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Izz-ru,
Would you kindly share your PDF that you mentioned below. Thank you
https://shadowproof.com/2011/04/03/60-minutes-tackles-foreclosure-fraud-tonight-exposing-unresolved-chain-of-title-problems/
Per article published on April 03, 2011
“60 MINUTES TACKLES FORECLOSURE FRAUD TONIGHT, EXPOSING UNRESOLVED CHAIN OF TITLE PROBLEMS
03
APR
2011
DAVID DAYEN
I am definitely looking forward to tonight’s 60 Minutes special on foreclosure fraud. In it, the head of the FDIC, Sheila Bair, will call for a cleanup Superfund to cleanse the country of toxic mortgages.
Banks so poorly handled documentation on millions of mortgages that many today cannot prove that they own the homes they want to foreclose on. The resulting rash of lawsuits from people seeking to save their homes has one of the government’s top banking regulators worried that the torrent of litigation will delay the real estate market’s recovery.
Federal Deposit Insurance Corporation Chair Sheila Bair tells Scott Pelley banks should be forced to contribute billions to a clean-up fund that will help stressed homeowners stay in their homes and stave off lawsuits – there are 30,000 already – that threaten the economic rebound […]
Like last year, banks are expected to foreclose on a million mortgages this year, a scenario that could generate more lawsuits over mismanaged paperwork. “I think that this litigation could easily get out of control,” says Bair. “…We’re already feeling like we’re falling behind it,” She thinks a large clean-up pool funded by the banks that would pay homeowners to accept a bank’s ownership claim without a lawsuit is necessary. “I would assume it would be billions [that the fund would need],” Bair tells Pelley.
It sounds like 60 Minutes actually got this and reported it correctly. Lynn Szymoniak, one of the leading experts in foreclosure document fraud, is profiled in the piece. You will see forged paperwork, misidentified dates, and fabricated documents.
Now, regardless of what you think of the proposed mortgage settlement, and the banksters’ counteroffer, it’s important to note that what Bair’s talking about would have to exist separate from that. Attorneys General or even federal banking regulators do not have the authority to waive claims in state courts on behalf of homeowners. So this Superfund would be a separate event.
And the more banks resist it, the more liable they will become. In an important case this week, a judge in Alabama dismissed a foreclosure because the bank failed to comply with the pooling and servicing agreement for transferring mortgages to the trust. This would be a stunning ruling if applied broadly, though whether or not it will stand as precedent across other states remains to be seen; it’s far too early in the process to determine that. But we know that banks simply did not convey mortgages to trusts properly as a general rule. Foreclosure fraud can be seen as a coverup for that original sin. And if state courts are starting to make rulings based on that sin, banks will be stuck and unable to pursue foreclosures on tens of millions of loans.
The ruling in favor of the borrower endorses an argument we have made since last year on this blog, that the pooling and servicing agreement stipulated a specific set of transfers be undertaken to convey the borrower note (the IOU) to the securitization trust within a specified time frame. New York trust law was chosen to govern the trusts precisely because it is unforgiving; any act not specifically stipulated by the governing documents is deemed to be a “void act” and has no legal force. So if a the parties to a securitization failed to convey a note to the trust within the stipulated timetable, retroactive fixes don’t work. In this case, the note had been endorsed by the originator, Encore, but not by the later parties in the securitization chain as required in the pooling and servicing agreement.
There’s evidence to suggest that, particularly in hard-hit foreclosure states, judges have simply had enough and are dismissing cases left and right because of shoddy paperwork. So while the banks give off a public posture of calm, in reality the continued awareness of fraud is hampering their ability to process foreclosures and locking up the system. Exposés by the press have had an impact as well: after a story by Pro Publica about a trustee blocking a mortgage modification for a borrower in Georgia, the servicer postponed the foreclosure for two months to give an opportunity for the trustee to give up and allow the modification.
The point is that it’s not the captured political figures who will eventually give urgency to the banks to find a resolution – it’s the judicial process. And while that may take a while, it’s a potentially much more favorable scenario for borrowers than some settlement which threatens to strip away their due process rights. Bair’s Superfund idea only works if it is commensurate with the level of title problems, and only if it’s completely separate from punishment for fraud already committed in state courts.“
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The 60 minutes piece aired on April 03, 2011
https://m.youtube.com/watch?v=nCjK6GmsqRY
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Lynn Szymoniak is also detailed on my previous posts
https://www.boardpost.net/forum/index.php?topic=10656.msg250059#msg250059
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Per article published May 31, 2016:
https://www.google.com/amp/s/www.vice.com/amp/en_us/article/yvxajb/what-happened-when-the-fbi-investigated-foreclosure-fraud-in-florida
“NEWS
|
By David Dayen
|
May 31 2016, 8:30am
Inside the Abortive FBI Investigation of Illegal Foreclosure in Florida
The massive probe threatened to implicate the biggest banks in America, but sent just one woman to prison.
Six years ago, FBI agents in Jacksonville, Florida, wrote a memo to their bosses in Washington, DC, that could have unraveled the largest consumer fraud in American history. It went to the heart of the shady mortgage industry that precipitated the financial crisis, and the case promised to involve nearly every major bank in the country, honing in on the despicable practice of using bogus documents to illegally kick people out of their homes.
But despite impaneling a grand jury, calling in dozens of agents and forensic examiners, doing 75 interviews, issuing hundreds of subpoenas, and reviewing millions of documents, the criminal investigation resulted in just one conviction. And that convict—Lorraine Brown, CEO of the third-party company DocX that facilitated the fraud scheme—was sent to prison for duping the banks.
Thanks to a Freedom of Information Act request, VICE has obtained some 600 pages of documents from the Jacksonville FBI field office showing how agents conducted a sprawling investigation. (The Jacksonville case is also featured in my new book, Chain of Title.) The documents suggest the feds gained a detailed understanding of how and why the mortgage industry enlisted third-party companies to create false documents they presented to courts, as detailed in the 2012 National Mortgage Settlement, for which the big banks paid billions in civil fines. The banks' conduct is described in the settlement documents as "unlawful," and the Jacksonville FBI had it nailed almost two years earlier.
In these case files, you can see the seeds of an alternative history, one where dedicated law enforcement officials take on some of the country's most powerful financial institutions with criminal prosecutions.
So why didn't they?
"Given everything I see here, you'd have thought there would be many more convictions," said Timothy Crino, a now-retired FBI forensic accountant who reviewed case file documents. "If I was the case agent, I would be devastated."
At the center of the FBI investigation were the documents required to turn ordinary mortgages into mortgage-backed securities (MBS). During the housing bubble, banks bought up mortgages and packaged thousands of them at a time into MBS; this was known as securitization. The mortgages were transferred through a series of intermediaries into a trust, and the trust paid out investors with the revenue stream from homeowners' monthly payments.
In the end, of course, an upswing in the number of homeowner defaults led the MBS market to collapse disastrously, nearly taking down the worldwide financial system along with it. But there was another problem. In order to legally foreclose on homeowners, the financial institutions doing the foreclosing must produce documents proving the mortgages were properly transferred from their originators through intermediaries and on to the trusts, detailing every step along that chain.
"If evidence collected shows intent to defraud investors by the real estate trusts, this matter has the potential to be a top ten Corporate Fraud case." —FBI Criminal Investigative Division memo, June 2010
This is common sense: If you accuse someone of stealing your car, you have to establish that you actually owned it in the first place.
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This chain of ownership was at the heart of the FBI investigation, according to a "request for resource enhancement" sent on May 25, 2010, from the Jacksonville office to Sharon Ormsby, then chief of the FBI Financial Crimes Section in Washington. (Ormsby no longer works for the bureau, and an attempt to contact her through the Society of Retired Special Agents of the FBI was unsuccessful.)
"The fraud in this matter was the result of negligence in the process of creating Mortgage Backed Securities (MBS)," the memo reads.
The Jacksonville FBI agents cite three reasons why the banks didn't properly transfer the mortgages. First, the sheer volume—millions of loans—would have made it too time-consuming to file each transfer in county courts in advance. Second, it would have been too costly, as each transfer triggers a recording fee of somewhere between $35 to $50. And finally, "during a booming market, the trusts did not recognize the need to secure the loans," because they didn't believe it would ever be called into question in the courts.
The Jacksonville FBI memo claims the trusts committed fraud by reporting to the Securities and Exchange Commission (SEC), the credit rating agencies, and investors that they had clear title to the properties when they actually didn't. And agents present evidence that mortgage-servicing companies and their law firms hired third-party outfits to falsify the mortgage documents needed to foreclose after the fact.
Among those companies was DocX in Alpharetta, Georgia, which provided "default services" for mortgage-servicing companies and their law firms; when a loan went into default, they came to DocX for assistance. Because the company was a subsidiary of Jacksonville-based Lender Processing Services (LPS), the primary default services provider in the United States, the Jacksonville FBI office had jurisdiction over the case.
It used to be fun to work at DocX, one employee said in an FBI interview. Now, it was more like a "sweat shop."
"LPS and other default services created false and fraudulent documents which appeared to support their foreclosure positions," the memo reads. "LPS and the associated foreclosure mills utilized these false and fictitious docs in Courts across the nation to foreclose on homeowners."
It wasn't even that difficult to discover the falsehoods when you actually looked at the documents. Lynn Szymoniak, a West Palm Beach attorney who specialized in white-collar insurance fraud, fell into foreclosure in July 2008, and got sued by the trustee of her mortgage, Deutsche Bank. But when she finally received her mortgage assignment, it was dated October 17, 2008, three months after Deutsche Bank filed for foreclosure. So at the time of the foreclosure filing, Deutsche Bank didn't legally own the loan over which it sued her.
Adding to the chaos, one of the so-called witnesses on Szymoniak's mortgage assignment, Korell Harp, was in state prison in Oklahoma at the time he supposedly signed the document. (Ironically, Harp was in prison for identity theft, even as his own identity was being stolen for use in foreclosure documentation.) The copy of the promissory note was a hastily executed cut-and-paste job, fabricated after the fact. A woman named Linda Green signed the mortgage assignment in Szymoniak's case in her capacity as the vice president of American Home Mortgage Servicing Inc.; she also signed as the vice president of at least 20 other financial institutions, according to public records Szymoniak compiled. And Green's signatures all featured different handwriting, meaning they weren't just fabricated, but forged.
It was Szymoniak, based on weeks of public records searches, who wrote the first official fraud report to the US attorney's office in Jacksonville. She had several friends in that office, prosecutors she'd partnered with on insurance fraud cases. So she sent a complaint to Assistant US Attorney Mark Devereaux and FBI Special Agent Doug Matthews, who managed mortgage fraud cases. The result was the Jacksonville grand jury investigation.
Szymoniak filed her own whistleblower lawsuits detailing foreclosure fraud and eventually won $95 million for the government under the False Claims Act. For bringing the case to the government's attention, she received a share of that award, totaling $18 million.
The banks had foreclosed on exactly the wrong person.
According to dozens of interviews conducted by the FBI, DocX originally created lien releases, signifying when mortgages got paid off. But as the housing bubble collapsed and trustees suddenly needed evidence for their foreclosure cases, the business model shifted to pumping out mortgage assignments. Temporary and low-wage workers hired by DocX were now posing as bank vice presidents, working long hours signing documents at two long tables.
It used to be fun to work at DocX, one employee said in an FBI interview. Now it was more like a "sweat shop."
The documents coming out of DocX were sloppy at best. Several mortgage assignments were filed with courthouses that listed the recipient of the mortgage as "BOGUS ASSIGNEE." This was apparently a placeholder on a DocX template assignment that employees habitually forgot to change. At other times, employees appear to have forgotten to change the date, executing assignments effective "9/9/9999."
"When I joined the bureau, white-collar crime was the number one priority in the country." —David Gomez, former FBI agent
In the Jacksonville FBI files, DocX employees said that they were constantly pushed to process more documents. Eventually, the company hit on a concept called "surrogate signing." Only one individual was identified on corporate resolutions as the officer authorized to sign on clients' behalf, but under surrogate signing, other employees at DocX would sign for that authorized individual. Employees would sign as many as 2,100 documents per day, and each surrogate signer would double the workflow. In early 2009, DocX management hung a banner in the office proudly displaying its successful document production to superiors visiting from LPS.
It read: "Two Million Assignments."
The employees don't appear to have ever seen any official documents authorizing them to sign on behalf of financial institutions where they did not actually work. Indeed, when the Jacksonville FBI office subpoenaed them, agents found that the "corporate resolutions do not give DocX/LPS employees the authority to sign on behalf of the institution."
But while many people working at DocX believed the scheme to be fraudulent, according to the memo, none of them questioned the practice for fear of losing their jobs. They were reassured repeatedly that everything was legitimate. Some managers apparently told employees to keep quiet for "the good of the company." Even the managers professed that they were trying to meet LPS demands and accomplish an impossible task of completing millions of mortgage assignments.
One manager stated in an FBI interview that if she "was guilty of anything, she was guilty of being ignorant."
LPS management in Jacksonville broke up the surrogate-signing party in November 2009, after a foreclosure defense attorney began questioning their practices. Executives at LPS fired Brown, founder and CEO of DocX, claiming she began surrogate signing without their knowledge. But DocX continued to sign on behalf of corporate officers at defunct companies for months afterward, according to the memo. And because the trusts had to receive mortgage assignments within 90 days of their establishment and not years later, the document production itself was fraudulent, the Jacksonville FBI alleged, whether the signatures were forged or not.
(LPS, now known as Black Knight Financial Services after a series of corporate mergers, did not respond to a request for comment for this story.)
Between February and May 2010, Jacksonville FBI agents met with state and federal officials, including members of the SEC, Federal Deposit Insurance Corporation (FDIC), and Florida's Department of Financial Services. They issued hundreds of subpoenas and prepared to seize more than $100 million in assets in the case. On May 17, they met with officials from the FBI's Economic Crimes Unit, which is responsible for overseeing financial fraud investigations in the field like Jacksonville's, to discuss the case and explain what they needed.
A week later, Jacksonville agents made the formal request for help to FBI headquarters in Washington.
"Jacksonville is a small field office with a White Collar Crime Squad of nine agents," the memo reads, explaining that six of the nine were committed to other cases. "In short, Jacksonville does not have the necessary resources to begin addressing this matter."
Jacksonville wanted the Economic Crimes Unit to activate the "Corporate Fly Team," a group of experienced agents with backgrounds in white-collar crime who travel to work on big cases. The extra bodies would help conduct interviews with officials at loan servicers, foreclosure law firms, trustees, and document custodians around the country. In addition, Jacksonville's office wanted an investigative team of 12 agents and two forensic accountants. Six agents and one forensic accountant would come from FBI headquarters, the Florida Department of Financial Services and the IRS would supply a few agents, and Jacksonville would provide the rest, including the second accountant. The agents from headquarters would have a 90-day "temporary duty" (TDY) assignment. After that, Jacksonville wanted to augment their "Funded Staffing Level" (FSL) with eight additional white-collar crime agents "to permanently address this matter." Jacksonville also wanted to rent an offsite facility for the storage and review of documents.
"It's a typical bureau request," retired FBI agent Timothy Crino told me. "You ask for everything you can possibly ask for and hope you get half of it."
And they did get about half, at least at first. The Criminal Investigative Division (CID)—the FBI's single biggest department—replied to the Jacksonville request on June 24. "If evidence collected shows intent to defraud investors by the real estate trusts, this matter has the potential to be a top ten Corporate Fraud case," the reply reads. CID agreed to pony up the Corporate Fraud Response Team for assistance with interviews, and offered two TDY Forensic Accountants for at least 90 days. They requested a detailed estimate for the off-site facility, and expressed a preference for obtaining records in digital format to reduce storage needs. But CID did not agree to the additional agents or FSL request "until a further evaluation of the case is completed."
Shuffling around resources and prioritizing investigations is always tricky and involves layers of FBI office politics. "The guy running the Jacksonville desk must sell it to the unit chief," said David Gomez, a retired FBI agent with the Center for Cyber and Homeland Security at George Washington University. "The unit chief is fighting with other unit chiefs to sell it to the section chief." And after 9/11, the FBI shifted attention to fighting terrorism, making the funds and bodies dedicated to financial crime even more scarce. "When I joined the bureau [in 1984], white-collar crime was the number one priority in the country," Gomez added. "Now people come in expecting and wanting to work on terrorism."
But proper resources can make or break a case. "If you don't get everything you want, you have to pick your battles," said former Agent Crino. "You can't work the whole thing, can't go after the biggest targets."
In this case, that would mean not going up the chain, from the companies like DocX that created the false mortgage assignments to the trustees and mortgage-servicing companies who were their clients. That chain could have implicated some of America's biggest and most powerful banks and bankers; the practice was systemic, as Jacksonville agents recognized. But a small FBI office can only do so much.
Before the end of the 90-day temporary agent assignment in Jacksonville, stories about foreclosure fraud began appearing in the news. "Robo-signers" who signed thousands of documents with no understanding of their contents were exposed through depositions placed on the internet. GMAC Mortgage, JPMorgan Chase, and eventually every major mortgage servicer in the country paused their foreclosure operations, because they were shown to be illegitimate.
The Jacksonville FBI office made a second request for resources on January 20, 2011. Agents said the local US attorney was considering indicting unidentified members of LPS for their role in the fraud, and also "identified Deutsche Bank as a subject trustee... who provided services in the conspiracy and made material misrepresentations to the SEC and the investing public." (Deutsche Bank spokesman Oksana Poltavets declined to comment on the case.) The FBI in Jacksonville also said the US attorney there had the commitment of the main Justice Department in Washington for the case going forward, bolstering the agents' contention that they needed more resources.
Agents in Jacksonville made a bevy of new asks, from additional use of the Corporate Fly Team to conduct interviews and review 3 million documents—produced by LPS after a subpoena—to help from other field offices for interviews in their own jurisdictions with homeowners evicted based on false documents. Finally, agents in Jacksonville wanted the Minneapolis FBI office to look into another LPS facility in Minnesota to see if employees had created false documents there, as well.
The FBI bosses in DC honored several of these requests. Fly Team members helped review the documents. Field offices pitched in on homeowner interviews. The investigation seemed to be making headway.
And then the trail went cold.
It is still difficult to pinpoint why, given that all the major players won't comment on the investigation. That includes the FBI's field office in Jacksonville, the FBI's Economic Crimes Unit in Washington, and the Justice Department. The last document in the FOIA file is dated June 28, 2012, describing planned travel from Jacksonville to Atlanta to interview "at least six" witnesses.
After that, there's nothing.
The grand summary of the investigation, which would typically be written up at the end, is not included in the FOIA documents. "It's just such a huge question mark," former FBI Agent Crino told me, "how this could have gone so horribly wrong."
The only person ultimately convicted in the Jacksonville case was Lorraine Brown, who was sentenced in June 2013 to five years in prison after pleading guilty to conspiracy to commit mail and wire fraud. The indictment claimed she directed the document forgery and fabrication scheme "unbeknownst to DocX's clients." In other words, according to prosecutors, mortgage servicers contracted Brown to provide evidence, so they could prove standing to foreclose, but didn't know the resulting evidence was faked.
But the Jacksonville FBI agents stated in their reports that any mortgage documents created after the closure of the trusts would have to have been fabricated. As recently as the January 20, 2011, request for resources, agents wrote, "When the notes were bundled, an assignment of mortgage should have been prepared and filed at the county court level... to ensure clear title in the event of sale and/or foreclosure." And they explained how and why the trusts failed to do so, necessitating the creation of documents after foreclosure had already begun.
So the charging documents in the Brown case positions the banks as unwitting dupes of the scheme, a reversal from the consistent determination by agents in the field that they were fully aware of and in fact responsible for the situation.
"I thought, Well, this is one friend saying to another friend: 'This is over,'"—Lynn Szymoniak
In the sentencing phase, the feds turned to county registers, the public officeholders who track and manage mortgage documents, to provide horror stories about DocX. One of them was John O'Brien, county register in Essex County, Massachusetts. He was determined to recoup $1.28 million from Brown to clean up falsified DocX land records filed with his office.
When Assistant US Attorney Mark Devereaux asked him to testify, however, O'Brien recalled the prosecutor insisting the judge wouldn't accept the claim, because registers—a.k.a. the public—were not victims.
"What do you mean, we're not a victim?" O'Brien exclaimed. "We're the ones with all these false documents!"
"No, the bank is the victim," Devereaux replied, according to O'Brien.
(The US Attorney's office in Jacksonville, where Devereaux still serves as a prosecutor, declined to comment on the case.)
