because the issue is not that the documents were lost but they were never properly transferred at each step of the aforementioned securitization process.

My comment: "Having employees sign affidavits" is a very interesting way to phrase the robo-signing debacle. From whom the orders came, we do not yet know. But we do have an admission from the operations supervisor at JPM's Chase Home Finance, Beth Ann Cottrell, who gave sworn deposition on May 19, that she and seven other JPM employees signed approximately 18,000 documents per month, and that they did this for several years. These so-called robo-signers often used wildly different signatures from one document to the next, and an unconfirmed report is floating around that another confirmed robo-signer Marshe Craine's signature is even on some of President Obama's mortgage paperwork. People are searching the internet for the names of these individuals, and inspecting their own mortgage/foreclosure documents. Indeed it is "just the tip of the iceberg."


3.) C’mon, America--who do you trust: us, the criminal consortium of banks hell-bent on extracting every last drop of wealth we can out of you, your house, your investments, and most especially, your government, or those damn pesky “arcane” laws of yours?! We repeat, in case you didn't hear us the first time, your laws are just stupid and "arcane," and are unnecessarily complicating the massive international fraud-based housing system we are attempting to implement, dammit!

Page 2: The underlying problems center around the proper transfer of paperwork. It is important to appreciate that real estate law is arcane and requires the physical transfer of documents when ownership changes hands. In industry parlance this transfer is known as “assignment.”
When a mortgage is securitized and placed in a mortgage pool, there are typically four parties involved. The mortgage bank or lender originates a mortgage and then sells it to a “sponsor” who in turn sells it to a “depositor” who then sells it to the “trust” which governs the pool. Importantly, as noted above, the original paperwork must be transferred at each step of the process.
It now appears that in many cases (1) the paperwork was not properly transferred and (2) it is unclear in many cases where the actual paperwork actually rests today.

My comments: Citigroup, repeating opinions, such as calling laws "arcane", do not magically make them fact.


4.) And how dare you people demand that we pay taxes! Taxes?! How are we
gonna completely enslave you to our evil fiat system if we have to pay taxes?!

Page 3: Most mortgage trusts were set up as REMICs (Real Estate Mortgage Investment Conduits) which are special purpose vehicles used to pool mortgages. Under the IRS code, REMIC confers a special tax status in which the cash flows to the trust are not taxed. Investors in the trust pay taxes. The tax exempt nature is important. If the trusts were in fact to be taxed, the taxes would distort the yields required by investors.
To qualify as a REMIC under the IRS code and enjoy the beneficial tax treatment, the trust (1) must be passive and (2) cannot acquire any new assets 90 days following the trust’s creation. If, as described above, mortgage documents were never correctly passed through to the trust when it was established, then the trust may not actually own the underlying mortgages it purports to own. Although it is possible that this issue could be remedied by some legal maneuvering, doing so could violate the REMIC status since the trust would be acquiring assets long after the aforementioned 90 day period has expired. Such a violation in turn could trigger a sizeable tax burden for investors. Our speaker indicated that there are a handful of open questions on this front and that this is a legal gray area.

My comments: "...the trust may not actually own the underlying mortgages it purports to own," not to mention, it might not have any entitlement to the "underlying" asset, and if the asset was derived through fraud, those in the trust collecting through the fruits of fraud might themselves be liable for repayment. Just ask the Madoff "investors."


5.) Drat! We should have made our buddy Paulson force the taxpayers buy the title insurance companies—that's what we should have done! How dare they do this to us banks?! But its not too late---we'll show them. Call Timmy G!

Page 3: If a scenario emerges in which title companies are unwilling to issue title insurance, in those scenarios lenders may cease lending. When a home with a mortgage on it is sold, the mortgage must be released at closing by the current mortgage owner before a new mortgage with title insurance is issued. If it is not known with certainty who owns the mortgage in question, it cannot be released. If the title company is not satisfied that there is a good release on the old mortgage, it will refuse to insure the new mortgage.