Lynn Szymoniak, whose complaint triggered the Jacksonville FBI probe, believes that officials at the Justice Department, determined to stage-manage their own resolution to the scandal, stonewalled the agents on the case. She told me about one moment when she sensed the whole thing was rigged, sometime in the middle of 2011, well over a year after the investigation got underway.
Szymoniak had been unofficially assisting the Jacksonville team with research. US attorneys there would ask for 200 examples of a law firm signing mortgage assignments after they filed their foreclosure case, or 30 Linda Green documents in a certain region of the country. Szymoniak spent hours on these projects, feeling like she couldn't say no. But she wondered why the requests kept coming, even after she went public and appeared on 60 Minutes in April 2011, detailing the false document scheme. "I really thought that in response they would have to file [an indictment]," Szymoniak said. "When they decided to hold tight and it would go away, I realized I had no cards left to play."
At one point, the assistant US attorney requested a massive set of files. Szymoniak emailed her friend Henry "Tommy" Clark, a detective with the Florida Department of Financial Services' Division of Insurance Fraud, who also partnered with the FBI on cases. She complained to him that the file request was going to take her 14 hours to assemble. Clark called her within a few minutes and didn't even say hello.
"Don't waste your time," he said.
Clark worked with the Jacksonville FBI field office for a long time, and he saw the agents there as honorable people willing to follow the evidence wherever it led, Szymoniak recalled. So when Clark said, "I'm not working on it anymore, I've got a whole lot of other cases where I can file," he seemed to validate the eerie feeling she had about the case. Their shared recognition was that someone seemed to be preventing Jacksonville from completing the investigation, and the two knew each other well enough to broach that fear in just a few words.
"I thought, Well, this is one friend saying to another friend: 'This is over,'" she told me.
In a phone conversation, Detective Clark, who has since retired, confirmed that he worked on the FBI case but declined to comment for this story.
The FOIA documents detail an intense investigation in the aftermath of economic disaster, with Jacksonville agents and US attorneys going all-out for the public interest. They spent years running down leads and cultivating information, with the national office in Washington accommodating many of their resource requests. But all that work amounted solely to putting one non-banker in prison.
In February 2012, the Justice Department and 49 state attorneys general reached their civil settlement with the five biggest mortgage servicers over a host of allegations of deceptive and unlawful conduct, including "preparing, executing, notarizing, or presenting false and misleading documents... or otherwise using false or misleading documents as part of the foreclosure process." The feds boasted that the settlement was for $25 billion, but only $5 billion of that was in hard dollars, with the rest in credits for activities that included bulldozing homes and donating others to charity. Homeowners wrongfully foreclosed on received about $1,480. The Justice Department claimed it reserved the right to criminally prosecute anyone suspected of wrongdoing. That still hasn't happened.
After Brown's sentencing, Szymoniak called up one of the FBI investigators and thanked him for at least snagging the one conviction—for proving real crimes were committed by some of the most powerful economic players in America, crimes theoretically punishable with prison time.
There was a long pause.
According to Szymoniak, when the agent finally broke the silence, he said, "I don't think the taxpayers were very well served."
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IMO...my conclusions as of September 07, 2019:
1) FBI investigation needs to be re-opened by Attorney General William Barr
2) WMI subsidiaries were caught up in this fiasco
3) Defective chains of title are possibly as much as 40% of all securitized loans...which means that the ownership of those securitized loans lies with the last legal owner (WMI subsidiaries which were originators and/or depositors to the trustees) which had a properly conveyed step in the securitization process.
$692 billion securitized (from 2000-2008) x 40% = $276.8 billion potentially still owned by WMI subsidiaries
Sorry I don’t have Facebook and I’ll never be on facebook
Per an article by Bill Paatalo as of June 06, 2019:
https://bpinvestigativeagency.com/u-s-bank-trust-n-a-v-moomey-stevens-plaintiff-fails-to-prove-its-standing-once-again/
“U.S. Bank Trust, N.A. v Moomey-Stevens” – Plaintiff Fails To Prove Its Standing Once Again
Posted by Bill Paatalo on Jun 6, 2019 in Uncategorized | 0 comments
https://law.justia.com/cases/new-york/appellate-division-third-department/2019/526630.html
We’re getting closer and closer to the truth when the high courts begin to demand and require proof; a burden “U.S. Bank Trust, N.A. as Trustee for the LSF9 Master Participation Trust” cannot meet. During the past two years, I have been providing expert testimony spelling out the gaps in this Plaintiff’s story and its lack of evidence, often leading to motions to compel which this Plaintiff seemingly ignores as a form of business practice.
Here’s a recent ruling from the New York Court of Appeals that holds “U.S. Bank Trust, N.A.’s” feet to the fire for failure to prove its standing, and agrees that the lower court should have compelled this Plaintiff to produce all evidence surrounding the purchase and possession of the “original” mortgage note. This same logic applies to all foreclosure cases.
“Plaintiff similarly failed to establish its standing by demonstrating that it had physical possession of the note at the time of the commencement of the action. In support of its motion for summary judgment, plaintiff submitted, among other things, a copy of its complaint, the mortgage, the unpaid note (indorsed in blank), the relevant assignments of the mortgage and proof of defendants’ default. Plaintiff also tendered the affidavit of the authorized officer for Caliber Home Loans, Inc., the mortgage loan servicing agent and attorney-in-fact for plaintiff [FN3]. The affidavit of the authorized officer indicates the source of her knowledge to be her “review of the electronic records of Caliber Home Loans, Inc.” regarding defendants’ delinquent account, which includes, among other things, “electronic images of the note and electronic records maintained by Caliber Home Loans, Inc.” Other than alleging that she reviewed these electronic records, the authorized officer’s affidavit fails to provide any indication that she actually examined the original note, nor did it provide any details with regard to whether plaintiff ever obtained possession thereof and, if so, how and when it came into its possession (see Wells Fargo Bank, N.A. v Walker, 141 AD3d 986, 988 [2016]; JP Morgan Chase Bank, N.A. v Hill, 133 AD3d 1057, 1058-1059 [2015]). Moreover, the complaint is equivocal and alleges in the alternative that plaintiff is “the current owner and holder of the subject mortgage and note, or has been delegated the authority to institute a mortgage foreclosure action by the owner and holder of the subject mortgage and note.” Such language is insufficient to establish that plaintiff had [*2]physical possession of the note at the time it commenced this action (see Bank of Am., N.A. v Kyle, 129 AD3d at 1169-1170).
Defendants also specifically sought discovery with respect to when plaintiff took physical possession of the original note, from what entity it received it, what it paid for same, as well as “a first generation copy of the original [n]ote and all original [a]llonges to the note” and “evidence of the physical transfer of the original [n]ote from origination to its current location.” Plaintiff, however, failed to provide any discovery prior to filing its motion for summary judgment. Accordingly, inasmuch as the proof submitted was not sufficient to establish that plaintiff had standing through assignment or actual physical possession of the note at the time it commenced the instant mortgage foreclosure action, plaintiff failed to demonstrate its entitlement to summary judgment. Rather, Supreme Court should have compelled plaintiff’s disclosure of the original note pursuant to defendants’ discovery request prior to granting plaintiff’s motion for summary judgment (see JP Morgan Chase Bank, N.A. v Hill, 133 AD3d at 1058-1059; compare Green Tree Servicing LLC v Bormann, 157 AD3d 1112, 1115 [2018]; Bank of N.Y. Mellon v McClintock, 138 AD3d 1372, 1374-1375 [2016]).“
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IMO...my conclusions as of July 10, 2019:
1) JPMC did not own the WMI (WMB and WMB, fsb ) portfolio loans of $231 billion which they claimed they bought from the FDIC Receivership, which in turn they sold to LSF9 (trustee US Bank Trust, N.A.). But rather, JPMC only owned the servicing rights, therefore there is a defective chain of title ownership of the loans.
2) per the N.Y. Court of Appeals (Decided and Entered: January 3, 2019):
“Plaintiff [US Bank Trust, N.A.], however, failed to provide any discovery prior to filing its motion for summary judgment. Accordingly, inasmuch as the proof submitted was not sufficient to establish that plaintiff had standing through assignment or actual physical possession of the note at the time it commenced the instant mortgage foreclosure action, plaintiff failed to demonstrate its entitlement to summary judgment. “
3) IMO...the rightful owners to the WMI portfolio loans ($231 billion) are the WMI Escrow Marker Holders.
4) IMO...upon Change in Control, JPMC will have to pay book value for the WMI portfolio loans = $231 billion
What did the Underwriters know in 2012??
Per an article published by the New York Times on July 23, 2017:
https://www.nytimes.com/2017/07/23/business/fannie-freddie-treasury-lawsuit.html
“U.S. Foresaw Better Return in Seizing Fannie and Freddie Profits
By Gretchen Morgenson
July 23, 2017
In August 2012, the federal government abruptly changed the terms of the bailout provided to Fannie Mae and Freddie Mac, the mortgage finance giants that had been devastated by the financial crisis. Instead of continuing to receive payments on the taxpayer assistance, Treasury officials decided to begin seizing all the profits both companies generated every quarter.
It was an unusual move, given that the companies still had public shareholders. But it was necessary, the Treasury said, to protect taxpayers from likely future losses in their operations. Justice Department lawyers have reiterated this view in court, saying that the bailout terms were modified because the companies were in a death spiral.
But newly unsealed documents show that as early as December 2011, high-level Treasury officials knew that Fannie and Freddie would soon become profitable again. The materials also show that government officials involved in the decision to divert the profits knew the change would most likely generate more money for Treasury than the original rescue terms, which required the companies to pay taxpayers 10 percent annually on the bailout assistance they had received.
A December 2011 information memo to Timothy F. Geithner, the former Treasury secretary, is among the newly released documents. The 17-page memo from Mary John Miller, assistant secretary for financial markets, shows that the idea to extract all of Fannie’s and Freddie’s profits coincided with their anticipated turnaround.
Ms. Miller outlined “restructuring and transition options” for Fannie and Freddie in the memo, saying the No. 1 option was changing the terms of the bailout to “replace the current 10 percent fixed dividend with a permanent ‘net worth sweep.’” The memo noted that Freddie Mac was “expected to be net income positive by the end of 2012 and Fannie by the end of 2013.”
Another unsealed document, a draft memorandum circulated before the profit sweep, shows that federal officials recognized it would generate more money than the original bailout terms. Net income generated by Fannie and Freddie and paid to the government “will likely exceed the amount that would have been paid if the 10 percent was still in effect,” it stated.
Ms. Miller, who left Treasury in 2014 and sits on the board of the SVB Financial Group, the parent of Silicon Valley Bank, did not respond to an email seeking comment, nor did a Treasury spokeswoman.
The documents, released under a court order, emerged in a lawsuit against the government by Fannie and Freddie shareholders, who contend that the profits — now totaling in the tens of billions of dollars — rightfully belong to them. The plaintiffs argue that the move was a taking of private property without remuneration.
The Treasury’s policy of diverting the profits seemed to further its stated goal of winding down the companies, an outcome that some contend could eventually put the housing finance system on a sounder footing. But legal experts say pursuing that goal while the companies were under a form of government control called conservatorship flouted the law that led to the rescue, the Housing and Economic Recovery Act of 2008.
Passed by Congress that July, the law set up the Federal Housing Finance Agency as a new regulator for the companies and directed the agency, as their conservator, to preserve their assets so they could operate independently again in the future. Unlike a receivership, in which a company’s assets are sold and its operations wound down, the conservatorship was supposed to be a temporary solution until Fannie and Freddie got back on their feet.
Instead, the Treasury and the housing finance agency depleted the companies’ assets by instigating the profit sweep. Fannie and Freddie currently operate their multitrillion-dollar businesses on almost no capital.
After they were taken into conservatorship in September 2008, the government advanced $187.5 billion to the two companies. But since their operations began to turn around in 2012, Fannie and Freddie have returned $270.9 billion to the government, $83.4 billion more than they drew.
A calculation by plaintiffs in another case against the government involving the profit sweep states that Fannie and Freddie have paid $130 billion more to the government than they would have under the original rescue plan.
Altogether, some 3,500 documents were recently unsealed in the case, pending before Judge Margaret M. Sweeney in the United States Court of Federal Claims.
Fairholme Funds, a mutual fund that owns shares in Fannie and Freddie, is the main plaintiff in the case. Bruce R. Berkowitz, president of Fairholme, said in a statement that the unsealed documents “prove that senior officials in the previous administration knowingly violated their statutory authorities and deliberately fabricated a tale to justify their unlawful actions.”
From the outset, the government demanded unusual secrecy in the litigation, withholding more than 11,000 documents and asserting that they were protected by various privileges. In a rare move, the government asserted presidential privilege on 45 documents.
The Obama administration argued that disclosure of the documents would roil the financial markets.
But it has been almost nine years since the government took over Fannie and Freddie in the face of a growing mortgage mess. The companies remain in conservatorship and are essentially the last piece of unfinished business from the crisis.
The document stating that the profit sweep would probably generate more money to the government than the previous arrangement also contradicts court testimony from another housing official, Mario Ugoletti, a former special adviser to the director of the housing finance agency.
Mr. Ugoletti swore in a 2013 declaration that by mid-2012, the amounts owed by Fannie and Freddie under the original rescue had grown so large that “it appeared unlikely that either of the enterprises would be able to meet that amount consistently without drawing additional funds from Treasury.”
The intention of the change “was not to increase compensation to Treasury,” he stated.
Mr. Ugoletti could not be reached for comment for this article.
Two years ago, The New York Times intervened in the case, arguing that unsealing some of the documents would “enable the public to understand more fully the decisions the government has made in the public’s name and to assess the wisdom and effect of those decisions.”
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IMO...my conclusions as of July 02, 2019:
1) From 2000-2008 WMI subsidiaries securitized and sold $504.5 billion MBS to Fannie and Freddie
2) Per my previous calculations, WMI retained approximately 14.73% of all securitized loans
Therefore: $504.4 billion x 14.73% = $74.312 billion (not including annual interest)
3) “After they [Fannie and Freddie] were taken into conservatorship in September 2008, the government advanced $187.5 billion to the two companies. But since their operations began to turn around in 2012, Fannie and Freddie have returned $270.9 billion to the government, $83.4 billion more than they drew.
A calculation by plaintiffs in another case against the government involving the profit sweep states that Fannie and Freddie have paid $130 billion more to the government than they would have under the original rescue plan.”
Therefore:
Minimum Return On Investment (ROI) = $83.4 billion / $187.5 billion = 44.48% in four years
Thus : 44.48% / 4 years = 11.12% annualized ROI
Maximum Return On Investment (ROI) = $130 billion / $187.5 billion = 69.33% in four years
Thus : 69.33% / 4 years = 17.33% annualized ROI
4) extrapolating only MBS sold to Fannie and Freddie:
WMI retained assets = $74.312 billion x 11.12% x 11 years = $237.0137 billion minimum
WMI retained assets = $74.312 billion x 17.33% x 11 years = $367.4088 billion maximum
5) On August 2012, the Treasury changed the terms of their agreement to Fannie and Freddie because they knew the MBS Trusts were going to be profitable.
Is it possible the Underwriters knew the same information in August 2012 or before?
IMO...the Underwriters knew all that information and prompted them to walk away from a $24 million Class 18 (capped) creditor claim and settled for a $72 million Class 19 (uncapped) equity claim!
Draw your own conclusions!!
Fannie Mae + Freddie Mac = “guarantee the underlying loans” to MBS sold to them by any lender such as WMI/WMB/WMB,Fsb
Per Bloomberg article published June 03, 2019:
https://www.bloomberg.com/news/articles/2019-06-03/small-fix-big-deal-in-a-4-trillion-mortgage-market-quicktake
“Fannie and Freddie Changes Could Lower Housing Costs for Millions of Americans
By Allan Lopez and Christopher Maloney
June 3, 2019, 5:00 AM CDT
Starting Monday, the U.S. government is making what’s widely described as the biggest change in a generation to the inner workings of the roughly $4.4 trillion market in mortgage-backed securities issued by the country’s two housing market giants, Fannie Mae and Freddie Mac. This change could mean lower housing costs for millions of Americans – or higher ones, depending on whom you ask.
1. What do Fannie and Freddie do?
They package lenders’ mortgages into bonds known as mortgage-backed securities and guarantee the underlying loans. The bonds essentially shunt monthly principal and interest payments from a multitude of homeowners over to investors. The process lets lenders free up their balance sheets to issue new mortgages, while offering the market large quantities of what for years were seen as extremely safe investments. The system melted down in the 2007-2008 financial crisis, forcing the government to take direct control over the pair. Fannie and Freddie quickly rebounded, and their so-called agency MBS fuel the deepest and most liquid U.S. debt market after Treasuries.
2. What’s changing?
Fannie and Freddie’s MBS are becoming more standardized at the behest of the Federal Housing Finance Agency, the regulator that was created in 2008 to oversee Fannie Mae and Freddie Mac. It’s the overseer of the two agencies, which are known as government-sponsored enterprises (GSEs) because they were created by Congress. One of the changes the FHFA is enacting is making Freddie Mac give homeowners’ mortgage payments to investors in 55 days, instead of its current 45 days, to mimic Fannie Mae’s timeline. From now on, both GSEs mortgage pools will be wrapped into what will be known as UMBS – uniform mortgage-backed securities.
3. Why would that be a good thing?
Liquidity. Putting both kinds of MBS into a single pot (along with any older MBS that are exchanged into UMBS) should increase the amount traded per day. That can cut their yields, because investors will accept lower returns on a bond that they know they can more easily offload. Lower MBS yields should translate into lower interest rates for home buyers.
4. Is there a problem with that now?
Not for Fannie Mae, whose agency MBS are already tremendously liquid. New mortgage bonds are first sold in what is referred to as the "to-be-announced" (TBA) market. That’s the most liquid part of the MBS universe, in which issuers can bundle any mortgage loans that meet established criteria into bonds. Daily trading for Fannie Mae 30-year TBA averaged about $150 billion this spring, which is second only to the volume of trading in Treasuries, and dwarfs that of corporate bonds, municipal debt or other asset-backed securities. But there is an imbalance in trading volumes between Fannie and Freddie.
5. What’s the difference between them?
Since mid-2011, Fannie Mae has accounted for well over 80% of the trading volume in 15- and 30-year mortgage pools, according to data compiled by Oppenheimer & Co. The relative lack of liquidity in Freddie Mac bonds has meant that they have traditionally traded at a discount to comparable Fannie Mae securities, and Freddie Mac has long paid a subsidy to mortgage originators to push for market share. That could come to an end as both Fannie and Freddie MBS will now trade at one price in the UMBS.
6. So what’s the biggest change?
Historically, two of the biggest differences between Fannie and Freddie’s products are the 55 versus 45 day delays on payments to investors, which are being standardized, and what’s known as prepayment speeds. Most home buyers pay off a mortgage years before it matures, either because they’ve refinanced, they move, or they pay down their loan early. The rate at which loans within an MBS are likely to be prepaid is one of the main variables mortgage traders must forecast to properly value their investment. Two securities with broadly similar characteristics, such as the same coupon, average credit score and maturity, may be valued at vastly different prices if the prepayment speeds on the underlying mortgages turn out to be dissimilar.
7. Why is that an issue?
Traditionally, there’s been a gap between the Conditional Prepayment Rate -- a number which gives the annualized percentage of the mortgage pool that’s expected to prepay-- between the two agencies’ bonds. The Fannie Mae and Freddie Mac pools of mortgages underlying UMBS must prepay at similar speeds, or else traders might be reluctant to treat the two GSEs’ bundles of mortgages as interchangeable. The FHFA has been pushing the two in recent years to keep their speeds in line with each other -- and it seems to be working. Freddie Mac 30-year 4.5% MBS prepayment speeds have averaged 1.6 CPR less than their Fannie Mae counterparts over the past half decade. Over the past year? 0.4 CPR. That is well within the 2 CPR band the FHFA says it will consider acceptable for UMBS.
8. What could go wrong?
Most analysts think the change will likely work as planned, but there are concerns, primarily about prepayment speeds. Should they diverge between the Fannie and Freddie pools that are wrapped into the UMBS, investors may start to favor one GSE’s mortgages over the other and begin trading them separately again, resulting in a three-way split of the market among Fannie Mae, Freddie Mac and uniform securities -- reducing overall liquidity in the process. In order to nip such a problem in the bud, the FHFA can require the GSEs to adjust or terminate policies that are thought to be causing prepayment speeds to stray, and impose monetary fines for non-compliance.
9. What are the other worries?
Some observers foresee a potential “race to the bottom” in asset quality. That would occur if the GSEs begin to package loans exhibiting the most undesirable prepayment characteristics into the new securities, because a UMBS has just one price, and investors wouldn’t be able to account for speed differentials between the two GSEs. That would likely lead to lower prices for UMBS reflecting the deterioration in asset quality, meaning higher interest rates for borrowers.