My comment: we have now reached the "scenario" of title insurance companies refusing to issue title insurance, including the nation's largest title holding company, Old Republic, refusing Ally Bank (GMAC Mortgage) and JPMorgan. I'm sure title insurance companies are searching like mad for the titles they do insure, because many no doubt have fraudulent transfers on their hands, and in their books.


6.) So what we created MERS to help us commit fraud---you got a problem with that?

Page 4: MERS (Mortgage Electronic Registration Systems) functions as a centralized electronic registry of mortgages and tracks ownership of mortgages. MERS allows mortgage ownership to change hands efficiently and relatively quickly since it is electronic and allows all parties to forgo making a filing in local land records. Indeed, MERS was designed to function as a substitute for local land records.

My comment: Well, hey, what's wrong with designing a bank-funded front corporation to "function as a substitute for local land records," aka "laws"? Get outta here--I do it all the time! Just last week I finalized my latest system, "TERS" or Truck Electronic Reigistration System, which allows me to state what my rig weighs and that my axles are legal, and blah blah blah, and hit the road, baby! Its been working like a charm for all those 79,000 lbs copper loads--I just state my empty wieght as 1,000lbs! Pretty cool, huh? Oh, and wait till you see my other invention CERS--Currency Electronic Registration System--that allows me to register my junk mail are vertiable currency. Yo, let me tell you what--substitutes for laws and records are waaaaaay better than the real thing!


7.) Oh, this Levitin guys is just another one of those lawyers who are so concerned about “laws.” Doesn’t he know that laws for people, not banks?

Page 4: Although MERS was designed to enhance efficiency in the mortgage assignment process, Levitin argued it may not conform with the law. “Slowly but surely” courts are issuing decisions which “cast validity on the MERS process.” Although ~60% of mortgages list MERS as the “nominee” which owns the mortgage, a handful of recent court cases have ruled that MERS has no standing in foreclosure actions either because (1) physical paperwork must be transferred when a mortgage is assigned by one party to another or (2) MERS has no true economic interest in the mortgage in question since it collects no payments from the borrowers.

My comments: whooops.


8.) Whatever with your “laws:” we own the government, so we have you either way.
Page 4: Ultimately, if these issues do in fact escalate, the Administration may try to broker some sort of settlement. If such deal brokering does take place, Levitin believes that “some payment” will be exacted from the lenders and servicers. The Administration could bargain for more mortgage principal write downs.

My comment: in other words, the Administration could completely ignore the systemic fraud and outrageous criminal behavior of the banks, and placate the voters with a mortgage principal write down plan funded by other taxpayers, leaving the banks completely untouched for their several years-long fraud scheme, and further paving the path of the United States to certain doom. Of course, that is all to completely ignore that fact that the federal government has no jurisdiction over a particular state's mortgage filing rules, or its "arcane" law, but can only constitutionally intervene in cases of interstate transactions under the Commerce clause. But that's didn't stop the feds before, so why start now?

And exactly this is happening right now. The mysteriously well-greased Interstate Recognition of Notarizations Act (HR 3808) slid through both the House and Senate without even making the news, and just in time for the Congressional recess. As for now, the president has pocket-vetoed the bill by refusing to sign it, which now sends the bill back to the House (I say "as for now" because you trust this president about as much as you could trust the last one). The bill is just a couple of pages long, and sounds benign at first:

HR 3808, Section 2:
Each Federal court shall recognize any lawful notarization made by a notary public licensed or commissioned under the laws of a State other than the State where the Federal court is located if--

(1) such notarization occurs in or affects interstate commerce; and

(2)(A) a seal of office, as symbol of the notary public’s authority, is used in the notarization; or...

As this sounds a lot like each State recognizing the others' driver's licenses (it is not, but it sounds like that). Of course, the federal government would never allow the same argument with guns or drugs, but this doesn't sound too bad. However, then you get to (2)(B), the very next line of the bill, and see exactly why this slid through the most pro-bankster Congress in decades like a bankster's newly sharped and nicely heated knife through a large, mindless, cowardly block of butter:

... (B) in the case of an electronic record, the seal information is securely attached to, or logically associated with, the electronic record so as to render the record tamper-resistant.

In other words, in States that have those pesky "arcane" laws that require physical transfer of the necessary documents, the rule of law in States that allow for robo-signing and non-judicial foreclosure will reign supreme. In other other words, States best shut up and listen to the banks and believe whatever they say especially if they can't prove it, and even if the States have the very signatory admitting that they lied, and even if the States have knowledge of the same notary "verifying" the words of the signatory even while the notary is looking at documents from the same signatory that have three different signatures. The notaries are not off the hook in this, either, as it appears many of them facilitated this operation (probably for the right price). The real name for the bill should have been the "Mortgage Document Fraud Immunity" bill.

So why do I call the lump of butter known as our Congress "cowardly," as well as "pro-bankster" and "mindless"? Why don't I name names? Well, you know I love naming names, but you see, we can't name names and we can't know which crooks voted for these crooks because the bill was passed in the House by a voice vote, and in the Senate by unanimous consent! That is as cowardly as it gets: the members of Congress apparently learned from TARP-stain, as pro-TARP congressman after pro-TARP congressman fails in the primaries and struggles for reelection, that flicking off the people and voting with the criminal elite isn't exactly good voting policy. So, instead of deciding not to flick off the people anymore, they'll just do it under the cowardly cover of a voice vote. That's why--its disgusting.

So, now for president Obama has curtailed the Mortgage Document Fraud Immunity Act of 2010, but I remain suspicious. I have no evidence for the following speculation, but here it is anyway: I think Mr Levitin is right. I think the administration is holding out for some election-saving last minute "bargain" with the banks that presents the appearance of principal reduction, moves perhaps 25% of the currently underwater loan-owners just to the surface, restores the banks' balance sheets through a massive taxpayer funded infusion, and disables the now 50 State AG's investigating the fraud. In reality, the "bargain" will be a TARP 2 under cover of "principal reduction," and will result by another massive transfer of wealth from the American people to to elite--and immune--banks. The people moved from underwater to treading water and gasping for air will be able to continue to pay the banks for perhaps another 2 years, at which point they will run out of stream, sink under, and have their houses taken after all, and after having paid the fraud-infested bank, which probably doesn't even own the loan or the title, another 50% of their income.

Sorry to be so "Debbie-downer", but that's what happens when you ignore fraud and cover it over with "bargains." Its like watching snow fall over a dunghill: it doesn't get rid what's underneath.

Sell Gold--Buy Samarium! Chinese exports limits drive rare earth metals prices sky high!

Yttrium, europium, and neodymium: do they sound familiar? It's not likely you'll remember them any more clearly by their other names, but just in case, they are Y, Eu, and Nd. I'll give you a hint: think chemistry class. Well?

Okay, so that's not helping: you can admit it--you flunked chemistry, and actually thought that yttrium, europium, and neodymium were three of the 58 moons of Jupiter, which means you flunked astronomy, too. No sweat, because unless your bathroom is wall-papered with the Periodic Table of the Elements, you can be forgiven.

Yttrium, europium, and neodymium are three of the 17 so-called "rare earth elements." We have all been exposed to them through those periodic tables securely tacked to the wall of our high school science classrooms, but the relevance of these elements is actually much more significant than we might realize, and even more significant than it was when we were in high school. If you have ever seen the F-22, if used an iPhone, Blackberry, or any number of other "smart" devices, or if you receive electricity from a wind generator, you are actually exposed to these elements more commonly than you think, and benefiting from their unique properties. Rare earth elements (or "metals") are vital to today's new "smart" and "green" industries because of their role in enabling miniaturization and increasing the efficiency of electromagnetic generators and motors.

Of course, while these minerals allow for all kinds of so-called "green" devices, nothing in life is free, and so, not surprisingly, mining for these rare earth metals happens to be rather deleterious to, you guessed it, the environment. Therefore, also not surprisingly, countries with little or no environmental regulations have a huge advantage over those like the United States which do have such restrictions. So, not surprisingly, China is the world's leading producer of theses 17 rare earth elements.