10. What do proponents say?
They think the FHFA has the tools it needs to keep prepayment speeds aligned. That means the reform should result in a larger, more liquid and safer mortgage-backed securities market. In addition, the change to UMBS should, in the words of the FHFA, “reduce or eliminate the cost to Freddie Mac and taxpayers that has resulted from the historical difference in the liquidity” between the two. Taken together, these should reduce homeowners’ interest costs for mortgages.”
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Per my previous IHub post#543410
Excerpt:
“IMO...my conclusions as of October 20, 2018:
1) Robert Bass, owner of American Savings and Bonderman’s boss when WMI bought American Savings circa 1996, also wanted to buy WMB in April 2008.
2) Robert Bass also knew the massive WMI owned beneficial interests in MBS Trusts since at least 1996 when Bonderman initially sat on WMI’s BOD.
3) To give you context to the scale of securitizations, WMI subsidiaries originated about $1.8479 trillion in loans from 2000 to 2008.
Per PDF page 149 of 646 from the 2010 Congressional Subcommittee hearing:
https://www.hsgac.senate.gov/imo/media/doc/PSI%20REPORT%20-%20Wall%20Street%20&%20the%20Financial%20Crisis-Anatomy%20of%20a%20Financial%20Collapse%20(FINAL%205-10-11).pdf
“The amount and variety of the loans that WaMu sold to the GSEs fluctuated over time. For example, the following chart, which is taken from data compiled by Insider Mortgage Finance, presents the total dollar volume of loans sold by Wamu to Fannie and Freddie from 2000 until 2008 when a Wamu was sold, as well as the percentage those loans represented compared to Wamu’s total loan originations.”
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IMO...my calculations from the chart:
Total sold to Freddie Mac = $124.4 billion
Total sold to Fannie Mae = $380.1 billion
Total to GSEs = $124.4 billion + $380.1 billion = $504.5 billion
Total percentage of total WaMu Orginations sold to GSEs = 27.3%
Thus
$504.5 billion / X = 27.3 / 100
X = $1.8479 trillion total loans originated by WMI subsidiaries from 2000-2008
4) WMI subsidiaries securitized $692 billion from 2000-2008
5) WMI was coveted by the whole financial world, including those who knew all the numbers like Robert Bass ”
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Per my previous IHub Post#565086
Excerpt:
“IMO...my conclusions as of March 21, 2019:
1) WMI was not allowed to consolidate any retained interests on the quarterly and annual financial that the Special Purpose Entities (SPEs) owned. Per CBA09 (a self proclaimed Certified Auditor) IHub post#501193, he stated that “Certficates are issued for the Residual Interest and held by SPE # 1 (Largest %) and Originator ( there retained % much smaller)”.
I contend that CBA09 is correct in his statement, due to his past experience in bank auditing.
2) if you tabulate and add all the retained interests that WMI were allowed to report on their quarterly and annual reports, the total for retained interests in MBS + ABS (credit card securitizations) , the grand total is
$101.94 billion.
3) WMI securitized approximately $692 billion from 2000 to 2008.
$101.94 billion / $692 billion = 14.73% retained interests/beneficial interests in certificate participation in MBS/ABS Trusts that WMI subsidiaries created.
3) I believe there is an even greater percentage of retained interests in SPEs which were not allowed to be consolidated on the quarterly and annual financial reports!
4) I also contend that the WMI Escrow Marker Holders are the rightful owners to all the retained interests/beneficial interests!
5) IMO... I believe the minimum recoveries to WMI Escrow Marker Holders is at least $101.94 billion excluding annual compounded interests for 10 and a half years. “
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IMO...my conclusions as of June 15, 2019:
1) Fannie & Freddie has a total of $4.4 trillion of agency MBS
2) WMI subsidiaries created and sold $504.5 billion to Fannie & Freddie (from 2000 to 2008)
Therefore: $504.5 billion / $4.4 trillion = 11.46% of all of Fannie & Freddie was WMI subsidiary created MBS!
3) IMO, Per my previous calculations, WMI retained 14.73% of all MBS created by WMI subsidiaries
Therefore: $504.5 billion x 14.73% = $74,312,850,000 of the MBS sold to Fannie & Freddie were Retained by WMI!!! (Not including 10.5 years of compounded interest)
4) if Fannie and Freddie guarantees these underlying loans, then IMO...the $74.3 billion in MBS are also guaranteed !!!
5) IMO...I contend that WMI/WMILT and ultimately WMI Escrow Marker Holders own the rights to the retained interests in MBS that WMI subsidiaries created and sold to GSEs (Fannie and Freddie) and also to privatized MBS trustees.
Draw your own conclusions.
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The following New York Times article published on May 18, 2010, IMO...gives an inside perspective on Goldman Sachs attitude to making money, even if it means screwing your own clients.
IMO...conclusions as of May 14, 2019:
1) Goldman Sachs will do anything, even acting on potential insider information, to make money at the expense of their clients
2) When Goldman Sachs has leverage in a situation they will exploit it to make money.
3) Ultimately, Goldman Sachs is in business to make money, and if they have leverage (such as in the case of the Underwriters Stipulated Settlement) they will exploit it. Goldman Sachs has no problem litigating for decades if it means they will make money. So why would they walk away from WMILT litigation and settle, unless they got a good deal. IMO, Goldman Sachs and the Underwriters had leverage in the litigation. What the Underwriters walked away with via the Stipulated Settlement in March 28, 2013, was uncapped Class 19 claims instead of Class 18 claims, which are capped.
IMO...Goldman Sachs and the Underwriters had leverage and they came away with a deal that benefits them the most! The Underwriters will make money, along with all the retail investors that hold Class 19 WMI Escrow Markers.
https://www.nytimes.com/2010/05/19/business/19client.html
“Clients Worried About Goldman’s Dueling Goals
By GRETCHEN MORGENSON and LOUISE STORY
MAY 18, 2010
“Questions have been raised that go to the heart of this institution’s most fundamental value: how we treat our clients.” — Lloyd C. Blankfein, Goldman Sachs’s C.E.O., at the firm’s annual meeting in May
As the housing crisis mounted in early 2007, Goldman Sachs was busy selling risky, mortgage-related securities issued by its longtime client, Washington Mutual, a major bank based in Seattle.
Although Goldman had decided months earlier that the mortgage market was headed for a fall, it continued to sell the WaMu securities to investors. While Goldman put its imprimatur on that offering, traders in the same Goldman unit were not so sanguine about WaMu’s prospects: they were betting that the value of WaMu’s stock and other securities would decline.
Goldman’s wager against its customer’s stock — a position known as a “short” — was large enough that it would have generated at least $10 million in profits if WaMu collapsed, according to documents recently released by Congress. And by mid-May, Goldman’s bet against other WaMu securities had made Goldman $2.5 million, the documents show.
WaMu eventually did collapse under the weight of souring mortgage loans; federal regulators seized it in September 2008, making it the biggest bank failure in American history.
Goldman’s bets against WaMu, wagers that took place even as it helped WaMu feed a housing frenzy that Goldman had already lost faith in, are examples of conflicting roles that trouble its critics and some former clients. While Goldman has legions of satisfied customers and maintains that it puts its clients first, it also sometimes appears to work against the interests of those same clients when opportunities to make trading profits off their financial troubles arise.
Goldman’s access to client information can also give its traders an advantage that many of the firm’s competitors lack. And because betting against a company’s shares or its debt can create an atmosphere of doubt about a company’s financial standing, Goldman because of its size and its position in the market can help make the success of some of its wagers faits accomplis.
Lucas van Praag, a Goldman spokesman, declined to say how much the firm earned on its bets against WaMu’s stock. He said his firm lost money on its bets against the other WaMu securities. In an e-mail reply to questions for this article, he said there was nothing improper about Goldman’s wagers against any of its clients. “Shorting stock or buying credit protection in order to manage exposures are typical tools to help a firm reduce its risk.”
WaMu is not the only Goldman client the firm bet against as the mortgage disaster gained steam. Documents released by the Senate Permanent Subcommittee on Investigations show that Goldman’s mortgage unit also wagered against Bear Stearns and Countrywide Financial, two longstanding clients of the firm. These documents are only related to the mortgage unit and it is unknown what other bets the rest of the firm made.
Goldman also bet against the American International Group, which insured Goldman’s mortgage bonds, and National City, a Cleveland bank the firm had advised on a sale of a big subprime mortgage lender to Merrill Lynch.
While no one has accused Goldman of anything illegal involving WaMu, National City, A.I.G. or the other clients it bet against, potential conflicts inherent in Wall Street’s business model are at the core of many of the investigations that state and federal authorities are conducting. Transactions entered into as the mortgage market fizzled may turn out to have been perfectly legal. Nevertheless, they have raised concerns among investors and analysts about the extent to which a variety of Wall Street firms put their own interests ahead of their clients’.
“Now it’s all about the score. Just make the score, do the deal. Move on to the next one. That’s the trader culture,” said Cornelius Hurley, director of the Morin Center for Banking and Financial Law at Boston University and former counsel to the Federal Reserve Board. “Their business model has completely blurred the difference between executing trades on behalf of customers versus executing trades for themselves. It’s a huge problem.”
Goldman has come under particularly intense scrutiny on such issues since the financial and economic downturn began gathering momentum in 2007, in part because it has done so well, in part because of the power it wields in Washington and on Wall Street, and in part because regulators have taken a keen interest in its dealings.
The Securities and Exchange Commission filed a civil fraud suit against the firm last month, contending that it misled clients who bought a mortgage security that the regulators said was intended to fail. Goldman has said it did nothing wrong and is fighting the case. Legislators in Washington are also considering financial reforms that limit potential conflicts of interest in the way that firms like Goldman trade and invest their own money.
Still, Goldman’s many hats — trader, adviser, underwriter, matchmaker of buyers and sellers, and salesperson — has left some clients feeling bruised or so wary that they have sometimes avoided doing business with the bank.
During the early stages of the mortgage crisis, Goldman seems to have unnerved WaMu’s former chief executive, Kerry K. Killinger, according to an e-mail message that Congressional investigators released.
In that message, Mr. Killinger noted that he had avoided retaining Goldman’s investment bankers in the fall of 2007 because he was concerned about how the firm would use knowledge it gleaned from that relationship. He pointed out that Goldman was “shorting mortgages big time” even while it had been advising Countrywide, a major mortgage lender.
“I don’t trust Goldy on this,” he wrote. “They are smart, but this is swimming with the sharks.”
One of Mr. Killinger’s lieutenants at Washington Mutual felt the same way. “We always need to worry a little about Goldman,” that person wrote in an e-mail message, “because we need them more than they need us and the firm is run by traders.”
Mr. Killinger does not appear to have known that Goldman was selling short his company’s shares. His lawyer did not respond to requests for comment. But because Bear Stearns, National City, Countrywide and WaMu all were hammered by the mortgage crisis, any bets Goldman made against each of those firm’s shares were likely to have been profitable.
Even though Goldman had frequently shorted the shares of other firms, it, along with another bank, Morgan Stanley, successfully lobbied the S.E.C. in 2008, at the height of the mortgage collapse, to forbid traders from shorting financial shares, sparing its own stock.
CONFLICT OF PRINCIPLES
As Trading Arm Grows, a Clash of Purpose
When new hires begin working at Goldman, they are told to follow 14 principles that outline the firm’s best practices. “Our clients’ interests always come first” is principle No. 1. The 14th principle is: “Integrity and honesty are at the heart of our business.”
But some former insiders, who requested anonymity because of concerns about retribution from the firm, say Goldman has a 15th, unwritten principle that employees openly discuss.
It urges Goldman workers to embrace conflicts and argues that they are evidence of a healthy tension between the firm and its customers. If you are not embracing conflicts, the argument holds, you are not being aggressive enough in generating business.
Mr. van Praag said the firm was “unaware” of this 15th principle, adding that “any business in any industry, has potential conflicts and we all have an obligation to manage them effectively.”
But a former Goldman partner, who spoke on condition of anonymity, said that the company’s view of customers had changed in recent years. Under Lloyd C. Blankfein, Goldman’s chief executive, and a cadre of top lieutenants who have ramped up the firm’s trading operation, conflict avoidance had shifted to conflict management, this person said. Along the way, he said, the firm’s executives have come to see customers more as competitors they trade against than as clients.
In fact, Mr. Blankfein and Goldman are quick to remind critics that Wall Street deals with sophisticated investors, who they say can protect themselves. At the bank’s shareholder meeting earlier this month, Mr. Blankfein said, “We deal with the most demanding and, in some cases, cynical clients.”
Even Goldman’s mortgage department compliance training manual from 2007 acknowledges the challenges posed by the firm’s clients-come-first rule. Loyalty to customers “is not always straightforward” given the multiple financial hats Goldman wears in the market, the manual notes.
In addition, the manual explains how Goldman uses information harvested from clients who discuss the market, indicate interest in securities or leave orders consisting of “pretrade information.” The manual notes that Goldman also can deploy information it receives from a wide range of other sources, including data providers, other brokerage firms and securities exchanges.
“We continuously make markets and take risk based on a unique window on the market which is a mosaic constructed of all of the pieces of data received,” the manual said.
Mr. van Praag, the Goldman spokesman, said that the “manual recognizes that like many businesses, and certainly all our competitors, we serve multiple clients. In the process of serving multiple clients we receive information from multiple sources.”
“This policy and the excerpt cited from the training manual simply reflects the fact that we have a diverse client base and give our sales people and traders appropriate guidance,” he added.
CREATIVE DESTRUCTION
Fostering a Market Then Abandoning It
Even now, two years after a dispute with Goldman, C. Talbot Heppenstall Jr. gets miffed talking about the firm.
As treasurer at the University of Pittsburgh Medical Center, a leading nonprofit health care institution, Mr. Heppenstall had once been pleased with Goldman’s work on the enterprise’s behalf.
Beginning in 2002, Goldman had advised officials at U.P.M.C. to raise funds by issuing auction-rate securities. Auction-rate securities are stock or debt instruments with interest rates that reset regularly (usually weekly) in auctions overseen by the brokerage firms that sell them. Municipalities, student loan companies, mutual funds, hospitals and museums all used the securities to raise operating funds.
Goldman had helped to develop the auction-rate market and advised many clients to issue them, getting an annual fee for sponsoring the auctions. Between 2002 and 2008, U.P.M.C. issued $400 million; Goldman underwrote $160 million, while Morgan Stanley and UBS sold the rest.
But in the fall of 2007, as the credit crisis deepened, investors began exiting the $330 billion market, causing interest rates on the securities to drift upward. By mid-January 2008, U.P.M.C. was concerned about the viability of the market and asked Goldman if the hospital should get out. Stay the course, Goldman advised U.P.M.C. in a letter, a copy of which Mr. Heppenstall read to a reporter.
On Feb. 12, less than a month after that letter, Goldman withdrew from the market — the first Wall Street firm to do so, according to a Federal Reserve report. Other firms quickly followed suit.
With the market in disarray, the interest rates that U.P.M.C. and other issuers had to pay investors skyrocketed. Rather than pay the rates, U.P.M.C. decided to redeem the securities.
Although Goldman had fled the market, it refused to allow a redemption to proceed, Mr. Heppenstall said, warning that its contract with the hospital barred U.P.M.C. from buying back the securities for at least another month.“
This topic is a quick reference to the different legislation that protects MBS Trusts from FDIC and bankruptcy.
1) 2002 Delaware ABSFA :
IHUB post#573721
Excerpt:
“On January 17, 2002, the state of Delaware enacted the Asset-Backed Securities Facilitation Act, 6 Del.C. 2703A (the “ABSFA”). The ABSFA effectively creates a safe harbor under Delaware state law for determining what constitutes a true sale in securitization transaction.
The ABSFA first provides that any “property, assets or rights purported to be transferred, in whole or in part, in the securitization transaction shall be deemed to no longer be the property, assets or rights of the transferor.” Given the foregoing provision, to the extent Delaware law applies, the traditional legal criteria used in determining what constitutes a true sale in the context of a securitization is intended to be irrelevant.
The ABSFA further states that a “transferor in the securitization transaction…to the extent the issue is governed by Delaware law, shall have no rights, legal or equitable, whatsoever to reacquire, reclaim, recover, repudiate, disaffirm, redeem or recharacterize as property of the transferor any property, assets or rights purported to be transferred, in whole or in party, by the transferor.” The ABSFA also provides that in “the event of a bankruptcy, receivership or other insolvency proceeding with respect to the transferor of the transferor’s property, to the extent the issue is governed by Delaware law, such property, assents and rights shall not be deemed party of the transferor’s property, assets, rights or estate.”
Thus, effectively, the state law makes a securitization transaction completely free from risk of recharacterization. “
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2) FDIC 2009
IHUB post#563125
Excerpt:
“
https://www.housingwire.com/articles/fdic-extends-safe-harbor-transfer-new-existing-abs-assets
“FDIC Extends 'Safe Harbor' for Transfer of New, Existing ABS Assets
November 12, 2009 Diana Golobay
The Federal Deposit Insurance Corp. (FDIC) on Thursday approved an interim rule providing a "safe harbor" for the transfer of assets related to certain types of asset-backed securities (ABS) from insured depositary institutions. The transitional safe harbor applies to all securitizations issued before March 31, 2010, shielding the assets from seizure by the FDIC in instances where the insured depositary institutions fail. ”
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3) IHUB post#574173
Delaware Statutory Trust (DST) Act 2002
Excerpt:
“Per the article by Morris James
https://www.morrisjames.com/newsroom-articles-292.html
“Bankruptcy Remote Characteristics.
A DST is a legal entity separate and distinct from its owners and managers, and this separateness lessens the likelihood that a bankruptcy court will consolidate the assets and liabilities of the DST with those of the trustor.
No creditor of a beneficial owner of the DST has any right to obtain possession of or exercise any legal or equitable remedies with respect to the property of the DST, and a beneficial owner generally has no interest in specific property of the DST.
A DST may not be terminated or revoked by a beneficial owner or other person except in accordance with the terms of its trust agreement. A DST has perpetual existence and will not be terminated or dissolved by the dissolution, termination or bankruptcy of a beneficial owner unless the terms of the trust agreement provide otherwise.
The contractual flexibility provided by the DST Act allows parties to restrict the ability of the DST to voluntarily commence bankruptcy proceedings through the designation of an “independent trustee”. This “independent trustee” may agree in the trust agreement to be responsible for making the determination to seek bankruptcy protection, and any fiduciary duties the independent trustee might otherwise owe to the beneficial owner can be contractually limited. Additionally, in appropriate circumstances, the power and authority of a DST may be limited (e.g., by limiting such power and authority to the preservation of the assets of the DST) so as to render the DST ineligible to file as a debtor under the U.S. Bankruptcy Code.
...
Insulation Of Trust Assets From Attachment
10 Del. C. §3502(b) ("Section 3502") provides that banks and trust companies are not subject to the legal remedy of attachment, therefore money and other assets in the custody and control of a bank or trust company are exempt from seizure by attachment
Case law has extended the protection of Section 3502 to equitable remedies sought by creditors ("[P]roperty, which is exempt from levy and sale under legal process . . . cannot be reached by a creditor's bill.")
Therefore, a beneficial owner's interest in a DST is protected from all judgment creditors of such beneficial owner so long as the trust assets are held in Delaware by a bank or trust company”
IHub Post#494095:
I'm linking a post I made on Boardpost.net back in July 25, 2014 regarding a list of All Subsidiary Assets tabulated from an Asset and Liabilities Statement on February 24, 2009:
https://www.boardpost.net/forum/index.php?topic=5858.msg72913#msg72913
"Sorry for the formatting of this list, because I was not able to attach the Excel file that I downloaded from somebody back in Feb 2010.
The original poster who created this excel file can attach it if you are willing and able.
Here is my version of that data.