Rare earth metals are not really that rare (its a chemistry name, not an economics name), but they are hard to extract from the earth because they do not appear as stand-alone metals. This Reuters article summarizes the importance of rare earth metals, particularly in the above-mentioned "clean" technologies. From the article:

"What are the rare earths used in? Rechargeable batteries for electric and hybrid cars, advanced ceramics, magnets for electric car motors, computers, DVD players, wind turbines, catalysts in cars and oil refineries, computer monitors, televisions, lighting, lasers, fiber optics, glass polishing, superconductors, and weapons."

And those last two, superconductors and weapons, have the focused attention of the Pentagon, to put it mildly. Superconductors are a category of special materials capable of allowing electrical flow with zero resistance when the materials are cooled to extremely low temperatures. And I mean extremely low temperatures; a "high temperature" superconductor functions at the temperature of liquid nitrogen, which boils at -321 degrees Fahrenheit. Superconductors occupy an ever increasing field in engineering, particularly for the purposes of defense (and offense), as well as power distribution, and anything having to do with supermagnets (ie, high speed trains). Weapons are, of course, one of the United States' biggest export classes and an obsession of the American military-industrial complex. Various weapons from the Pentagon's "smart bombs" to modern fighter planes cannot happen without certain rare earth metals. From this WSJ article, "China Hold on Metals Worries Washington:"

"The fins that steer precision bombs, for instance, have samarium-cobalt permanent magnet motors. The motors that run the rudder and tail fins on a high-performance fighter aircraft like the Air Force F-22 Raptor are built with lightweight, rare-earth magnets. Neodymium is found in the solid-state lasers used to designate targets."

And that is just to name a few applications. You can bet that there are dozens of classified applications about which we have no knowledge. This is exactly why the Pentagon is quite "worried" about China's dominance of the rare earth market. Advanced technology can't do a nation much good if it can't actually be produced, and the Pentagon's advanced applications can't be produced if the major material supplier refuses to supply the materials.

"Major materials supplier" is truly the only title appropriate for China when it comes to rare earth metals. Monopolistic supplier is nearly accurate, but off by a mere 3%. According to the Wall Street Journal, China supplies 97% of the world's supply of rare earth elements. Beijing has a near monopoly on the very materials the Pentagon needs. However, this is by no means invincible monopoly, of course, because the US and other large nations (particularly, Russia) could have themselves been the world's leading suppliers if they would have bothered to mine for the materials domestically. For a long list of reasons, the top ones of which are environmental, the US instead depends on buying rare earth metals from China. This plan works as long as China goes along.

But guess what?

China's not going along anymore.

Demand for rare metal metals increases everyday as new applications are discovered and "clean" technology becomes more important (and governmentally subsidized), and demand is up nearly 20% per year for the last several years. For price stability, increased demand must be met with increased supply, but China is in control of the supply, and China is not stupid. Remember, China calls the shots on 97% of the world's supply of an increasingly sought-after commodity class. Everyone wants it, and only China has it: you don't need an economist to figure this one out.

Indeed, you don't have to be an economist, but apparently, the defense center of the world's most advanced nation and largest economy, the US Pentagon, could not foresee this obvious result. They just couldn't see it coming! In mid-June, the Chinese government announced that exports for the latter half of this year would not be increasing. Notice, that is exports, not production, which means that China is either stockpiling or utilizing the supply. Furthermore, China will not increasing exports of rare earth elements in 2011, either. With announcements like this from the world's near-monopolistic supplier of a commodity class, you don't have to wait long to see an impact in the market. Within the same day, in fact, that China confirmed rumors of the supply squeeze, the rare earth market reacted. We are truly seeing the impact of this announcement on availability reflected in price, right now. Check out what has happened to rare earth metal prices since July:

Europium oxide: up 14% ($540/kg to $615/kg)

Neodymium: up 80% (from $50/kg to $90/kg)

Yttrium: up 84% ($45/kg to $83/kg)

Samarium: up 152% ($21/kg to $53/kg)

WOW! And we thought gold and silver were doing well!

Check these moves out graphically, in order left to right as listed above:


Now we can see why users and consumers, particularly the Pentagon, are "concerned." And so, of course, now Congress has to get involved: besides the House sociopathically declaring China "currency devaluator", some potentially abnormally non-short-sighted legislation passed the House last week. The Rare Earths and Critical Materials Revitalization Act of 2010 aims to jumpstart the domestic rare earth metals by (of course!) subsidizing banks through loan-backing of domestic exploration and mining ventures, among other incentives. I'll withhold further commentary on the bill until I have a chance to review it. For some reason, I just think I'm going to find some machinations in it, but maybe "this time its different," and Congressional intervention will actually help.

Why am I so skeptical? Watch this video from Bloomberg. It was Congress, itself under the "Free-Trade-will-save-us-all" mantra of the (post-likewise globalist Bush 41) Clinton Administration, that allowed China to enter the rare earth metals market in such a massive way. Despite the objections of many, in 1995, Congress approved the purchase of Indiana-based Magnaquench, the company that was at that time responsible for meeting 80% of the military's rare earth needs for laser-guided weapons. Congress "imposed" the condition that the Chinese company maintain the Magnaquench Indiana facilities, but by 1993, they were shuttered. One former Magnaquench employee recounts the now-Chinese Magnaquench as telling employees that "you guys can work for nothing, we're still going to move it."

Furthermore, with a few years of the Chinese entrance to the market, US-based Molycorp, owner of the largest non-Chinese rare earth metals mine in the world, was forced to close its massive Mountain Pass mine in the Mojave of California due to the company's inability to compete with Chinese prices. Now, after 15 years and several folds in price, Congress is getting involved again. I can see Congress passing this latest act, only to then authorize the sale of more US mines to Chinese companies five years from now: we pay for the development, the banks get the interest, and then Congress authorizes the purchase by China. (After all, China is going to start demanding some kind of collateral against this massive amount of US debt they hold, but I digress. That's so cynical, I know, isn't this what "free trade" is all about?)

So, at least until the Senate passes the Rare Metals Act of 2010, the top performer in metals this year won't be silver or gold---it will be samarium! Rare earths will likely continue to outperform even after, as China has already declined to increase exports for 2011, and mining and exploration operations take years to get off the ground. Act fast, and you too might have a chance to make millions with the rare earth bubble!

{Investment alert: I'm being sarcastic! Someone's gonna make millions, but not me! Commodities trading is for the hardcore pro's, and the pro's alone. I'll stick to gold, silver and copper pennies, and maybe a little Swissy. :) }

MERS, Citibank, Ally named in civil RICO suit; Nation's largest title insurance company denies new title insurance polices to JPM, Ally sales

A civil Rackteering-influence and Corrupt Organizations (RICO) suit has been filed on behalf of Kentucky homeowners against Ally Bank, Citibank, and the major bank-created/funded title middleman front, Mortgage Electronic Registration Service (MERS). From Bloomberg:

"The suit claims that through MERS the banks are foreclosing on homes even when they don’t hold titles to the properties.

'Defendants have filed foreclosures throughout the state of Kentucky and the United States of America knowing that they were not the ‘owners’ or beneficiaries of the loan they filed foreclosure upon,” the homeowners wrote in their complaint filed Sept. 28 in federal court in Louisville, Kentucky.

The homeowners claim the defendants filed or caused to be filed mortgages with forged signatures, filed foreclosure actions months before they acquired any legal interest in the properties and falsely claimed to own notes executed with mortgages."

The title insurance crisis is taking hold as well. The nation's largest title insurance company, Old Republic Title Holding Company, announced that the company has ceased offers of title insurance to all Ally Bank and JPM foreclosure sales. Bank of America, which has already suspended foreclosures in the face of the 40 state AG investigation, is likely next.

If the nation's largest title insurance company is too scared to get near these toxic titles, who will? The plot gets thicker.

56% of all 2010 Q-2 housing transactions in Nevada are foreclosure sales

These are just stunning numbers from RealtyTrac, via Bloomberg, that demonstrate the enormity of the foreclosure crisis. According to RealtyTrac, more than half of all second quarter home sales in Nevada were foreclosure sales. Here are the exact numbers of the top foreclosure sales states for 2010 Q-2:

Nevada - 56%
Arizona - 47%
California - 42%

Nationwide, foreclosure sales accounted for almost 1 in 4 transactions (24%). Then there's this:

"U.S. home seizures climbed to records in three of the last five months, RealtyTrac said Sept. 16. Banks seized 95,364 homes in August and issued foreclosure filings to 338,836 owners, or one of every 381 U.S. households, according to the company."