All Data is from the comparison of the list of WAMU subsidiaries to the Asset and Liabilities Statement signed on 02_24_2009
List of WAMU Subsidiaries that do NOT have a line item in the A/L Statement List of WAMU Subsidiaries that have a line item in the A/L Statement
1) 110 East 42nd Operating Company, Inc. 1) ACD2 (BV= $102.798M)
2) 620-622 Pellhamdale Avenue Owners Corporation 2) Ahmanson Developments, Inc. (BV= $5.3M)
3) Accord Realty Management Corporation 3) Ahmanson Obligation Company (BV= $44M)
4) ACD3 4) Ahmanson Residential Development
(BV= $147.54M)
5) ACD4 5) Great Western Service Corporation
Two
(BV= $108.91M)
6) Ahmanson GGC LLC 6) H.S. Loan Corporation (BV= $58.3M)
7) Ahmanson Insurance, Inc. 7) HS Loan Partners LLC (BV= $68.6M)
8 ) Ahmanson Land Company 8 ) CA Asset Holdings LLC (BV= $19.04M)
9) Ahmanson Marketing, Inc. 9) Riverpoint Associates (BV= $11.14M)
10) Ahmanson Residential 2 10) WaMu 1031 Exchange (BV= $5.77M)
11) Bryant Financial Corporation 11) WaMu Capital Corp. (BV= $90,488)
12) California Reconveyance Company 12) WaMu Investments, Inc. (BV= $576,482)
13) CCB Capital Trust IV 13) Washington Mutual Bank (BV= $105.64M)
14) CCB Capital Trust IX 14) Washington Mutual Bank fsb
(BV= $3.66B)
15) CCB Capital Trust V 15) WM Citation Holdings, LLC (BV= $4.27M)
16) CCB Capital Trust VI 16) WM Funds Disbursements, Inc.
(BV= $13)
17) CCB Capital Trust VII 17) WM Mortgage Reinsurance Company, Inc.
(BV= $307.51M)
18) CCB Capital Trust VIII 18) WMI Investments Corp. (Co-Debtor)
(BV= $977.48M)
(Market Value=$319.41M)
19) Clayton Blackbear, Inc. 19) WMI Rainier LLC (BV= $2.25M)
20) Commercial Loan Partners L.P.
**All Subs in this column have undetermined
Market Values except for WMI Investments Corp.
21) CRP Properties, Inc.
22) Dime Capital Partners, Inc.
23) Dime Commercial Corp.
24) Dime CRE, Inc.
25) Dime Mortgage of New Jersey, Inc.
26) ECP Properties, Inc.
27) F.C. LTD.
28) FA California Aircraft Holding Corporation
29) FA Out-of-State Holdings, Inc.
30) Flower Street Corporation
31) Great Western FS Corporation
32) H.F. Ahmanson & Company (1998 bought for $10B with assests worth $55B)
33) Harmony Agency, Inc.
34) HCP Properties Holdings, Inc.
35) HCP Properties, Inc.
36) HFC Capital Trust I
37) HHP Investment, LLC
38) HMP Properties, Inc.
39) Home Crest Insurance Services, Inc.
40) Insurer
41) Irvine Corporate Center, Inc.
42) Ladue Service Corporation
43) Long Beach Securities Corp.
44) Marion Insurance Company, Inc.
45) Marion Street, Inc.
46) Mid Country Inc.
47) Murphy Favre Housing Managers, Inc.
48) Murphy Favre Properties, Inc.
49) NAMCO Securities Corp.
50) Nickel Purchasing Company, Inc.
51) Norstar Mortgage Corp.
52) North Properties, Inc.
53) Pacific Centre Associates LLC
54) Pacoima Investment Fund LLC
55) Pike Street Holdings, Inc.
56) Plainview Inn, Inc.
57) Providian Bancorp Services
58) Providian Leasing Corporation
59) Providian Mauritius Investments LTD
60) Providian Services Corporation
61) Providian Services LLC
62) Providian Technology Services Private Limited
63) Reverse Exchange Corporation
64) Rivergrade Investment Corp.
65) Robena Feedstock LLC
66) Robena LLC
67) Savings of America, Inc.
68) Seafair Securities Holdings Corp.
69) Second and Union LLC
70) Seneca Funding (UK) Limited
71) Seneca Funding LLC
72) Seneca Funding Management LLC
73) Seneca Funding Trust
74) Seneca Holdings, Inc.
75) Seneca Newco LLC
76) Seneca Street, Inc.
77) Sivage Financial Services LLC
78) Snohomish Asset Holdings LLC
79) SoundBay Leasing LLC
80) Stockton Plaza, Incorporated
81) Strand Capital LLC
82) Sutter Bay Associates LLC
83) Sutter Bay Corporation
84) Thackeray Funding Corp.
85) Thackeray Funding Partners
86) Thackeray Holdings Corp.
87) The E-F Battery Accord Corporation
88) University Street, Inc.
89) WaMu Asset Acceptance Corp.
90) WaMu Insurance Services, Inc.
91) Washington Mutual Asset Securities Corp.
92) Washington Mutual Brokerage Holdings, Inc.
93) Washington Mutual Capital Trust 2001
94) Washington Mutual Community Development, Inc.
95) Washington Mutual Finance Group LLC
96) Washington Mutual Life Insurance Company of California, a Stock
97) Washington Mutual Mortgage Securities Corp.
98) Washington Mutual Preferred Funding LLC
99) Washington Mutual Trade Service Limited
100) Washington Mutual-Seattle Art Museum Project Owners Association
101) Western Service Co.
102) WM Aircraft Holdings LLC
103) WM Asset Holdings Corp.
104) WM Enterprises & Holdings, Inc.
105) WM Marion Holdings LLC
106) WM Specialty Mortgage LLC
107) WM Winslow Funding LLC
108) WMB St. Helens LLC
109) WMBFA Insurance Agency, Inc.
110) WMFS Insurance Services, Inc.
111) WMGW Delaware Holdings LLC
112) WMHFA Delaware Holdings LLC
113) WMICC Delaware Holdings LLC
114) WMRP Delaware Holdings LLC
115) Yellowstone Venture, Inc.
CONCLUSIONS....IMO:
1) Out of 134 Subs under WMI, only 19 were listed on the A/L Statement as of Feb. 24, 2009.
2) Book Values (BV) of all the subs that were listed on the A/L Statements did not have a Market Value allocated to it except for WMI Investments Corp.
3) There was no accounting of any kind regarding the 115 Subs that were under the heading: "List of WAMU Subsidiaries that do NOT have a line item in the A/L Statement"
___________________
IMO...My conclusions as of 07May2019:
1) Take notice from above list:
"84) Thackeray Funding Corp.
85) Thackeray Funding Partners
86) Thackeray Holdings Corp."
2) The current State of Delaware Division of Corporations website:
https://icis.corp.delaware.gov/Ecorp/EntitySearch/NameSearch.aspx
Thackeray Funding Corp.
Incorporation Date: 12/1/2006
Registered Agent: Corporation Service Company
Address: 251 Little Falls Drive, Wilmington, DE, 19808
Phone: (302)636-5401
Thackeray Funding Partners
Incorporation Date: 3/23/2007
Registered Agent: Corporation Service Company
Address: 251 Little Falls Drive, Wilmington, DE, 19808
Phone: (302)636-5401
Thackeray Holdings Corp.
Incorporation Date: 2/9/2007
Registered Agent: The Corporation Trust Company Corporation
Address: Trust Center 1209 Orange St., Wilmington, DE, 19801
Phone: (302)658-7581
Thackeray III Bridge, LLC
Incorporation Date: 11/17/2011
Registered Agent: Corporation Service Company
Address: 251 Little Falls Drive, Wilmington, DE, 19808
Phone: (302)636-5401
Two of the three previous WMI Subsidiaries (Thackeray Funding Corp., and Thackeray Funding Partners) share the same Registered agent address and phone number of Thackeray III Bridge, LLC.
IMO...I firmly believe that Thackeray III Bridge, LLC is the DST that holds the WMI non-banking assets (i.e. retained interests in MBS Trusts that WMI subsidiaries created, mineral rights, real estate, Credit Default Swaps, etc.) that were transferred beginning on November 17, 2011 and concluded all transfers of assets prior to dissolution of WMIIC on January 18, 2018.
Per the Delaware Secretary of State website:
https://icis.corp.delaware.gov/Ecorp/EntitySearch/NameSearch.aspx
Thackeray III Bridge, LLC was incorporated: November 17, 2011.
Registered Agent: CORPORATION SERVICE COMPANY
IMO...my conclusions as of May 06, 2019:
1) Thackeray III Bridge, LLC is aka CSC Trust Company of Delaware (resident trustee)
2) Kosturos (liquidation trustee)
3) Beneficial owners of Thackeray III Bridge, LLC are the WMI Escrow Marker Holders
4) Thackeray III Bridge, LLC was incorporated in Delaware on November 17, 2011
5) POR 7 mediation didn’t start until December 2011.
6) WMIIC was able to transfer all WMI non-banking assets (i.e. retained interests in MBS Trusts created by WMI subsidiaries, mineral rights, CDS, real estate, etc) into a DST such as Thackeray III Bridge, LLC before WMIIC was dissolved in January 18, 2018.
7) Per DST Act of 2002:
Per the article by Morris James
https://www.morrisjames.com/newsroom-articles-292.html
“Bankruptcy Remote Characteristics.
A DST is a legal entity separate and distinct from its owners and managers, and this separateness lessens the likelihood that a bankruptcy court will consolidate the assets and liabilities of the DST with those of the trustor.
No creditor of a beneficial owner of the DST has any right to obtain possession of or exercise any legal or equitable remedies with respect to the property of the DST, and a beneficial owner generally has no interest in specific property of the DST.
A DST may not be terminated or revoked by a beneficial owner or other person except in accordance with the terms of its trust agreement. A DST has perpetual existence and will not be terminated or dissolved by the dissolution, termination or bankruptcy of a beneficial owner unless the terms of the trust agreement provide otherwise.
The contractual flexibility provided by the DST Act allows parties to restrict the ability of the DST to voluntarily commence bankruptcy proceedings through the designation of an “independent trustee”. This “independent trustee” may agree in the trust agreement to be responsible for making the determination to seek bankruptcy protection, and any fiduciary duties the independent trustee might otherwise owe to the beneficial owner can be contractually limited. Additionally, in appropriate circumstances, the power and authority of a DST may be limited (e.g., by limiting such power and authority to the preservation of the assets of the DST) so as to render the DST ineligible to file as a debtor under the U.S. Bankruptcy Code.
...
Insulation Of Trust Assets From Attachment
10 Del. C. §3502(b) ("Section 3502") provides that banks and trust companies are not subject to the legal remedy of attachment, therefore money and other assets in the custody and control of a bank or trust company are exempt from seizure by attachment
Case law has extended the protection of Section 3502 to equitable remedies sought by creditors ("[P]roperty, which is exempt from levy and sale under legal process . . . cannot be reached by a creditor's bill.")
Therefore, a beneficial owner's interest in a DST is protected from all judgment creditors of such beneficial owner so long as the trust assets are held in Delaware by a bank or trust company”
IMO...my conclusions from above article:
A) WMI non-banking assets transferred into a DST cannot be consolidated to the transferor’s (WMI/WMIIC) balance sheet
B) All assets in a DST is bankruptcy remote.
Overall conclusions:
1) WMI transferred all assets to a DST like Thackeray III Bridge, LLC (which are bankruptcy remote),
2) WMIIC was then dissolved on January 18, 2018 (without any assets upon dissolution),
3) assets within the DST will be returned to WMI Escrow Marker Holders when the BK cases are closed.
4) FDIC has no control of the assets in a DST such as Thackeray III Bridge, LLC.
5) it is true that the BK estate (WMI/WMILT) does not have any hidden significant amounts of assets because they are in a DST such as Thackeray III Bridge, LLC.
Draw your own conclusions!
IMO...conclusions as of May 03, 2019:
1) This is a long post so I’m stating my conclusions first.
A) WMI non-banking assets ——>WMIIC —> Thackeray III Bridge (DST...the perfect bankruptcy remote SPE/SPV)
IMO...all WMI non- banking assets (i.e. beneficial interests in retained interests in MBS Trusts which WMI subsidiaries created; mineral rights, CDS, etc.) were transferred to a DST, therefore making them bankruptcy remote. WMI Escrow Marker Holders are the rightful beneficial owners of the WMI non-banking assets which cannot be consolidated on WMI / WMB balance sheets because they are in a DST.
B) CSC Trust Company of Delaware is the resident trustee, and Kosturos is the liquidating Trustee
2) The following article defines Delaware Statutory Trust (DST)
A) “...perfect structured finance special purpose entity”
B) “...a beneficial owner's interest in a DST is protected from all judgment creditors of such beneficial owner so long as the trust assets are held in Delaware by a bank or trust company.”
https://www.morrisjames.com/newsroom-articles-292.html
“An Overview of the Delaware Statutory Trust Act in Structured Finance Transactions
Articles & Publications
Business Transactions, Strategic Planning and Counseling Group
While Delaware is nationally known as the preferred jurisdiction for corporations, it is likewise recognized as a leader in the area of statutory trusts. The State of Delaware, in 1988, adopted the Delaware Business Trust Act, the name of which was changed to the Delaware Statutory Trust Act (the “DST Act”) in 2002. The enactment of this legislation operated to increase the utility of the trust in structured finance transactions by overruling those principles of common law trusts which were deemed disadvantageous and by including certain new provisions to statutorily authorize a high degree of freedom of contract between the trustor and the trustee in determining their respective liabilities and the manner in which the trust (called a “statutory trust” under the DST Act; hereinafter referred to as a “DST”) could be administered.
Although a number of states have adopted statutes recognizing business trusts, Delaware was the first state to adopt a completely new statutory trust entity which was designed from the ground up as a perfect structured finance special purpose entity. In the decades since Delaware adopted the DST Act, numerous other states have each enacted their own versions of the DST Act. The Delaware version, however, has continued to evolve over the ensuing years and remains several steps ahead of the others.
DELAWARE STATUTORY TRUSTS IN STRUCTURED FINANCE TRANSACTIONS
Whether you are arranging an asset-backed financing, an equipment leasing transaction, or trying to establish a titling trust, the entity that holds the assets being financed is the linchpin of all structured finance transactions. The DST has emerged as the preferred entity in such transactions for a variety of reasons.
A DST is easy to form and maintain.
A DST is formed by filing a certificate of trust with the Office of the Secretary of State of the State of Delaware. This certificate states only the name of the trust and the name and address of the Delaware trustee. There is no requirement that the identity of the beneficial owners of the trust or the provisions of the trust agreement be publicly disclosed, thus protecting the privacy of the parties to the transaction. The DST Act does require that the trust have a Delaware resident trustee, but business decisions and management of the trust may be (and in the context of a structured finance transaction, typically are) delegated to out of state co-trustees and managers. Moreover, the State of Delaware does not impose any annual fees or filing requirements on DST’s; there is a low one-time filing fee for formation of the trust, due to the State upon the filing of the certificate of trust.
Limited Liability.
The DST offers protection to its trustees, managers and beneficial owners. Under the DST Act, beneficial owners of a DST are entitled to the same liability protections that Delaware law provides to stockholders of a Delaware corporation. Further, trustees (whether they are physically located within Delaware or not) and other managers of the DST are not personally liable to third parties for acts, omissions or obligations of the DST.
Contractual Flexibility.
The express policy of the DST Act is to give maximum effect to the principle of freedom of contract and to the enforceability of trust agreements. This policy of freedom of contract means the parties are able to agree as between themselves with respect to matters such as management and economic rights of owners, duties and rights of managers, indemnification, mergers and other mixed entity reorganizations and other management and operational issues. Fiduciary duties to the beneficial owners or the statutory trust and related liabilities may be expanded, restricted or eliminated in the trust agreement; provided only that the trust agreement may not eliminate the implied contractual covenant of good faith and fair dealing.
Flexible Tax Treatment.
A DST may be structured as a corporation, a partnership or a trust for federal and Delaware income tax purposes. A DST can qualify as a FASIT (financial asset securitization investment trust), a REMIC (real estate mortgage investment conduit), a REIT (real estate investment trust) or a RIC (registered investment company).
Bankruptcy Remote Characteristics.
A DST is a legal entity separate and distinct from its owners and managers, and this separateness lessens the likelihood that a bankruptcy court will consolidate the assets and liabilities of the DST with those of the trustor.
No creditor of a beneficial owner of the DST has any right to obtain possession of or exercise any legal or equitable remedies with respect to the property of the DST, and a beneficial owner generally has no interest in specific property of the DST.
A DST may not be terminated or revoked by a beneficial owner or other person except in accordance with the terms of its trust agreement. A DST has perpetual existence and will not be terminated or dissolved by the dissolution, termination or bankruptcy of a beneficial owner unless the terms of the trust agreement provide otherwise.
The contractual flexibility provided by the DST Act allows parties to restrict the ability of the DST to voluntarily commence bankruptcy proceedings through the designation of an “independent trustee”. This “independent trustee” may agree in the trust agreement to be responsible for making the determination to seek bankruptcy protection, and any fiduciary duties the independent trustee might otherwise owe to the beneficial owner can be contractually limited. Additionally, in appropriate circumstances, the power and authority of a DST may be limited (e.g., by limiting such power and authority to the preservation of the assets of the DST) so as to render the DST ineligible to file as a debtor under the U.S. Bankruptcy Code.
Sophisticated Dispute Resolution.
The Delaware Court of Chancery has jurisdiction over trust and fiduciary matters and is generally regarded as the preeminent business court in the United States. Furthermore, the Delaware Court of Chancery offers parties to sophisticated business transactions the opportunity to mediate or arbitrate their disputes, provided that their trust agreement contains certain required language.
COMMON USES OF DELAWARE STATUTORY TRUSTS
Asset Securitizations – the DST issues debt/equity securities backed by trust assets, the primary advantage of which can be to protect DST assets from creditors of the originator of such assets and creditors of the beneficial owners of the DST.
municipal tax liens (i.e. NYC; DC)
residential mortgages (CMOs and REMICs)
real estate investment trusts (REITs)
commercial mortgage loans
financial asset securitization investment trusts (FASITs)
collateralized bond obligations (CBOs)
receivables (credit card, trade, installment sale, healthcare, etc.)
automobile leases/loans
corporate bonds and notes
royalty interest trusts (oil/natural gas properties)
Leveraged Leasing and Equipment/Collateral Trusts – the DST provides limited liability for equity investors, protects lessee and debt investors against risk of equity investor's bankruptcy, and can significantly reduce the risk that the DST will become a debtor in bankruptcy.
Like Kind Exchanges Under Section 1031 of the Internal Revenue Code – DSTs are frequently used to hold “replacement property” in like kind exchange transactions structured to comply with Revenue Ruling 2004-86.
Structured/Synthetic Securities – the DST acquires and holds the security/asset to be repackaged, enters into a swap transaction to exchange cash flows with the swap counterparty, and issues to investor new debt and/or equity securities having the desired investment characteristics (based on cash flows received from swap counterparty).
Synthetic Leases – the DST's flexibility and bankruptcy-remote features, and the limited liability of DST beneficial owners, makes the DST a good choice to serve as borrower/owner/lessor in tax retention operating lease (TROL) transactions.
Registered Investment Companies – the DST's flexibility is key advantage.
there exists no limit on number of beneficial owners/interests;
the DST can be authorized to redeem or issue additional beneficial interests without the consent of beneficial owners and without amending a public document or filing;
inter-series liabilities can be limited to property of the series; and
no annual meetings are required.
Insulation Of Trust Assets From Attachment
10 Del. C. §3502(b) ("Section 3502") provides that banks and trust companies are not subject to the legal remedy of attachment, therefore money and other assets in the custody and control of a bank or trust company are exempt from seizure by attachment
Case law has extended the protection of Section 3502 to equitable remedies sought by creditors ("[P]roperty, which is exempt from levy and sale under legal process . . . cannot be reached by a creditor's bill.")
Therefore, a beneficial owner's interest in a DST is protected from all judgment creditors of such beneficial owner so long as the trust assets are held in Delaware by a bank or trust company”
3) The following below is background DD from previous posts:
A) IHub Post #550067
B) IHub Post #551077
______________________
IHub Post#550067:
“Saturday, 12/08/18 01:45:43 PM
Re: hotmeat post# 550031 0
Post # of 573716
I want to point out the very first document filed by Washington Mutual Incorporated Investment Corp. (WMIIC)
http://www.kccllc.net/wamu/document/0812228080926000000000001
PDF page 1 of 10 (bottom of page):
“Estimated Assets ________X $500,000,001 to $1 billion
Estimatesd Liabilities ______ X $0 to $50,000”
PDF page 9 of 10:
Stewart M. Landefeld (Executive Vice President) filed and stated:
“WMI Investment Corp. in the above-captioned case, certifies that Washington Mutual, Inc. Owns 100% of the equity interests in WMI Investment Corp.”
___________________
https://www.prnewswire.com/news-releases/wmih-corp-announces-dissolution-of-wmi-investment-corp-300584678.html
“SEATTLE, Jan. 18, 2018 /PRNewswire/ -- WMIH Corp. (Nasdaq: WMIH) (the "Company") today announced that it has completed the dissolution of its wholly-owned subsidiary WMI Investment Corp. ("WMIIC"). Earlier today, WMIIC filed a Certificate of Dissolution of WMIIC with the Office of the Delaware Secretary of State. The dissolution of WMIIC was effective immediately upon the filing of such certificate.
Prior to September 26, 2008, WMIIC held a variety of securities and investments; however, such securities and investments were liquidated and the value thereof distributed in connection with implementing the Company's Seventh Amended Joint Plan of Affiliated Debtors Pursuant to Chapter 11 of the United States Bankruptcy Code. As such, WMIIC did not have any assets or operations at the time of its dissolution. “
____________
IMO...conclusions as of December 08, 2018:
1) WMI owns 100% equity of WMIIC, not the assets of WMIIC. Thus WMILT/WMI Escrow Marker Holders owns 100% equity of WMIIC, not the assets of WMIIC.
2) WMIIC did declare assets
3) upon dissolution, WMIIC owned no assets.
So, why is this so important?
IMO...WMIIC was or it became a Special Purpose Vehicle/ Special Purpose Entity (SPV/SPE)
The following is a description of what a SPV/SPE actually is, and how it is required in securitizations of assets.
The following are cited from “Securitization: The Financial Instrument of the Furure” by Vinod Kothari (2nd edition 2006).
Page 11-12
Another phrase commonly used in securitization exercises is bankruptcy remoteness. This means the transfer of the assets by the originator goes bankrupt, or falls into other financial difficulties, the rights of the investors on the assets held by the SPV are not affected. In other words, the investors would continue to have a paramount interest in the assets irrespective of the difficulties, distress or bankruptcy of the originator. Bankruptcy remoteness could also be related to the issuer, that is, the special purpose vehicle is ideally so structured that it cannot go bankrupt. Technically, it is never possible to guarantee that the SPV will not go bankrupt, but the structural protection against bankruptcy relies on a basic tenet of life that we often forget. All worries are associated with wealth. If the SPV is so structured that it can have no wealth and no liabilities, it obviously can have no worries, including worries as to bankruptcy.
Page 15-16
Box 1.3 Why Special Purpose Vehicles?
Special purpose vehicle is a transformation device, it is not an entity with substance, assets or income. It is a mere legal fiction that holds assets and issues securities.
It does not add any credit, value or support to the assets.
The results is that assets get converted into securities, the special purpose entity acting as a conversion device.
The only backing of the securities issued by the entity is the assets, so these securities are asset-backed securities.
Special Purpose Vehicle
A vehicle, whether special purpose or general purpose, is not required in case of asset sales in general, but is required for securitization transactions.
Creation of marketable securities is not possible without a conduit or vehicle that will house the assets transferred by the originator and create securities based on such assets. Therefore, a vehicle is required to serve as an intermediary between the originator and the investors. But or such a vehicle, a transfer of assets between the originator and the investors will be a direct bilateral transfer and any further disposal thereof by the investors will be fraught with problems. We will discuss more of these problems later.
That is why we need a vehicle, but why a special purpose vehicle? The idea of a special purpose vehicle is to clothe an asset(s) with the garb of incorporation, so that one who owns the securities of the vehicle really owns the assets, no more and no less. A general purpose, or operating company, is not fit to hold securitized assets as such a company might have other assets and other liabilities, each of which might interfere with the exclusivity of rights over the assets that the transaction intends to give to the investors.
If an operating company holds assets, it might incur expenses, and/or incur liabilities, and might go bankrupt, thereby destroying the transaction. By its very nature, a special purpose vehicle is a legal shell with only the specific assets transferred by the originator, and those assets are either beneficially held by the investors or collateralize the securities of the vehicle; there is nothing left in the vehicle for anyone to have an interest in. A special purpose vehicle is a legal entity, but a substantive non-entity. This is what makes a special purpose vehicle bankruptcy-remote: Taking the special purpose vehicle to bankruptcy is almost the same as taking legal action against a pauper.
Page 640
The following limitations should be imposed in the constitutional documents to make the SPV bankruptcy remote:
The company’s purpose should be limited. The purpose will depend on the function of the SPV. Issuer SPVs will have the purpose of acquiring the assets of the originator, issuing securities and all ancillary functions.
The company’s ability to incur indebtedness should be limited. The nature of the limitation will depend on the limited liability company’s role in the transaction.
The company should be prohibited from engaging in any dissolution, liquidation, consolidation, merger or asset sale and amendment of its articles of organization as long as the rated obligations are outstanding.
The company must have an independent director. Preferably, the majority of the Board must be independent.
The unanimous consent of the independent directors and members should be required to (i) file, or consent to the filing of, a bankruptcy or insolvency petition or otherwise institute insolvency proceedings; (ii) dissolve, liquidate, consolidate, merge or sell all or substantially al of the assets of the corporation; (iii) engage in any other business activity; and (iv) amend the company’s organizational documents.
The company should agree to observe the “Separateness Covenants” (see above).
Page 592
Safe Harbor
Delaware
On January 17, 2002, the state of Delaware enacted the Asset-Backed Securities Facilitation Act, 6 Del.C. 2703A (the “ASBFA”). The ABSFA effectively creates a safe harbor under Delaware state law for determining what constitutes a true sale in securitization transaction.
?The ABSFA first provides that any “property, assets or rights purported to be transferred, in whole or in part, in the securitization transaction shall be deemed to no longer be the property, assets or rights of the transferor.” Given the foregoing provision, to the extent Delaware law applies, the traditional legal criteria used in determining what constitutes a true sale in the context of a securitization is intended to be irrelevant.
?The ABSFA further states that a “transferor in the securitization transaction…to the extent the issue is governed by Delaware law, shall have no rights, legal or equitable, whatsoever to reacquire, reclaim, recover, repudiate, disaffirm, redeem or recharacterize as property of the transferor any property, assets or rights purported to be transferred, in whole or in party, by the transferor.” The ABSFA also provides that in “the event of a bankruptcy, receivership or other insolvency proceeding with respect to the transferor of the transferor’s property, to the extent the issue is governed by Delaware law, such property, assents and rights shall not be deemed party of the transferor’s property, assets, rights or estate.”
?Thus, effectively, the state law makes a securitization transaction completely free from risk of recharacterization.
___________________
IMO...overall conclusions:
1) WMIIC was a SPV/SPE which bought assets in order to transfer them to another SPV/SPE (which specifically are in Delaware Statutory Trusts (DST) such as Thackeray III).
March 05, 2012 —WMI/WMIIC contracts CSC Trust Company of Delaware as Delaware resident trustee. Therefore, WMILT can function as a proper liquidation trust.
https://www.sec.gov/Archives/edgar/data/933136/000090951812000131/mm03-1212_8ke101.htm
“WMI LIQUIDATING TRUST AGREEMENT, dated as of March 5, 2012 (this “Trust Agreement”), is by and among Washington Mutual, Inc. (“WMI”) and WMI Investment Corp. (“WMI Investment” and, together with WMI, the “Debtors”), as debtors and debtors-in-possession, William C. Kosturos, as liquidating trustee (together with any successor or additional trustee appointed under the terms hereof, the “Liquidating Trustee”), and CSC Trust Company of Delaware as the Delaware resident trustee (together with any successor Delaware resident trustee appointed under the terms hereof, the “Resident Trustee” and collectively with the Liquidating Trustee, the “Trustees”) of the WMI Liquidating Trust (the “Liquidating Trust”). Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Debtors’ Seventh Amended Joint Plan of Affiliated Debtors Pursuant to Chapter 11 of the United States Bankruptcy Code, dated December 12, 2011, as confirmed (including all exhibits thereto, as the same may be further amended, modified, or supplemented from time to time, the “Plan”).”
March 19, 2012–Effective Date of POR7
June 27, 2017– WaMu 1031 Exchange creation in Delaware
December 08, 2017–
a) WaMu 1031 dissolution in California
b) Long Beach, Wamu Capital Corp., WMMSC, WMAAC, and one other WMB subsidiary merged with JPMC
December 11, 2017– DB Globic letter to investors stating distribution from MBS Trusts starting after January 2018
January 18, 2018– WMIIC dissolution in Delaware
IMO...WMIIC was the conduit SPV/SPE which transfered all assets from all subsidiaries to DST such as Thackeray III Bridge.
WMI/WMILT/WMI Escrow Marker Holders are 100% the rightful equity beneficial owners of all assets in DST which hold all the assets and non-banking assets (i.e. real estate, mineral rights, beneficial interests of certificate participation in MBS Trusts created by WMI subsidiaries)
______________________
IHub Post #551077:
Saturday, 12/15/18 11:29:14 AM
Re: Dmdmd2020 post# 550067 0
Post # of 573717
https://www.delawaretrust.com/contact-delawaretrust/delaware-trust-company-history
"The History of Delaware Trust Company
Delaware Trust wasn’t born yesterday. Since founders Josiah P. Marvel and Christopher L. Ward went into business together over a century ago, managing a trust company was part of the foundation of their partnership.
In 1899, Josiah Marvel and Christopher Ward merged independent businesses that helped companies incorporate, operate, and stay in compliance to form Corporation Service Company®, Delaware Trust’s parent company. Later, in 1917, when trust charters were easier to come by than in present day, Ward purchased a handful for later use.
Even through the Great Depression and the death of both founders in the 1930s and 40s, the company continued to earn a profit and grow. In 1968, the board discovered that Capital Trust Company was available for purchase. While small, it had a long history, and was a smart acquisition.
In 1979, the board reactivated the trust charter for Delaware Charter Guarantee & Trust Company, and started doing business in 1981. Within a few years, it had become larger than the parent company, and in 1986, was sold to Principal Mutual Life Insurance Company, now the Principal Financial Group.
In 1999, another of Ward’s early-century trust charters was activated to establish Capital Trust Company of Delaware. With an initial focus on personal trust, Capital Trust branched out into corporate trust in 2002 and soon realized that this line of business had greater synergy with the parent’s core business. So in 2006, the personal trust side of the company was sold and the corporate trust accounts were transferred to CSC Trust Company of Delaware, a company focused exclusively on corporate trust services.
In 2010, the company separated business offerings into five related units including CSC Trust Company of Delaware. A few years later in 2014, CSC Trust Company of Delaware renamed Delaware Trust. There is a great deal of history standing behind a business that today specializes in special purpose entities, corporate trust and agency services, special purpose vehicle management, and independent director services."
____________________
Per Globic link pertaining to the DB Trustee of $165 billion in MBS Trust:
https://www.globic.com/wamurmbssettlement/pdfs/3.%202017%2004%2028%20FILED%20WAMU%20TIP%20Decl%20of%20Robert%20Stevens%20re%20Notice%20to%20DTC%20of%201%20Complex%20Designation,%202%20Notice%20of%20Hearing%20Date,%203%20Civil%20Complex.pdf
(PDF Page 54-65 of 184) "NAME AND ADDRESS OF EACH PERSON TO WHOM NOTICE WAS MAILED"
PDF Page 57 of 184:
Name and person served____________Address
"Wilmington Trust Company__________Attention: Coporate Trust Administration
Rodney Square North
1100 N. Market Street
Wilmington, DE 19890-0001
WM Covered Bond Program__________c/o Wilmington Trust Company
1100 North Market Street
Wilmington, DE 19890"
PDF Page 59 of 184:
"Wilmington Trust Company__________c/o Corporation Service Company
2711 Centerville Rd. Suite 400
Wilmington, DE 19808"
____________________
IMO...My Conclusions as of December 15, 2018:
1) WMI LIQUIDATING TRUST AGREEMENT, dated as of March 5, 2012 (this “Trust Agreement”), is by and among Washington Mutual, Inc. (“WMI”) and WMI Investment Corp. (“WMI Investment” and, together with WMI, the “Debtors”), as debtors and debtors-in-possession, William C. Kosturos, as liquidating trustee (together with any successor or additional trustee appointed under the terms hereof, the “Liquidating Trustee”), and CSC Trust Company of Delaware as the Delaware resident trustee (together with any successor Delaware resident trustee appointed under the terms hereof, the “Resident Trustee” and collectively with the Liquidating Trustee, the “Trustees”) of the WMI Liquidating Trust (the “Liquidating Trust”).
2) Corporation Service Company was kept in correspondence regarding the DB Trustee which managed $165 billion in MBS Trusts created by WMI subsidiaries.
3) CSC Trust Company of Delaware is the same as Corporation Service Company.
4) CSC Trust Company is the "Resident Trustee" along with the Liquidating Trustee (William C. Kosturos) which serves the WMILT.
5) Thus the WMILT has a very big (beneficial interests) interest in the progress of the DB/Globic Litigation (Which was settled and consummated on December 31, 2017). IMO.. Disbursement of monthly payments to certificate holders started after January 2018.
IMO...WMILT/WMI Escrow Holders are one of those certificate holders. But they have to wait until the FDIC resolves the receivership and that won't happen until the BK cases are closed. But now, FDIC might be able to unfreeze the MBS Trusts with the approval of the DCR adjustment to allow the disbursements to the last remaining creditors (PIERS).
6) In the list of parties that were given notice via mail:
a) Underwriters (Morgan Stanley, Credit Suisse, Golman Sachs)
b) Other Trustees of MBS Trusts (US Bank, Citibank, etc.)
c) ratings agencies
d) FDIC
e) But who is obviously missing? >>>>>>>>> No JPMC entities are listed....why???
JPMC did not own any of the MBS Trusts in DB/Globic Litigation and IMO...JPMC did not own any of the other securitized mortgages under the other MBS Trusts under other Trustees!!!! “
Mordicai,
From your previous post:
Per FDIC Office of Inspector General on June 30, 2016:
https://www.fdicoig.gov/publications/fdics-controls-over-receivership-asset-securitizations
“The FDIC's Controls Over Receivership Asset Securitizations
This is the accessible text file for FDIC OIG report number EVAL-16-005 entitled 'The FDIC’s Controls Over Receivership Asset Securitizations'.
This text file was formatted by the FDIC OIG to be accessible to users with visual impairments.
We have maintained the structural and data integrity of the original printed product in this text file to the extent possible. Accessibility features, such as descriptions of tables, footnotes, and the text of the Corporation’s comments, are provided but may not exactly duplicate the presentation or format of the printed version.
The portable document format (PDF) file also posted on our Web site is an exact electronic replica of the printed version.
Federal Deposit Insurance Corporation
Office of Inspector General
Office of Audits and Evaluations
Report No. EVAL-16-005
June 2016
Executive Summary
Why We Did The Audit
[FDIC OIG letter head, FDIC logo, Federal Deposit Insurance Corporation, Office of Inspector General, Office of Audits and Evaluations 3501 Fairfax Drive, Arlington, VA 22226]
DATE: June 30, 2016
MEMORANDUM TO: Bret D. Edwards, Director, Division of Resolutions and Receiverships
FROM: E. Marshall Gentry, Assistant Inspector General for Evaluations /signed/
SUBJECT: Final Evaluation Report Entitled, The FDIC’s Controls Over Receivership Asset Securitizations (Report No. EVAL-16-005)
This report presents the results of the OIG’s evaluation of select key controls over the Federal Deposit Insurance Corporation’s (FDIC) receivership asset securitizations following their origination, to ensure those controls are performing as intended. We contracted with the independent professional services firm BDO USA, LLP (BDO) to perform this evaluation. Overall, BDO did not discover any significant deficiencies in DRR processes and controls associated with monitoring receivership asset securitizations and SSGNs following their originations. However, BDO concluded that opportunities exist for DRR to better document processes performed in procedures and job aids, and to address key personnel dependencies within the Capital Markets Group and closing/post-closing support contractor (CSC).
We made six recommendations to better document processes within DRR policies, procedures, and/or job aids, enhance certain controls, and to address key personnel dependencies. This report incorporates our evaluation of your response to a draft of this report in which you concurred with the recommendations. The FDIC’s planned actions were responsive and are sufficient to resolve all of the recommendations.
Consistent with the agreed-upon approach to the Corrective Action Closure (CAC) process, the OIG plans to limit its review of CAC documentation to those recommendations that we determine to be particularly significant. Such determinations will be made when Corporate Management Control (CMC) advises us that corrective action for a recommendation has been completed. Recommendations deemed to be significant will remain open in the OIG’s System for Tracking and Reporting (STAR) until we determine that corrective actions are responsive. All other recommendations will be closed in STAR upon notification by CMC that corrective action is complete but remain subject to follow-up at a later date.
If you would like to discuss this report, please call me at (703) 562-6378 or A. Michael Stevens, Evaluations Manager, at (703) 562-6381. We appreciate the courtesies extended to our and BDO’s staff throughout this assignment.
Attachment cc: Pamela J. Farwig, DRR Craig R. Jarvill, DOF James H. Angel, Jr., DOF Steven K. Trout, DRR Jacqueline R. Westmoreland, DRR
Executive Summary
Why We Did The Evaluation
The Federal Deposit Insurance Corporation (FDIC), as receiver for failed financial institutions (Receiver), uses securitizations and structured sales of guarantee notes (SSGNs) to dispose of certain performing and non-performing residential mortgage loans, commercial loans, construction loans, and mortgage-backed securities (MBS) held by receiverships. Monthly loan payments of principal and interest are collected from the underlying loans and MBS, and these payments are distributed to the note holders, which includes FDIC receiverships. As of March 31, 2016, there were seven whole loan securitizations and five SSGNs with a total collateral value of $3.2 billion. The FDIC, in its corporate capacity, guarantees the timely payment of principal and interest due on most of the senior notes in exchange for a fee (Guarantee Fee). As of December 31, 2015, the FDIC collected Guarantee Fees totaling approximately $265 million, of which $142 million was from SSGNs and securitization guarantee fees and $123 million was from limited liability company guarantee fees, and recorded a receivable for additional guarantee fees of approximately $26 million.
We contracted with BDO USA, LLP (BDO) to evaluate select key controls over the FDIC's receivership asset securitizations, following their origination, to ensure those controls are performing as intended. Specifically, BDO focused on the Division of Resolutions and Receiverships (DRR) processes and controls associated with monitoring receivership asset securitizations and the information DRR provides to the Division of Finance (DOF) for receivership asset securitization accounting.
Background
With securitizations, the FDIC, as Receiver, initially sponsors (creates) trusts to which it transfers pooled assets from multiple receiverships. The trusts exist as discrete entities. The trusts issue senior and subordinated debt instruments (notes) and owner trust or residual certificates collateralized by the underlying loans or MBS. The senior debt instruments are sold to private investors and the receiverships retain the owner trust or residual certificates. Subordinated debt instruments are not included in every transaction and are either sold to private investors or retained by the receiverships depending on market demand.
DRR’s Capital Markets Group is responsible for managing and monitoring the receivership asset securitizations and SSGNs. The DRR Capital Markets Group has engaged Closing and Post-Closing Support Contractors (CSC). The CSC supports the DRR Capital Markets Group in most areas of operation including the monthly distribution process and the semiannual asset loss reserve (ALR) process.
Once securitizations and SSGNs are originated, DRR monitoring consists of monthly reviews of servicer distributions, fees, and performance reports; monthly conference calls with servicers; quarterly onsite meetings with servicers; quarterly evaluation of events that could trigger consolidation of the securitization or SSGN; semiannual evaluation of the sufficiency of the ALR, which is recorded on FDIC financial statements; and an annual review of servicer attestations and independent audit reports.”
____________________
IMO... my conclusions as of April 29, 2019:
1) “As of March 31, 2016, there were seven whole loan securitizations and five SSGNs with a total collateral value of $3.2 billion. ”
2) Per Duff & Phelps as of March 31, 2017:
https://www.globic.com/wamurmbssettlement/pdfs/2.%202017%2004%2026%20FILED%20WAMU%20TIP%2002-Amended%20Declaration%20iSo%20David%20L.%20Zifkin%20Submitting%20Further%20Evidence%20in%20Support%20of%20Petition.pdf
Pages 102-104 of 108:
If you added up all the MBS Trusts under column “Current Group Collateral Balance”
The total is $13,034,873,722.00
3) Therefore all the FDIC Receiverships as of March 31, 2016 was $3.2 billion.
While just under trustee DB (one of many trustees that have MBS Trusts created by WMI subsidiaries) there was a total of $13.034 billion
4) IMO...this proves that the FDIC were not in possession of MBS Trusts created by WMI subsidiaries after WMB was seized in September 25, 2008, because as of March 31, 2016 the FDIC were in possession of only a total of $3.2 billion in MBS Trusts from all FDIC Receiverships. While according to Duff & Phelps, DB had at least a remaining collateral of $13 billion in MBS Trusts created by WMI Subsidiaries as of March 31, 2017.
5) After the seizure of WMB on September 25, 2008, MBS Trusts created by WMI subsidiaries were left in all their respective trustees because they were and still are bankruptcy remote, and the FDIC did not legally transfer them to the FDIC Receivership.