The announcements over the last weeks and days that four major US banks, including the nation's largest mortgage lender, Wells Fargo, have suspended foreclosures due to accusations of fraud, perjury, and document falsification are being cited by some as evidence that the already over-supplied housing market will at least enjoy a short reprieve from having new homes, due to new foreclosure, flood the market, and so these events should actually work to support prices. But this will only be temporary, assuming it happens at all, as any positive effect the suspension might bring could very well be cancelled out by the new fears that the suspension itself causes--the fears that prospective foreclosure buyers are going to meet, now that buyers realize that they cannot trust the bank's word that the foreclosure itself was not fraudulent. (Would you want to go anywhere near that title?) This is a legitimate fear: considering that it appears quite clear that these banks lied in court, the next logical assumption would be to expect that the banks would lie to buyers!

If 24% of the nation's housing sale activity in Q-2 was due to foreclosures, what will a drop in foreclosure sales do to total home sales?

Answer: it will result in a drop in total sales. And what will result from a decrease in total sales? That would be, an increase in supply, and thus a downward pressure on prices. Continuing downward pressure on prices reduces the equity in homes, and increases the likelihood that underwater home-loan-owners (which includes 1 in 5) will walk away from the shackles of their debt and surrender the house to the bank in foreclosure. If foreclosures increase, then the supply increases, further pressuring prices downward and further increasing the number of underwater houses, into a spiral. This is what happens was market participants lose confidence in each other: remember, it was a lack of confidence (due to knowledge of the evidence!) that caused the credit markets to freeze in September 2008. Confidence is essential, and how can you possibly confidently trust a bank that lies in court?

The even more grave issue is that of those thousands of Q-2 foreclosures sales and thousands more completed prior, at least some will likely be determined as flawed and possibly as outright fraud. This will further erode confidence in the housing market, and press prices lower yet, as reluctance to buy and fear solidify.

In a few short year years, the American housing market has transitioned from a system based on unsustainable sure-fire-ever-increasing home prices and television shows on "house flipping," to a system based 24% on foreclosure sales.

How is it that this crisis is getting any better?

Exposure of MASSIVE foreclosure fraud continues, accelerates; Patterns of fraudulent mortgages emerge; Title insurance fraud ramifications balloon

This is a must-read article via Zero Hedge:

"The biggest fraud in the history of capital markets."

These days are looking more and more like August 2008, as this foreclosure/mortgage fraud crisis is getting more and more severe by the day. Bankster Report's favorite, Catherine Austin Fitts, has been saying since at least 1995 that many of the "houses" to which MBS are supposed to be value-linked don't exist, and never did. In 1995, she confronted a Clinton administration official with the fact that "the Administration was planning on issuing more mortgages than there were houses or residents," to which she was told "Shut up, this is none of your business."

It's our business now, and it's the business of at least 40 attorneys general and hundreds of fraud investigators.

The mortgage market, from the most fundamental perspective, is in fact based on fraud, because mortgages themselves in our financial system are based on non-existent money. But Ms Fitts (and me too) think that the fraud is much less "abstract," but literally involves not only non-existent money, but non-existant houses. This latest robo-signing debacle only more clearly exposes that no one--not regulators, not bankers, not the market, and not even market participants and the people buying this crap--are even concerned with the legitimacy of the documenting paperwork: this current, rapidly expanding foreclosure fraud crisis is the obvious result of the underlying mortgage fraud crisis. Investigators are finally working it backwards: when a good doctor sees certain symptons--that is, banks having using illegal practices during foreclosure proceedings--he can works it back to determine the specific disease causing these symptons--that is, the banks using illegal practices to get the mortgages in the first place!

The events of this last month, thanks to judges and lawyers courageous enough to challenge the banks as well as some whistleblowers from the banks themselves, are making it clear that the largest US banks have absolutely no qualms about submitting fraudulent documents, suborning their employees to commit perjury, and outright circumventing the law. As Bloomberg reports today, Wells Fargo, JPMorgan Chase, and Ally Bank (the post-TARP name of GMAC) have admitted submitting fraudulent documents in hundreds of thousands of court cases. Would it be such a big jump to simply fabricate some mortgages, securitize them, and submit some nice, new, shiny tranches of "AAA" MBS to the market? If the banks are committing such crimes today in this "new age of increased regulation," how much more would they have been tempted to do when regulation was "more lax"?

From the above Bloomberg article:

"In a lawsuit filed on behalf of Kentucky homeowners last week, plaintiffs claimed banks, MERS [the Virginia-based Mortgage Electronic Registration Systems, which handles mortgage transfers between member banks] and loan servicers filed mortgages with forged signatures, submitted foreclosure actions months before they acquired any legal interest in the properties and falsely claimed to own notes executed with mortgages."

If true, all of the above are serious cases of mortgage and foreclosure fraud, and perhaps more complexly, title fraud and title insurance fraud. For example: JPM forecloses on a house it claims to own because the current occupant is not making mortgage payments. JPM and the occupant go through the court proceeding, and despite the occupants protestations that JPM is not following the law, the occupant can't prove his claims and JPM doesn't admit to having done anything wrong, and so the judge grants JPM possession of the house. The occupant, who had purchased title insurance along with his now-doomed mortgage, loses the house. JPM resells the house to a new person and also sells that person a matching loan. The new occupant is current on payments, and himself has title insurance. The non-paying occupant has been removed, JPM was able to recover losses, and a new occupant is in the home: the system has "worked." Right?

He he he .... One year later (ie: today), JPM is sued by the attorney general of the State for fraud after the AG discovers patterns of document fraud and falsified court documents and gather testimony from JPM employee who state that they were told to robo-sign documents, which both the employees and supervisors knew was illegal, but did anyway. JPM admits that it "may" have used robo-signers for the documents, and perhaps even forged a few signatures, and is "having trouble" producing the title in some of the foreclosures cases in the AG's State. The original occupant sees this story about JPM--the bank that he claimed was up to something fishy during the foreclosure proceedings---and calls a lawyer. He asks a simple question: "Mr Lawyer, does my title insurance cover fraud?" The lawyer says, obviously, "Of course. Why?"

Meanwhile, the second occupant is still faithfully paying JPM for his loan, and hasn't missed a payment. Of course, he might be paying JPM, but JPM doesn't really own the title anymore, because JPM has pledged it as collateral for some other loans from another bank, and has also securitized the original loan into several tranches of "AAA" MBS and sold them. MERS is holding the title as the middleman between the banks. The lawyer for the first occupant of the house calls the AG to report his client's case. The AG adds the case to his successful fraud suit against JPM, and JPM is found guilty of filing fraudulent documents and falsifying court records.

Upon the conviction, the lawyer calls his client's (the original occupant) title insurance company. Like all insurance companies, ABC Title Co is just another financial institution, and the company has been not only watching the JPM cases closely, but has been suffering itself due to the rulings. As an insurer against fraud, ABC Title is now finding itself liable for thousands of payouts to the mortgage holders that JPM fraudulently foreclosed upon. ABC Title can't keep up, of course, and so ABC itself sues JPM. Meanwhile, the original occupant is also fighting to recover the title itself, which JPM has fronted as collateral and which is in the supposedly in the possession of the MERS middleman, and which another person entirely--the second occupant--has an seperate independent title insurance claim on. So, there are two individuals with two different insurance claims on the same title, a title that is pledged as collateral to a second bank, a third party title holder who has no idea who really owns the title, and a group of MBS holders expecting their money from JPM, which JPM is expecting from the second occupant! See what a mess fraud makes!