6) The MBS Trusts have been performing since the seizure and are properly distributing to the respective investors in each respective MBS Trusts.
7) I still contend that WMI Escrow Marker Holders are the rightful owners to the retained interests in MBS Trusts that WMI subsidiaries created. And the recoveries from these interests will be distributed after the BK cases are closed and after the FDIC/JPMC settle with Class 17B. (Per AZCowboy (IHub Post#572651), his Class 17B shares have been designated new JPMC Cusips, therefore there’s a possibility that Class 17B will be paid off soon).
IHub post #551470:
“Tuesday, 12/18/18 09:53:56 AM
Re: None 0
Post # of 571574
House of cards! Are the underwriters quadruple dipping? IMO...I think they are!!
I wanted to shed light on this topic and separate DD pertaining to this topic.
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Per Neil Garfield’s podcast as of December 13, 2018:
Listen to the whole 30 minute podcast!
http://www.blogtalkradio.com/neilgarfield/2018/12/13/the-loan-is-the-essential-fallacy-splitting-up-the-debt-note-and-mortgage
“Here is what almost everyone is getting wrong and why it matters:
In the run up to the mortgage meltdown, investment banks were described as taking foolish risks, buying loans that were likely or even guaranteed to fail. It’s true, some investment banks that were not in on the grand scheme did exactly that and Lehman might have been one of them, Bear Stearns another.
But for the TBTF banks it was a different story. They were not lending money nor buying mortgage loans. They were funding the origination of loans likely or guaranteed to fail with incoming investor money that was intended by the investors to buy good quality loans that were seasoned by some period of time in which payments were made by the borrower. They were purchasing loans the same way. And they were not buying derivatives, they were selling them. SO the entire “bailout” was a farce. There were no losses.
Why does this matter?”
_______________________
Per Lloyd Blankfein from the 2010 Congressional Subcommittee hearing:
https://www.hsgac.senate.gov//imo/media/doc/Financial_Crisis/FinancialCrisisReport.pdf?attempt=2
PDF page 390 of 646:
“
The evidence reviewed by the Subcommittee shows that some of the transactions leading to Goldman’s short positions were undertaken to advance Goldman’s own proprietary financial interests and not as a function of its market making role to assist clients in buying or selling assets. In the end, Goldman profited from the failure of many of the RMBS and CDO securities it had underwritten and sold. As Goldman CEO Lloyd Blankfein explained in an internal email to his colleagues in November 2007: “Of course we didn’t dodge the mortgage mess. We lost money, then made more than we lost because of shorts.”1551”
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https://www.boardpost.net/forum/index.php?topic=3044.msg233891#msg233891
“IMO...my conclusions as of November 03, 2018:
1) The underwriters (Morgan Stanley, Credit Suisse, Goldman Sachs), didn’t settle their claims (per the “underwriters stipulation” on March 28, 2013) until after POR7 was approved (March 19, 2012).
2) Per the the “underwriters stipulation” on March 28, 2013, the underwriters didn’t want Class 18 claims of $24 million. Instead, they settled for Class 19 claims of $72 million.
3) if the underwriters wanted cash, they would have opted for Class 18, which is paid before Class 19, and is more likely to be paid than Class 19 claims.
4) what the underwriters settled for was a Class 19 claim that is less likely to be paid than a Class 18, and they would have to wait a lot longer.
5) it’s obvious the underwriters know exactly the risk and probability of claims being paid out, and even a lower value of $24 million Class 18 claim is better than waiting for an unknown duration of time for a Class 19 claim.
6). IMO...These underwriters know exactly how long it will take the FDIC to unfreeze the bankruptcy remote assets (i.e. MBS Trusts) after the bankruptcy cases are closed. And the underwriters know exactly how much is waiting to be returned to Class 19 WMI Escrow Marker Holders from the MBS Trusts.
7). I believe that the underwriters probably know that Class 18 and Class 19 would probably get paid in close proximity of time from each other, if one knows the process and speed and magnitude of how much the FDIC will unfreeze in bankruptcy remote assets.
8. IMO...remember, these same underwriters have underwritten many other MBS Trusts for other failed banks in the past and they know the process, and know how to get paid from bankruptcy remote MBS Trusts.”
_______________________
IMO...conclusions as of December 18, 2018:
I think the underwriters (i.e. Goldman Sachs, Morgan Stanley, Credit Suisse) who underwrite originating loans and securitized loans in MBS Trusts have set up a system that intentionally expects high risk loans to fail (house of cards) and underwriters reap the profits by quadruple dipping!
Single Dipping : the underwriters get paid from initially underwriting originating loans
Double Dipping : the underwriters get paid from underwriting securitized loans
Triple Dipping : after securitizing the loans and selling securities to their clients, underwriters then shorted the MBS securities that they just sold to their clients (thus the underwriters are hoping the loans will default)
Quadruple Dipping: when the loans do default and then foreclosed on, the foreclosed properties are auctioned off. The ones who cash the check from the auctioned properties are the underwriters, not the servicers, or the trustees. Since the trustees of the securitized loans were given replacement good performing loans by virtue of the repurchase agreements. Since the servicers are not the rightful owners of the securitized loans, they aren’t allowed to cash the proceeds of the foreclosed properties either.
The old mantra : “follow the money” is the point I’m making. There is an intentional defective chain of title with all of the securitized loans, so if and when they default the underwriters are the ones that reap the ultimate benefits. The underwriters have invented a “no lose” scheme that everyone is entrapped in.
And guess what the underwriters also owns?
They own Class 19 Equity Claims just like you and me! “
__________________________
Per 2010 Congressional Subcommittee hearing:
https://www.hsgac.senate.gov//imo/media/doc/Financial_Crisis/FinancialCrisisReport.pdf?attempt=2
PDF pages 15-18 of 646:
“8
Investment banks can play an important role in the U.S. economy, helping to channel the nation’s wealth into productive activities that create jobs and increase economic growth. But in the years leading up to the financial crisis, large investment banks designed and promoted complex financial instruments, often referred to as structured finance products, that were at the heart of the crisis. They included RMBS and CDO securities, credit default swaps (CDS), and CDS contracts linked to the ABX Index. These complex, high risk financial products were engineered, sold, and traded by the major U.S. investment banks.
From 2004 to 2008, U.S. financial institutions issued nearly $2.5 trillion in RMBS and over $1.4 trillion in CDO securities, backed primarily by mortgage related products. Investment banks typically charged fees of $1 to $8 million to act as the underwriter of an RMBS securitization, and $5 to $10 million to act as the placement agent for a CDO securitization. Those fees contributed substantial revenues to the investment banks, which established internal structured finance groups, as well as a variety of RMBS and CDO origination and trading desks within those groups, to handle mortgage related securitizations. Investment banks sold RMBS and CDO securities to investors around the world, and helped develop a secondary market where RMBS and CDO securities could be traded. The investment banks’ trading desks participated in those secondary markets, buying and selling RMBS and CDO securities either on behalf of their clients or in connection with their own proprietary transactions.
The financial products developed by investment banks allowed investors to profit, not only from the success of an RMBS or CDO securitization, but also from its failure. CDS contracts, for example, allowed counterparties to wager on the rise or fall in the value of a specific RMBS security or on a collection of RMBS and other assets contained or referenced in a CDO. Major investment banks developed standardized CDS contracts that could also be traded on a secondary market. In addition, they established the ABX Index which allowed counterparties to wager on the rise or fall in the value of a basket of subprime RMBS securities, which could be used to reflect the status of the subprime mortgage market as a whole. The investment banks sometimes matched up parties who wanted to take opposite sides in a transaction and other times took one or the other side of the transaction to accommodate a client. At still other times, investment banks used these financial instruments to make their own proprietary wagers. In extreme cases, some investment banks set up structured finance transactions which enabled them to profit at the expense of their clients.
Two case studies, involving Goldman Sachs and Deutsche Bank, illustrate a variety of troubling practices that raise conflicts of interest and other concerns involving RMBS, CDO, CDS, and ABX related financial instruments that contributed to the financial crisis.
The Goldman Sachs case study focuses on how it used net short positions to benefit from the downturn in the mortgage market, and designed, marketed, and sold CDOs in ways that created conflicts of interest with the firm’s clients and at times led to the bank=s profiting from the same products that caused substantial losses for its clients.
From 2004 to 2008, Goldman was a major player in the U.S. mortgage market. In 2006 and 2007 alone, it designed and underwrote 93 RMBS and 27 mortgage related CDO
9
securitizations totaling about $100 billion, bought and sold RMBS and CDO securities on behalf of its clients, and amassed its own multi-billion-dollar proprietary mortgage related holdings. In December 2006, however, when it saw evidence that the high risk mortgages underlying many RMBS and CDO securities were incurring accelerated rates of delinquency and default, Goldman quietly and abruptly reversed course.
Over the next two months, it rapidly sold off or wrote down the bulk of its existing subprime RMBS and CDO inventory, and began building a short position that would allow it to profit from the decline of the mortgage market. Throughout 2007, Goldman twice built up and cashed in sizeable mortgage related short positions. At its peak, Goldman’s net short position totaled $13.9 billion. Overall in 2007, its net short position produced record profits totaling $3.7 billion for Goldman’s Structured Products Group, which when combined with other mortgage losses, produced record net revenues of $1.1 billion for the Mortgage Department as a whole.
Throughout 2007, Goldman sold RMBS and CDO securities to its clients without disclosing its own net short position against the subprime market or its purchase of CDS contracts to gain from the loss in value of some of the very securities it was selling to its clients.
The case study examines in detail four CDOs that Goldman constructed and sold called Hudson 1, Anderson, Timberwolf, and Abacus 2007-AC1. In some cases, Goldman transferred risky assets from its own inventory into these CDOs; in others, it included poor quality assets that were likely to lose value or not perform. In three of the CDOs, Hudson, Anderson and Timberwolf, Goldman took a substantial portion of the short side of the CDO, essentially betting that the assets within the CDO would fall in value or not perform. Goldman’s short position was in direct opposition to the clients to whom it was selling the CDO securities, yet it failed to disclose the size and nature of its short position while marketing the securities. While Goldman sometimes included obscure language in its marketing materials about the possibility of its taking a short position on the CDO securities it was selling, Goldman did not disclose to potential investors when it had already determined to take or had already taken short investments that would pay off if the particular security it was selling, or RMBS and CDO securities in general, performed poorly. In the case of Hudson 1, for example, Goldman took 100% of the short side of the $2 billion CDO, betting against the assets referenced in the CDO, and sold the Hudson securities to investors without disclosing its short position. When the securities lost value, Goldman made a $1.7 billion gain at the direct expense of the clients to whom it had sold the securities.
In the case of Anderson, Goldman selected a large number of poorly performing assets for the CDO, took 40% of the short position, and then marketed Anderson securities to its clients. When a client asked how Goldman “got comfortable” with the New Century loans in the CDO, Goldman personnel tried to dispel concerns about the loans, and did not disclose the firm’s own negative view of them or its short position in the CDO.
In the case of Timberwolf, Goldman sold the securities to its clients even as it knew the securities were falling in value. In some cases, Goldman knowingly sold Timberwolf securities to clients at prices above its own book values and, within days or weeks of the sale, marked
10
down the value of the sold securities, causing its clients to incur quick losses and requiring some to post higher margin or cash collateral. Timberwolf securities lost 80% of their value within five months of being issued and today are worthless. Goldman took 36% of the short position in the CDO and made money from that investment, but ultimately lost money when it could not sell all of the Timberwolf securities.
In the case of Abacus, Goldman did not take the short position, but allowed a hedge fund, Paulson & Co. Inc., that planned on shorting the CDO to play a major but hidden role in selecting its assets. Goldman marketed Abacus securities to its clients, knowing the CDO was designed to lose value and without disclosing the hedge fund’s asset selection role or investment objective to potential investors. Three long investors together lost about $1 billion from their Abacus investments, while the Paulson hedge fund profited by about the same amount. Today, the Abacus securities are worthless.
In the Hudson and Timberwolf CDOs, Goldman also used its role as the collateral put provider or liquidation agent to advance its financial interest to the detriment of the clients to whom it sold the CDO securities.
The Deutsche Bank case study describes how the bank’s top global CDO trader, Greg Lippmann, repeatedly warned and advised his Deutsche Bank colleagues and some of his clients seeking to buy short positions about the poor quality of the RMBS securities underlying many CDOs. He described some of those securities as “crap” and “pigs,” and predicted the assets and the CDO securities would lose value. At one point, Mr. Lippmann was asked to buy a specific CDO security and responded that it “rarely trades,” but he “would take it and try to dupe someone” into buying it. He also at times referred to the industry’s ongoing CDO marketing efforts as a “CDO machine” or “ponzi scheme.” Deutsche Bank’s senior management disagreed with his negative views, and used the bank’s own funds to make large proprietary investments in mortgage related securities that, in 2007, had a notional or face value of $128 billion and a market value of more than $25 billion. Despite its positive view of the housing market, the bank allowed Mr. Lippmann to develop a large proprietary short position for the bank in the RMBS market, which from 2005 to 2007, totaled $5 billion. The bank cashed in the short position from 2007 to 2008, generating a profit of $1.5 billion, which Mr. Lippmann claims is more money on a single position than any other trade had ever made for Deutsche Bank in its history. Despite that gain, due to its large long holdings, Deutsche Bank lost nearly $4.5 billion from its mortgage related proprietary investments.
The Subcommittee also examined a $1.1 billion CDO underwritten by Deutsche Bank known as Gemstone CDO VII Ltd. (Gemstone 7), which issued securities in March 2007. It was one of 47 CDOs totaling $32 billion that Deutsche Bank underwrote from 2004 to 2008. Deutsche Bank made $4.7 million in fees from Gemstone 7, while the collateral manager, a hedge fund called HBK Capital Management, was slated to receive $3.3 million. Gemstone 7 concentrated risk by including within a single financial instrument 115 RMBS securities whose financial success depended upon thousands of high risk, poor quality subprime loans. Many of those RMBS securities carried BBB, BBB-, or even BB credit ratings, making them among the highest risk RMBS securities sold to the public. Nearly a third of the RMBS securities contained
11
subprime loans originated by Fremont, Long Beach, and New Century, lenders well known within the industry for issuing poor quality loans. Deutsche Bank also sold securities directly from its own inventory to the CDO. Deutsche Bank’s CDO trading desk knew that many of these RMBS securities were likely to lose value, but did not object to their inclusion in Gemstone 7, even securities which Mr. Lippmann was calling “crap” or “pigs.” Despite the poor quality of the underlying assets, Gemstone’s top three tranches received AAA ratings. Deutsche Bank ultimately sold about $700 million in Gemstone securities, without disclosing to potential investors that its global head trader of CDOs had extremely negative views of a third of the assets in the CDO or that the bank’s internal valuations showed that the assets had lost over $19 million in value since their purchase. Within months of being issued, the Gemstone 7 securities lost value; by November 2007, they began undergoing credit rating downgrades; and by July 2008, they became nearly worthless.
Both Goldman Sachs and Deutsche Bank underwrote securities using loans from subprime lenders known for issuing high risk, poor quality mortgages, and sold risky securities to investors across the United States and around the world. They also enabled the lenders to acquire new funds to originate still more high risk, poor quality loans. Both sold CDO securities without full disclosure of the negative views of some of their employees regarding the underlying assets and, in the case of Goldman, without full disclosure that it was shorting the very CDO securities it was marketing, raising questions about whether Goldman complied with its obligations to issue suitable investment recommendations and disclose material adverse interests.
The case studies also illustrate how these two investment banks continued to market new CDOs in 2007, even as U.S. mortgage delinquencies intensified, RMBS securities lost value, the U.S. mortgage market as a whole deteriorated, and investors lost confidence. Both kept producing and selling high risk, poor quality structured finance products in a negative market, in part because stopping the “CDO machine” would have meant less income for structured finance units, smaller executive bonuses, and even the disappearance of CDO desks and personnel, which is what finally happened. The two case studies also illustrate how certain complex structured finance products, such as synthetic CDOs and naked credit default swaps, amplified market risk by allowing investors with no ownership interest in the reference obligations to place unlimited side bets on their performance. Finally, the two case studies demonstrate how proprietary trading led to dramatic losses in the case of Deutsche Bank and undisclosed conflicts of interest in the case of Goldman Sachs.
Investment banks were the driving force behind the structured finance products that provided a steady stream of funding for lenders originating high risk, poor quality loans and that magnified risk throughout the U.S. financial system. The investment banks that engineered, sold, traded, and profited from mortgage related structured finance products were a major cause of the financial crisis.”
__________________________
IMO...my conclusions as of April 21, 2019:
1) first of all...Happy Easter Sunday to all!
2) The underwriters such as Goldman Sachs are trying to quintuple dip in MBS Trusts that WMI Subsidiaries created and which the underwriters were the exact entities who underwrote those Securitizations by virtue of Class 19 claims that were given to them by the Stipulated Settlement dated March 28, 2013.
3) Now, the Underwriters admit that they should have had the BK court approve the Stipulated Settlement in 2013, but now they want it approved by the BK court more than 6 years after the fact!
Is this fair? Draw your own conclusions!
4) Good luck to Alice Griffin tomorrow morning in BK court and thank you for all your efforts!
IMO...Exhibit B is a flow chart that HFs (financial entities with UK subsidiaries) can use in a rehypothecation scheme!
Per IHUB post#548168:
“Saturday, 11/24/18 05:22:44 PM
Re: Dmdmd2020 post# 547438 0
Post # of 570998
https://www.boardpost.net/forum/index.php?topic=13047.msg235813#msg235813
“Quote from: doo_dilettante on Yesterday at 05:02:20 PM
Looks like Deutsche Bank Cayman closely worked with Barclays on these dealings...:
https://beta.companieshouse.gov.uk/company/FC029291/filing-history?page=1
The values are quite mindboggling!
And the entity is called NEWFOUNDLAND CLO I LIMITED so common folks don't find that easily!
________________*******______________
doo_dilettante,
Thank you for bringing up this topic and digging up the valuable information.
Let me reintroduce the practice of Rehypothecation.
Per investopedia:
“BREAKING DOWN 'Rehypothecation'
Rehypothecation was a common practice until 2007, but hedge funds became much more wary about it in the wake of the Lehman Brothers collapse and subsequent credit crunch in 2008-09.
In the United States, rehypothecation of collateral by broker-dealers is limited to 140% of the loan amount to a client, under Rule 15c3-3 of the SEC.
Rehypothecation occurs when a lender uses an asset, supplied as collateral on a debt by a borrower, and applies its value to cover its own obligations. In order to do so, the lender may have access to a variety of assets promised as collateral including tangible assets and various securities.
Hypothecation and Rehypothecation
Hypothecation occurs when a borrower promises the right to an asset as a form of collateral in exchange for funds. One common example occurs in the primary housing market, where a borrower uses the home he is purchasing as collateral for a mortgage loan. Even though the borrower asserts a level of ownership over the property, the lender can seize the asset if payments are not made as required. Similar situations occur in other collateralized loans, such as a vehicle loan, as well as with the setup of margin accounts to support other trading actions.
Rehypothecation occurs when the lender uses its rights to the collateral to participate in its own transactions, often with the hopes of financial gain. For example, if a customer leaves a number of securities with a broker as a deposit, most often in a margin account, and the broker then uses the securities as a pledge for the margin on his own margin account or as backing for a loan, rehypothecation has occurred.
Risks of Rehypothecation
With rehypothecation, the asset in question has been promised to an institution outside of the borrower’s original intent. For example, if a piece of real estate functions as collateral on a mortgage loan, and the lender pledges the asset to another financial institution in exchange for a loan, if the mortgage lender fails, the second financial institution may make a claim on the real estate.”
Read more: Rehypothecation https://www.investopedia.com/terms/r/rehypothecation.asp#ixzz5XoFSZB7G
_________________
Per YouTube clip:
01:48–“Reg T” for Rehypothecation: US can only Rehypothecate up to 140% of loan amount.
02:12– rehypothecation in UK has no limit. In fact they can rehypothecate the full amount of value of the asset that is used as collateral no just the value of the loan.
02:42– UK example of unlimited rehypothecation of a home mortgage; no limits thus a viscious cycle or rehypothecation.
04:24– US bank clients’ assets are transferred to a UK subsidiary (offshore) to get around US regulations, thus collateral can be rehypothecated with no limits.
04:40– MF Global contracts stated:
“7. Consent to loan or pledge. You hereby grant us the right, in accordance with applicable law, to borrow, pledge, repledge, transfer, hypothecate, rehypothecate, loan, or invest any of the collateral...”
__________________________
Offshore entities in the Cayman Islands are ruled under British laws:
“3. What other advantages should investors and managers be aware of when it comes to doing business in the Cayman Islands?
In addition to the government’s adaptive regulatory structure, investors can take comfort in the fact that Cayman, as a British overseas territory, has high levels of political and economic stability. This is largely thanks to a well-developed legal and court system based on English common law, mirroring the legal structures in many developed nations.”
Read more: Why Are the Cayman Islands So Popular With Hedge Funds? | Investopedia https://www.investopedia.com/articles/investing/022417/why-are-cayman-islands-so-popular-hedge-funds.asp#ixzz5XoLblXhI
__________________________
Per the document regarding “ABS CDO Business Proposal” presented by David Beck on December 15, 2006:
https://www.hsgac.senate.gov//imo/media/doc/Financial_Crisis/FN107-1342.pdf?attempt=2
PDF page 108 of 1037:
Bottom of page;
“CDOs issued by special purpose vehicles (SPVs) are most commonly formed offshore to assure pass-through treatment of proceeds from CDO collateral and to avoid subjecting foreign investors to U.S. taxation. ”
https://www.boardpost.net/forum/index.php?topic=13317.msg233097#msg233097
_____________
https://www.boardpost.net/forum/index.php?topic=13306.msg232857#msg232857
Thanks for the spreadsheet. The spreadsheet corresponds to the private MBS Trusts created from 2004 to 2007 only and it corresponds exactly to my ihub post #498578.
https://investorshub.advfn.com/boards/read_msg.aspx?message_id=136627718
From the post above, if you tabulate all the MBS Trusts created by WMI subsidiaries from 2005-2007, the total is $300,146,382,944.00
________________
https://pdfs.semanticscholar.org/3f14/22f58aa9e9abf1c484e878f7f818468ab4d2.pdf?_ga=2.101307590.659585883.1536675145-342028528.1536675145
Page 2 of 41:
“Securitisation volumes plummeted in response, from a combined annual total for the United States and Europe of more than $3.5 trillion over the 2005-2007 period to just over $2 trillion in 2008.”
____________________
IMO...conclusions as of November 24, 2018:
1) WMI subsidiaries created about 8.58% of all global (US and Europe) securitizations from 2005-2007
$300,146,382,944 / $3.5 trillion = 8.575% of all securitizations
2) WMI created offshore SPVs/SPEs for securitizations. IMO...these offshore entities were able to rehypothecate mortgage loans with no limits because the collateral was transferred to entities which were under British/UK laws which allowed unlimited rehypothecation of collateral.
3) If my memory serves me right, WMI created MBS Trusts under DB had a a default rate of 11%
4) By 2007: there was $4 trillion worth of funding by rehypothecation by using only $1 trillion in collateral.
Thanks all for the WAMKQ Escrow CUSIP verification.
Raju,
This is pure speculation, I think you might have been incorrectly given WAMKQ Escrows. Since you did release your other equity shares, the clerk entering them to their database might have made a clerical error.
Are there other posters that had huge amounts of unreleased equity shares that received Escrow shares?
If there are large amounts of Escrows given to unreleased equity shares, then the releases maybe moot. But I still believe the released equity shares will be the only beneficiaries not the non-releasers.
But I’m still of the belief that your small amount of WAMKQ Escrow shares might be due to clerical error.
Thanks Raju,
As I stated earlier, I cannot verify the CUSIP for WAMKQ (because I never owned WAMKQ shares), maybe some other posters on this message board is kind enough to verify the validity of the CUSIP.
RAJU,
You are the first person, on the two message boards I frequent, that has disclosed this fact.
Did you receive WMIH shares that corresponded to your unreleased WAMKQ shares?
What is the CUSIP in your account that signifies your unreleased WAMKQ shares?
Since I never owned WAMKQ, can others, who did, verify the CUSIP.
Are there other posters that were given Escrows for unreleased shares?
Thanks in advance.
Hotmeat,
Per the Purchase and Assumption Agreement on page 2 under "Article 1 Definitions":
"Assets means all assets of the Failed Bank purchased pursuant to Section 3.1. Assets owned by Subsidiaries of the Failed Bank are not "Assets" within the meaning of this definition."
IMO...therefore, the WMB Subsidiaries that owned the Retained Interests (beneficial interests) in MBS Trusts that WMI Subsidiaries created, were not transferred to JPMC or any other entities. It also holds true that WMI non-banking Subsidiaries that owned the Retained Interests (beneficial interests) in MBS Trusts that WMI Subsidiaries created, were not transferred to JPMC or any other entities.
IMO...I contend that retained interests for bankruptcy remote MBS Trusts are owned by WMI Escrow Marker Holders and so does CBA09 (the following posts supports his views):
CBA09 IHub post #509618:
“Saturday, 02/17/18 03:18:11 PM
Re: hotmeat post# 509289 0
Post # of 568950
Ref: There is a theory where only Common Escrows, as the true owners of the original WMI estate as per pre-bankruptcy rights, benefits from the former WMI estate ie the Safe Harbor assets of WMI and Pref escrows only benefits from the Preferred Offerings that backed those securities.
I have two questions.......
1) If this is true, would Common and Pref holders who did not sign releases to elect to participate further be eligible to benefit from any returned Safe Harbor assets as they are bankruptcy remote and since releases were a bankruptcy process??? Using that theory's logic (kudos to goodietime).
Comment:
The answer is what you provided in # 2) below:
2) In the POR (pgs 59-60 quoted below) it clearly states that "ALL DOCUMENTS" pertaining to Prefs and Commons are deemed cancelled relating to WMI, (the Debtor),...not the Trusts. How could this be reconciled with the above theory???
Furthermore-
The court approved the negotiated 75/25 %. As for Non-release stakeholders, they have no standing, they do not exist.
Only released share holders, while being the last paid, will reap the greatest treasure - Safe Harbor Sssets. Some ripe and some still generating revenue. It's "abundantly" clear they are still there!
_____________________
CBA09 IHub post #504271:
“Sunday, 01/14/18 03:41:16 PM
Re: LuckyPanda post# 503177 0
Post # of 568950
Ref: CBA09, if safe harbor rules protect the assets to pre-bankruptcy ownership then its distribution should not apply to POR7. Does that mean escrow markers are moot? Will all Wamu shareholders receive a distribution including the non-releasing ones? Thanks in advance for your input. I have been wondering about this for some time.
Comment:
Liquidation of assets involves two distinct assets:
1) Property of the Bankruptcy Estate - (Por7 applies).
2) Non-Property of the Bankruptcy Estate - Safe Harbor Assets ( regular bankruptcy code procedures / priority apply).
While the above two are distinct in nature "ALL" residual interest will go to Escrow Markers. So, no, not moot. Escrow Markers are the legacy shareholders. Thereby, have final legal standing and in turn sole contractual rights / title in residual interest.
Ownership Chain -
WMI owns the assets of WMI and in turn has legal title to all the assets of it's subsidiaries. Shareholders of WMI have legal title to all the assets of WMI. All assets that end up in WMI thru it's subsidiaries are thereby assets that WMI shareholders have legal contractual rights.
Por7, thru its declarations, have addressed the distribution of liquidated Bankruptcy Estate Assets. All residual interest of estate assets will go to Escrow Markers per the 75 % / 25 % allocation.
Since our Safe Harbor Assets are outside the bankruptcy estate, those captured within SPE/Trusts will follow each respective Pooling & Service Agreement (PSA) provisions. Generally, it's Parent that receives cash flows of residuals. Note, SPE# 1 create the SPE# 2 /Trusts, SPE 1 are many times direct subsidiaries of the Parent. And, SPE # 1's have a great deal of involvement in residual interest of SPE # 2 / Trusts.
In a solvent entity shareholders cannot force a distribution. A Corporation, thru it's board, has to declare a distribution of it's profit before shareholders are to receive any distribution in the form of dividends.
PSA are compelling and indivisible - only one end stop - Escrow Markers. “
_____________________
CBA09 IHub post #503003:
“Saturday, 01/06/18 10:19:30 AM
Re: austin01 post# 502860 0
Post # of 568950
Ref: CBA09, are we hoping or is it conclusive that escrows will be the beneficiary of a hundred or so Trusts in Safe Harbor?
Comment:
I have no doubt. Do not the Hedge Funds / 100 + Institutional owners make it abundantly clear?!!!? “
Per IHub Post#531021:
Excerpt:
“Nhtrader,
Thanks for bringing up this topic. The following is what I posted in boardpost.net earlier:
https://www.boardpost.net/forum/index.php?topic=12629.msg223246#msg223246
“Good to see some proof of a retained percentage. In reading about WMI’s securitizaton process from an old SEC report (as I recall), they said it was their practice to retain a percentage.
Good thing, because, according to the article below, before the crisis there was no minimum ownership requirement. Hence some of the the helter skelter behind the crisis.
det
Excerpt:
“Before the crisis, there was no minimum ownership, resulting in mortgage firms simply flipping all kinds of dross at Goldman or Merrill or Bear Stearns. “This is not an originate-to-sell model; it’s an originate-to-own model,” says Fierman of Angel Oak. His firm, which buys nonprime loans from other brokers as well as originating its own, has been the most active of MBS issuers, completing four deals since 2015 worth a total of $630m. He says that Angel Oak has gone well beyond the basic 5 per cent threshold, owning as much as 10 per cent of its MBS deals at various points. “Trust has to be built with investors,” he says. “They’re watching us closely.”
-----------------------------------
https://webcache.googleusercontent.com/search?q=cache:JCE3tDYd0ikJ:https://www.ft.com/content/3c245dee-8d0f-11e7-a352-e46f43c5825d+&cd=2&hl=en&ct=clnk&gl=us
Yes, I have seen Observer's post admitting to dumping all for DIMEQs. Perhaps the person who has a copy of that post will share it, so everyone will understand the deep animus that still fuels his posts--even ten long years later. It's downright pathological.
det
_____________________________
First of all...today is the day before we hear anything regarding the WMILT QSR, which should have been released prior to August 1, 2018...so I wish GLTA for positive news regarding distributions to all stakeholders.
Now to the crux of this post!
IMO...Angel Oak Funds which had an inception date of June 27, 2011 employed former WMI employees (Friedlander and Negandhi) who were intimately involved in WMI Securitizations:
https://www.sec.gov/Archives/edgar/data/1437249/000119312512277215/d369570d485apos.htm#pro369570_4
Starting at bottom of PDF page 37 of 118:
“Portfolio Managers
Brad A. Friedlander is a Managing Partner of the Adviser, and he is the Lead Portfolio Manager of the Fund. Mr. Friedlander has 12 years of capital markets and asset management experience across an array of fixed income products. Prior to the Adviser,
Mr. Friedlander spent 5 years as a portfolio manager with Washington Mutual in Seattle, Washington, where he managed over $8 billion across RMBS, ABS, US government and Agency portfolios. He also served as the chief strategist behind the institution’s $25 billion investment portfolio. Mr. Friedlander’s previous experience includes 4 years on the trading desk of J.P. Morgan in New York. Mr. Friedlander received a Bachelor’s degree in Economics from the University of Rochester.
Ashish Negandhi is a Managing Director of the Adviser and Portfolio Manager of the Fund. Mr. Negandhi has 9 years’ portfolio management experience in fixed income products. Prior to the Adviser, Mr. Negandhi spent 2 years building and managing the investment grade corporate bond and CLO fixed income portfolio of $1 billion to $2 billion at Washington Mutual in Seattle, Washington. As portfolio manager, he was involved with macro trading strategies, performance analysis against market benchmarks and monitoring credit default and interest rate risk for the portfolio. Mr. Negandhi also worked as a Program Manager at Amazon in Seattle, where he led the Internal Fraud Prevention and Detection program for Amazon’s payment and financial systems. Mr. Negandhi received a MBA from University of Washington and Bachelor’s degree in Computer Science from Georgia College.
The Fund’s SAI provides additional information about the Fund’s portfolio managers, including their compensation structure, other accounts managed, and ownership of shares of the Fund.”
____________________
Per IHub Post#531081:
“Articles published in 2009 & 2013 cites Friedlander and Prabhu (former WMI employees) leaving WMI before seizure.
https://www.housingwire.com/articles/two-wamu-execs-chase-mbs
“Two WaMu Execs to Chase MBS
May 25, 2009 Jacob Gaffney
Former Washington Mutual executives Sreeni Prabhu and Brad Friedlander partnered with SouthStar Funding founding partner, Michael Fierman, to start Angel Oak Capital Partners. Angel Oak is now focusing on distressed mortgage-backed securities (MBS), currently manages $30m in assets and is looking for more. So far, the fund's strategy is focused on acquiring pools of MBS that are trading at distressed prices despite prime performance. "We underwrite to buy and hold but will look to opportunistically sell when market liquidity returns," explains Prabhu. "The key difference with bigger firms who have the same strategy as us, we distribute monthly cash flows generated from these bonds back to investors on a monthly basis," he adds. Angel Oak is based in Atlanta, as was SouthStar, the wholesale and subprime mortgage lender that originated as much as $6.5bn of non agency mortgage products annually before it closed operations in 2007. Write to Jacob Gaffney.”
_______________________
https://www.barrons.com/articles/SB50001424052748704093404578607763019872242
“Looking to the Past
BySteve Garmhausen
July 20, 2013
You can't fault investors for being a bit giddy about the housing recovery: Looking to cash in on rising demand and prices, they've been snapping up everything from rental properties to home-builder stocks for many months.
But while those investors see a bright future for the sector, Brad Friedlander is more interested in its past. Friedlander's $1.8 billion Angel Oak Multi-Strategy Income fund (ticker: ANGLX) has a large weighting in "nonagency" mortgage loans (those not backed by the government) that predate the housing bubble. Those loans, stigmatized since the bubble burst, have been available for cheap—and they've powered Friedlander's two-year-old fund to an auspicious start.
"Five years removed from the height of the housing crisis, there are still opportunities within the fixed-income realm," says Friedlander, 36, managing partner at Angel Oak Capital Partners, in Atlanta.
Since Angel Oak Multi-Strategy Income made its debut in June 2011, it has returned 24.1%, compared with 6.1% for the Barclays Aggregate Bond Index. Last year, the fund returned 22.7%, crushing its rivals in the multisector bond category by an average of 11 percentage points and putting it in the top percentile.
This year, however, is off to a rockier start. The fund is down 0.1% amid the broad market selloff, but that's still nearly two percentage points better than the index. In the meantime, it's delivering a yield of 4.42%.
Friedlander credits the fund's outperformance largely to its heavy weighting in nonagency mortgages that originated in the early- to mid-2000s. Nonagencies include everything from so-called jumbo loans—which exceed the roughly $400,000 to $730,000 mortgage the government will back—to lower-quality mortgages and subprime loans.
Nearly 70% of Angel Oak's assets are invested in this "private label paper," far more than any other mutual fund. Friedlander avoids subprime loans, which helped keep his fund from losing money along with its peers as those securities took a big hit in June. Instead, he focuses on jumbo loans that were issued before the financial crisis. What makes these mortgages of pre-bubble vintage so attractive, says Friedlander, is the continuing disconnect between their credit ratings and their inherent value.
Credit-rating agencies "absolutely obliterated the sector" after the housing crisis, stripping these securities of their investment-grade status. This led to forced selling by banks and other institutions, which are restricted from holding non-investment-grade bonds. Now nonagencies are available at 88 cents on the dollar, and Friedlander has taken advantage of the discount.
That's not his only focus, though. Collateralized loan obligations—bank loans backed by tangible assets—account for 15% of the fund. And Friedlander generally keeps 20% of the fund in very liquid assets, including government-agency debt.
Friedlander's knowledge of the mortgage market comes in part from having a front-row seat to the mortgage meltdown. He managed $8 billion of mortgage-backed securities for Washington Mutual before leaving in March 2008, six months before the bank's failure, and after he had become concerned about its future.
During the crisis, Friedlander saw investors flee from any and all mortgage-backed securities, but suspected there was more to the story. In May 2008, he and WaMu colleague Sreeni Prabhu joined mortgage-industry veteran Michael Fierman to found Angel Oak Capital Partners. "We saw a generational opportunity," Friedlander says.
The team first launched one hedge fund, which gained 57.8% between its July 2008 launch and its closure five months ago.Its best-performing hedge fund has scored a gain of 176.6% since its inception in early 2009. Between its mutual fund and hedge funds, Angel Oak manages $3 billion in total assets.
TRUE TO HIS OPPORTUNISTIC approach, Friedlander snapped up assets during the market's recent soft period. The fund had been stockpiling cash, which Friedlander unleashed on purchases that now account for 25% of its assets. Much of that is in high-quality fixed-rate and hybrid mortgage bonds as well as floating-rate bonds composed of certain types of adjustable-rate mortgages. The fund now has less than 1% in cash.
Meanwhile, the housing market is looking better than it has in years. Home prices in April were up 12.1% compared with a year earlier, according to the S&P/Case-Shiller home-price index. The increase was the largest in seven years. And new homes sold at an annual pace of 476,000 in May, according to the U.S. Census Bureau—the best reading since July 2008. As the housing recovery continues, many related securities will appreciate. What's more, 70% of the mortgages the fund holds carry adjustable rates. That means the fund is positioned to serve as a hedge against inflation and rising interest rates, says Terrence Demorest, senior portfolio manager at Westmount Asset Management, a $1.6 billion investment advisor in Los Angeles. "We consider this a core position," says Demorest, who uses the fund for as much as 30% of his clients' fixed-income portfolios. "We have a lot of faith and conviction in what they're investing in."
Friedlander buys pools of mortgages rather than individual securities, but says he keeps a close eye on quality. He likes to see a large component of jumbo or "ultralux" loans behind the securities. These typically perform well in an improving economy, and rising home prices mean there's more collateral should a default occur. Friedlander prefers mortgages for owner-occupied properties, which have lower default rates than those for rentals or vacation homes. He looks for borrowers with substantial equity, and likes to see geographic diversification within a loan portfolio.
Friedlander has been looking at other kinds of structured credit, including commercial mortgage-backed securities and the student-loan market. Should events like sharply rising interest ratespush investors in those areas into panicked selling, says Friedlander, "this fund is ready to pounce on the opportunity."
_________________________
IMO...it’s obvious that Friedlander and Prabhu left WMI in March 2008 to start Angel Oak Partners in July 2008 with a plethora of inside information that lead to profitable investments.
After closing the first fund in 2013 (assets under management = $30 million), they opened another fund (assets under management = $3 billion). What is interesting is the fact that they continued to invest in WMI subsidiary created MBS Trusts. “
____________________
Per Angel Oak Fund Annual Report dated January 31, 2019:
https://fundcompli.rightprospectus.com/documents/AngelOak/ANN_Combined.pdf
PDF page 59 of 124:
“Washington Mutual Mortgage Pass-Through Certificates Trust, Series 2006-AR7, Class CXPP, 0.254%, 7/25/2046 (e)(h)
Washington Mutual Mortgage Pass-Through Certificates Trust, Series 2006-AR7, Class 2A, 3.232% (12 Month US Treasury Average + 0.980%), 7/25/2046 (b)”
____________________
Per US Bank Investor report for WAMU 2006-AR7 as of 3-25-19:
https://trustinvestorreporting.usbank.com/TIR/public/deals/populateReportDocument/24802167/PDF
PDF page 1 of 2:
“Class CXPPP ...Original Principal/Notional Balance = $0.00...
Beginning Principal/Notional Balance = $567,563.37...
Interest Distribution = $19,689.81...
Principal Distribution = $5,324.34...
Principal Loss = $0.00...
Total Distribution = $25,014.15...
Adj to Principal Balance due to Subs Recov = $239.27...
Ending Principal/Notional Balance = $562,478.29”
____________________
IMO...my conclusions as of April 06, 2019:
1) The ex-Washington Mutual employees (Friedlander, Prabhu) left WMI on March 2008, then in July 2008 joined Fierman to start Angel Oak Fund.
2) Friedlander & Prabhu were intimately involved in the management of MBS Trusts that WMI subsidiaries created. They know exactly which tranches in each trust are the most profitable and which incurs the least amount of principal losses.
3) if you compare the portfolio of MBS Trust tranches Angel Oak Fund invests in, all the WMI MBS Trust tranches have increased in ROI from the previous annual report.
4) Washington Mutual Mortgage Pass-Through Certificates Trust, Series 2006-AR7, Class CXPPP started with zero Original Principal. As of 03-25-2019 shows an Ending Principal/Notional Balance of $562,478.29. Principal Balance has grown since the inception of the MBS Trust.
Friedlander and Prabhu knows the inside information regarding all the MBS Trusts and they know exactly which WMI MBS Trust tranches to invest in.
IMO...WMI has explicitly stated in quarterly and annual reports that they retained interests in senior, subordinate, and residual tranches in MBS Trusts WMI subsidiaries created from 2000-2008.