How does a judge settle this--and how do the title insurance companies survive (never mind the people)? They don't: there is not enough to go around. If JPM committed fraud, and the first occupant had title insurance for fraudulent claims against the property, then the title company owes the first occupant compensation. If JPM committed fraud that impacted the title company, then JPM owes the title company compensation, too. And then there's the guy who bought title insurance on a title that had a latent fraud claims against it and that happens to be the title for the house he's living in and financing. This is not even to mention anything about the second bank which is now legally entitled to the title as collateral if JPM itself starts missing payments to the second bank! This why analysts are calling the foreclosure fraud mess a "hydra": there are too many different faces on one single house, and one of the ugliest faces is the title insurance problem.

We know that we have people in houses paying mortgages to banks who claim to own the loan or the title, but cannot prove either. We also know that we have former loan-owners who are now home-owners because no mortgage company or creditor could produce the title in court. We also know that Bank of America has "foreclosed" on houses which the bank doesn't even own. The opposite of this--that side that I think will be exposed especially through title fraud/title insurance fraud--are the creditors with claims to houses that don't exist, and banks with "assets" on their balance sheets based on ghost houses that even a ghost could live in. We know that there is more debt than money on the planet, and more money than real assets, as the derivatives market is a $1.5 QUADRILLION "market" of promises and exposures, or...

$1,500,000,000,000,000 of promises that will never be fulfilled.

Fifteen thousand Trillion promises. We can't even imagine these numbers. How people can look at a number like that and claim that the global economy is "fixed" and what happened in September 2008 was a once-in-a-lifetime market crash is totally beyond me. Two years after being saved by the master heister Mr Paulson, we have banks admitting that they basically used taxpayer money to fund their massive mortgage fraud operations. Of course, we "conspiracy theorists" knew that there was incessant fraud all along which is exactly why Mr Paulson heisted America to save the banks in the first place. But now this is mainstream news, and attorneys general in 40 States are investigating banks, and the Wells Fargo, Ally (GMAC), JPM, and PNC have all suspended foreclosures until further notice. Its not a "conspiracy theory" anymore.

So, to recap: two years ago, the American taxpayer was heisted by a consortium of banksters, including master heister Mr Hank Goldman Sachs Paulson, which dropped the DJIA by 777 point in a single day, and threatened Congress with martial law lest it authorize a $700 Billion transfer of wealth from the people of the United States to the banksters' group of fraud-laced, immoral, corrupt banks that are themselves so incapable of operating responsibly that without such a transfer they would have gone bankrupt within weeks. The weak, corrupt Congress authorized the restriction-free transfer, and within two days of the bill becoming law, master hiester Paulson completely abandoned the "we must buy the toxic assets!" that lie he had previously concocted and vigorously repeated for the purposes of fear-mongering the entire planet into believing that an absolutely certain "complete global economic meltdown" would ensue if we didn't "buy the toxic assets." Once he had the money in hand, this mantra was abandoned, and suddenly Mr Paulson revealed an entirely new plan to, literally, deliver the money directly to the banks and hope they pay some of it back--the very banks that cannot even handle their own money responsibly nor that of their clients. Fast-forward two years, and these same banks are now admitting to massive and systemic foreclosure fraud, even to the point of forging signature, falsifying court documents, and intentionally and knowingly breaking the law.

But that's not all--because guess what? If these banks get financially hit because of this, the American taxpayer is going to be the one to pay. Not because of any new program that might be concocted to "save" them lest the Moon explode, but because of one that already exists: remember the FDIC's Temporary Liquidity Guarantee Program? Its the one were you get to back about half a TRILLION dollars in private bank paper? Yeah---what happens if JPM ($39.6 Billion in TLGP paper) and BofA ($44.5 Billion) get crimped for cash again due to their multi-year foreclosure fraud operation and the ramification? Who covers the payments to $95 Billion-worth of their creditors?

Who? We do, of course.

So--so much for that "crime doesn't pay" business, kids. Actually, crime really does pay, and pays really, really, really, really well if you do it in an Armani suit. I'm talking BILLIONS "well"---TRILLIONS "well." Plus, there's a great medical plan, solid benefits, and you might even get to visit the White House.

JPM's Jamie Dimond and Goldman's Lloyd Blankfein did!

PHOTO: Getty Images,
"Wall Street Backs Barack Obama's Toxic Asset Plan",
UK Telegraph. Editorial and news use.

And they will be back.