Bonderman et.al. is the ultimate insider (David Bonderman has been a WMI board member since 1996), don’t you think they know which tranches to invest in? I think they know exactly which tranches WMI retained.
Draw your own conclusions!
Quote from: Dmdmd1 on February 25, 2019, 09:20:22 AM
Per the website :
https://tss.sfs.db.com/investpublic/
This particular MBS Trust is titled “Long Beach Mortgage Loan Trust 2000-1 ...February 21, 2019 Distribution”
PDF page 3 of 27:
“Total Orginal Face Value = 1,000,000,594.71
Total Realized Loss = 24,570,505.25
Total Distributions = 1,185,679,527.54
Total Current Principal Balance = 12,027,405.15”
IMO...my calculations :
Total realized loss percentage rate = $24,570,505.25 / $1,000,000,594.71 = 0.02457 = 2.457% realized loss
Total distributions percentage profit rate or Return On Investment (ROI) = $1,185,679,527.54 - $1,000,000,594.71 = $185,678,932.83
$185,678,93.83 / $1,000,000,594.71 = 0.18567 = 18.567% profit (ROI)
___________________
Per Duff & Phelps document regarding DB Globic :
https://www.globic.com/wamurmbssettlement/pdfs/2.%202017%2004%2026%20FILED%20WAMU%20TIP%2002-Amended%20Declaration%20iSo%20David%20L.%20Zifkin%20Submitting%20Further%20Evidence%20in%20Support%20of%20Petition.pdf
PDF page 102 of 108:
“Exhibit A... Duff & Phelps, LLC as of March 31, 2017”
If you add up the two entries under LBMLT 2000-1 group 1 + LBMLT 2000-1 group 2
Orginal Group Collatetal Balance = $72,998,895 + $927,001,700 = $1,000,000,595
Group Losses to Date = $6,732,021 + $69,500,512 = $76,232,533
Total Group Losses percentage rate = $76,232,533 / $1,000,000,595 = 0.07623 = 7.623% group losses
___________________
IMO...my conclusions as of February 25, 2019:
1) Per the DB document as of February 21, 2019, has a much less realized loss of $24,570,505.25 (2.457%) instead of the Duff & Phelps document (as of March 31, 2017) which stated losses of $76,232,533 (7.623%)
And total profit (ROI) = 18.567%
2) I compared LBMLT 2001-2 on the two separate documents and it yielded the same results. Which means that the Duff & Phelps document overestimated losses compared to the actual realized losses.
3) I haven’t compared all the other Long Beach MBS Trusts, but I assume they will yield the same conclusions.
4) Therefore, per the Duff & Phelps as of March 31, 2017, it stated that total “Group Losses to Date” = $16,673,212,335 (PDF page 204 of 108), which is approximately a 16% loss rate of all Long Beach Mortgage MBS Trusts. IMO...I contend that the actual realized losses are significantly less!
========================================================================
Per the DB distribution report as of March 21, 2019:
https://tss.sfs.db.com/investpublic/servlet/web/ReportDownload?value=STMT,PDF,03/21/2019,LB0002,O&OWASP_CSRFTOKEN=KE8S-QVSJ-TMCZ-4GH3-3Z4Q-YU0Y-SU37-BUSY
PDF page 2 of 27:
Current Period Distribution
Compare Tranche “Class C” ...Class Type “SUB/EXE”...
Original Face Value = $20,000,494.71...
Prior Principal Balance = $4,829,877.27...
Realized Loss = $0.00...
Deferred Interest = $42,403.26...
Current Principal Balance = $4,872,280.53
PDF page 3 of 27:
Distribution to Date
Class C is the tranche that has incurred the biggest realized loss = $16,454,605.60 of a total realized loss of $24,570,505.25
Now look at Class C tranche “total distribution = $115,252,416.47”
“Original Face Value = $20,000,494.71”
______________________________
IMO...my conclusions as of March 27, 2019:
1) if you compare the distributions data from February 21, 2019 to March 21, 2019:
A) there is no realized loss
B) Class C tranche in fact increased its current principal balance by $42,403.26 by virtue of deferred interest
2) Class C tranche is classified as “SUB/EXE” which means subordinate tranche...IMO
A) Class C tranche has the greatest ROE of any Tranches
Return on Equity (ROE) = ($115,252,416.47 - $20,000,494.71) / $20,000,494.71 = 4.76247 times initial Equity
Thus if WMI retained senior and subordinate tranches such as “Class C” tranche above, it is possible that despite all the realized losses within “Class C” tranche, the overall ROE would be more than a multiple of 4.76 times the original equity invested!
IMO...
Let me put this in the most direct and simplistic language possible:
Alice Griffin objection = Let us see the full undredacted Underwriters’ Stipulated Settlement disclosed as of March 28, 2013 and tell us the reasoning behind it!
BBanBob you posted :
Scrivenerserror,
My IHub post #565287 details only bankruptcy remote MBS Trusts. It does not discuss anything regarding any recoveries from inside the bankruptcy cases.
IMO...WMI/WMIIC bankruptcy (per WMB OTS report as of September 25, 2008):
$307 billion (assets) - $259 billion (liabilities) = $48 billion
IMO...recoveries from inside the bankruptcy cases = $40-48 billion
IMO...recoveries from outside the bankruptcy cases :
1) MBS Trusts = $139.062 billion to $247 billion
2) Mineral rights = $47 billion (per Denke’s estimate)
3) Real estate = unknown
4) Credit Default Swaps = $28.3 billion
IMO...if you believe in 75/25 to the end and...
Underwriters’ Class 19 claim = $72 million
If Underwriters 1% of WAMPQ = 72,000 WAMPQ shares
If Total MBS Trust recoveries = $139.062 billion (14.73% retained interests certficate participation)
WAMPQ = $14,709
72,000 WAMPQ shares x $14,709 = $1.059048 billion to Underwriters
If Total MBS Trust recoveries = $247.68 billion (26.24% retained interests certificate participation)
WAMPQ = $26,199
72,000 WAMPQ shares x $26,199 = $1.886328 billion to Underwriters
IHub post#565287 details my last revised calculations of bankruptcy remote retained interests/beneficial interests in MBS Trusts only, I did not include other non-banking assets such as real estate, Mineral rights, CDS, etc.:
I understand the anger brought on by potential delays due to Alice Griffin’s filing and subsequent hearing, but she has an opportunity to ask questions that might be able to force the WMILT and underwriters to answer in open court.
IMO... I would not be surprised if there will be obfuscation and misdirection by the WMILT and Underwriters, but it is clear that proper procedures of fiduciary duties afforded to Equity Class 19 have been breached.
1% dilution is not insignificant to Class 19 WAMPQ WMI Escrow Holders...so if the WMILT and Underwriters would have continued and dragged their litigation past the March 28, 2013 date and not agreed to a Stipulated Settlement, there could have been some disclosure of very important valuations that could have been divulged during a prolonged litigation battle.
Although I want this whole WaMu saga to conclude ASAP, I contend that Alice Griffin’s objection can lead to some long standing questions that were never formally asked and answered in open court.
IMO...the most significant piece of information that can be extracted at the hearing will be whether Class 19 & 22 will have recoveries or not.
Even if Alice Griffin loses, it will be worth her effort if she can get acknowledgement of any recoveries to Class 19 & Class 22 during the hearing.
IMO...conclusions as of March 24, 2019:
IMO...The FDIC-Receivership or FDIC-Corporate have no jurisdiction over bankruptcy remote MBS Trusts created by WMI subsidiaries. So it was correctly stated technically by WMILT and FDIC, that they have no knowledge of recoveries by virtue of MBS Trusts.
The monthly payments to retained interests/beneficial interests (IMO...between 14.73% to 26.24% certificate participation in MBS Trusts) which are rightfully owned by WMI/WMI Escrow Marker Holders were frozen due to FDIC illegally seizing the non-banking assets (i.e. retained interests).
Per legislation detailed in my previous post:
https://www.boardpost.net/forum/index.php?topic=12150.msg245120#msg245120
“The transitional safe harbor applies to all securitizations issued before March 31, 2010, shielding the assets from seizure by the FDIC in instances where the insured depository institutions fail.”
So IMO...the question remains:
If the WMILT and FDIC claims there is no value to Equity Class 19 & 22, why did the Underwriters stipulate to decline a $24 million Class 18 creditor capped claim, and instead settled for a lower priority $72 million Class 19 equity uncapped claim. If all parties claim there is no money for Class 19 & 22, the WMILT should have just put the Underwriters’ claim into a Class 18 creditor position (at least the Underwriters would be assured a $24 million claim in a higher Class priority), or rather a Class 22 position.
My answer: remember...POR7 has a 75/25 split provision which gives 75% to Preferred Class 19 and 25% to Common Class 22 for all future recoveries. By virtue of the Underwriters’ actions, they probably believe there will be a recovery to Class 19 & Class 22.
So Class 19 gets a bigger cut of recoveries as compared to Class 22!
I can’t wait for the explanations by WMILT and the Underwriters!
Draw your own conclusions!
Well done Alice Griffin!
Thank you for your efforts. I hope you prevail. At the very least maybe you can extract a disclosure of potential recoveries to WMI Escrow Marker Holders during the hearing.
Revised calculations for WMI recoveries (From bankruptcy remote retained interests/beneficial interests in MBS Trusts created by WMI subsidiaries between 2000-2008):
IMO...Assumptions (only what can be determined from consolidated quarterly and annual financial reports...keep in mind the lion’s share of retained interests were not allowed to be consolidated in the financial reports because they were in bankruptcy remote SPEs):
1) Total WMI retained interests = $101.94 billion
2) Total securitizations from 2000-2008 = $692 billion
$101.94 billion / $692 billion = 14.73% certificate participation in MBS Trusts
I’ve calculated in past posts that certificate participation is at least 26.24%
$692 billion x 26.24% = $181.58 billion
3) recoveries using
3% annual compounded interest x 10.5 years
$101.94 billion x 3% x 10.5 years = $139.062 billion
$181.58 billion x 3% x 10.5 years = $247.68 billion
(It is difficult to actually calculate the unpaid principle of each month/year without having all the data from all the MBS/ABS Trusts so I’m using the original unpaid principle of $101.94 billion as a constant)
If you Believe in 75/25 to the end:
Total MBS Trust recoveries = $139.062 billion
WAMPQ = $14,709
WAMKQ = $367.74
WAMUQ = $29.10
Total MBS Trust recoveries = $247.68 billion
WAMPQ = $26,199
WAMKQ = $654.98
WAMUQ = $51.84
Per CBA09’s IHub Post#487509:
“Wednesday, 09/13/17 03:29:19 PM
Re: BBANBOB post# 487478 0
Post # of 565055
Ref: We KNOW or feel that there are still liquid assets(MORTGAGES)that are being serviced and creating income,so that income imho will be used to pay prefferds their diviy and may as well pay commons an annual divy until all have closed out.
100 % spot on!
The nature of securitization makes is abundantly clear the Lion's Share of Revenue is over it's amortized life. While the originator WMB would only book a gain it's generally the Financial Holding Company (FHC)- WMI having contractual rights collecting "Ongoing" Revenue / equity from undistributed income from within these SPE/Trusts.
Example:
1) WMB, in a true sales accounting, would sell pools of loan receivables to a SPE #1. Hence book a gain ( difference from loan receivables vs. cash proceeds from SPE # #1, then
2) SPE# 1 transfers the pools of loan receivables to (SPE#2 / Trust). A trust having legal ownership and control helps to solidity / make untouchable ( bankruptcy remote ) the pooled receivables. Trusts issues certificates to investors in exchange for cash. This cash is then transferred back to SPE #1 and subsequently from SPE # 1 to WMB. Hence were the gain WMB would booked from a true accounting sale.
I want to make it clear that FHC's are the Gem of conglomerates. They usually collect the revenue and disperse their non participation revenue portions according to percentages within formal agreements.
Revenue comes in many forms but the bulk of a FHC's profit comes from non bank subsidiaries, (i.e., SPE / Trusts - securitizations.)
WMI was a monster securitization machine. So see what WMI may have been making based on Peer comparison. The net income of Financial Holding Companies would be @ 7% - 8% of respective avg equity capital. So if WMI had an average equity capital of 25 Billion the yearly net income would be 1.75 Billion based on 7%.
For those interested one can go to:
https://www.ffiec.gov/nicpubweb/nicweb/FinancialReport.aspx?parID_RSSD=3828036&parDT=20170630&parRptType=BHCPR&redirectPage=FinancialReport.aspx “
____________________
CBA09’s IHub Post#501193:
“Wednesday, 12/20/17 10:14:47 AM
Re: TJ0512 post# 501063 0
Post # of 565055
Ref:
Do you agree or not agree that WMI (the parent) relinquished ownership of WMB when WMB was seized? The only ownership WMI had in WMB was in the stock of WMB that was abandoned (*worthless stock abandonment") which created the NOL).
Comment:
Trustee abandoned and thereby no longer an asset of the estate. IRS Revenue Code 165 G-3 allowed the capital loss to be classified as an ordinary loss (NOL).
Ref:
From that point on WMI had no control of WMB or WMB subs whatsoever as WMB was sold to JPM as a "Whole Bank Purchase".
Comment:
Whole Bank as in assets - $ 298 Billion vs liabilities 258 Billion.
Ref:
Your comment regarding WMI has control of safe harbor assets.
Do you agree or not agree that Safe Harbor Assets are the actual assets within the various trusts that are protected for the benefit of the actual investors (certificate holders) within each trust?
Comment:
Safe Harbor Assets are those assets that have statutory exemption from the bankruptcy systems. Securitization qualifies for such exemption.
Ref:
Do you agree on not agree that payment (proceeds) for assets sold into the trusts has already been received and the only future benefit (besides servicing fees) relating to these trusts would be the retained interest in the trusts and are recorded as an asset on the balance sheet?
Comment:
Proceeds:
1) $ for the initial transfer of pooled mortgages.
True Sale -
Balance Sheet - Remove assets loan mortgages
Income Stmt - Difference between proceeds received (cash) minus loan mortgages transferred = Net Gain or Net Loss.
2) $ Retained Interest.
Balance Sheet - Residual Interest Receivable (Estimated future benefits)
Income Stmt - Income from Residual Interest
Note: Lions share of the Residual Interest (Retained Assets) remain with SPE # 1 - as a Safe Harbor Asset.
Ref:
On a consolidated basis in each 10Q & 10K the retained interests have been listed (I have gone back as far as 2004) and the total retained interests (not credit card related) were as follows:
in billions
MBS:
2004 - 1.62
2005 - 2.80
2006 - 1.90
2007 - 1.71
2008 - 1.23
Comment:
This reflects only a small % of the overall Residual Interest. Lions share protected within SPE #1 - Based on my experience.
Ref:
It's been said that there was a minimum 25% participation in these trusts which IMO is not the case and the only benefit going forward from 2008 was the retained interests.
Comment:
My experience from 1978 - 2004 - No Regulated Minimum. But, Certificates are issued for the Residual Interest and held by SPE # 1 ( Largest % ) and Originator ( there retained % much smaller ).
____________________
WMI 2000 10-K filed as of 3-20-2001:
https://www.otcmarkets.com/filing/html?id=520711&guid=wS_3UWGktwOhf3h
PDF page 80 of 286:
“Fair value of retained interests...” total = $3.98 billion
____________________
WMI 2001 10-K filed as of 3-19-2002:
https://www.otcmarkets.com/filing/html?id=1797462&guid=wS_3UWGktwOhf3h
PDF page 89 of 221:
“Fair value of retained interests...” total = $6.88 billion
____________________
WMI 2002 10-K filed as of 3-17-2003:
https://www.otcmarkets.com/filing/html?id=2206372&guid=wS_3UWGktwOhf3h
PDF page 44 of 336:
“Asset Securitization
We transform loans into securities, which are sold to investors – a process known as securitization. Securitization involves the sale of loans to a qualifying special-purpose entity ("QSPE"), typically a trust. Generally, in a securitization, we transfer financial assets to QSPEs, which are legally isolated from the Company. The QSPEs, in turn, issue interest-bearing securities, commonly called asset-backed securities, that are secured by future collections on the sold loans. The QSPE sells securities to investors, which entitle them to receive specified cash flows during the term of the security. The QSPE uses proceeds from the sale of these securities to pay the purchase price for the sold loans. The proceeds from the issuance of the securities are then distributed to the Company as consideration for the loans transferred. The Company has not used unconsolidated special-purpose entities as a mechanism to remove nonaccrual loans and foreclosed assets from the balance sheet.
Securitization is used to provide a source of liquidity and less expensive funding and also reduces our credit exposure to borrowers. As part of non-agency securitizations, we use QSPEs to facilitate the transfer of mortgage loans into the secondary market. These entities are not consolidated within our financial statements since they satisfy the criteria established by Statement No. 140 , Accounting for the Transfers and Servicing of Financial Assets and Extinguishments of Liabilities . In general, these criteria require the QSPE to be demonstrably distinct from the transferor (the Company), be limited to permitted activities, and have defined limits on the assets it can hold and the permitted sales, exchanges or distributions of its assets.
We routinely securitize home, specialty home loans and commercial real estate loans into the secondary market. The allocated carrying value of loans securitized and sold during the year ended December 31, 2002 was $163.60 billion compared with $102.05 billion in 2001. Investors and securitization trusts do not have any recourse to the Company for loans securitized and sold during the years ended December 31, 2002 and 2001. When we sell or securitize loans, we generally retain the right to service the loans and may retain senior, subordinated, residual, and other interests, all of which are considered retained interests in the securitized assets. Retained interests may provide credit enhancement to the investors and represent the Company's maximum risk exposure associated with these transactions. Investors in the securities issued by the QSPEs have no further recourse against the Company if cash flows generated by the securitized assets are inadequate to service the obligations of the QSPEs. ”
...
“Retained interests are recorded on the balance sheet and represent mortgage-backed securities and MSR. Retained interests in mortgage-backed securities in which the securitization has been accounted for as a sale, were $10.78 billion at December 31, 2002. Retained interests in MSR were $5.34 billion at December 31, 2002.”
____________________
WMI Q1 2003 10-Q filed as of 5-15-2003:
https://www.otcmarkets.com/filing/html?id=2306013&guid=wS_3UWGktwOhf3h
PDF page 40 of 75:
“Retained interests in the form of mortgage-backed securities were $9.96 billion at March 31, 2003, of which $9.80 billion have either a AAA credit rating or are agency insured. ”
____________________
WMI Q2 2003 10-Q filed as of 8-14-2003:
https://www.otcmarkets.com/filing/html?id=2443906&guid=wS_3UWGktwOhf3h
PDF page 70 of 123:
“Retained interests in the form of mortgage-backed securities were $9.20 billion at June 30, 2003, of which $9.01 billion have either a AAA credit rating or are agency insured. ”
____________________
WMI Q3 2003 10-Q filed as of 11-13-3003:
PDF page 72 of 136:
“Retained interests in the form of mortgage-backed securities were $4.18 billion at September 30, 2003, of which $4.04 billion have either a AAA credit rating or are agency insured. ”
____________________
WMI 10-K 2003 filed as of 3-15-2004:
https://www.otcmarkets.com/filing/html?id=2831653&guid=wS_3UWGktwOhf3h
PDF page 49 of 256:
“Retained interests were $2.36 billion at December 31, 2003, of which $2.34 billion have either a AAA credit rating or are agency insured. ”
____________________
WMI Q1 2004 10-Q filed as of 5-10-2004:
https://www.otcmarkets.com/filing/html?id=2953832&guid=wS_3UWGktwOhf3h
PDF page 67 of 111:
“Retained interests in securitizations were $2.12 billion at March 31, 2004, of which $2.05 billion have either a AAA credit rating or are agency insured. ”
____________________
WMI Q2 2004 10-Q filed as of 8-09-2004:
https://www.otcmarkets.com/filing/html?id=3112217&guid=zv_3U6EIXgKqj3h
PDF page 78 of 121:
“Retained interests in securitizations were $1.77 billion at June 30, 2004, of which $1.74 billion have either a AAA credit rating or are agency insured.”
____________________
WMI Q3 2004 10-Q filed as of 11-09-2004:
https://www.otcmarkets.com/filing/html?id=3270915&guid=zv_3U6EIXgKqj3h
PDF page 76 of 168:
“Retained interests in securitizations were $1.79 billion at September 30, 2004, of which $1.74 billion have either a AAA credit rating or are agency insured. ”
____________________
WMI 2004 10-K filed as of 3-14-2005:
https://www.otcmarkets.com/filing/html?id=3536003&guid=zv_3U6EIXgKqj3h
PDF page 93 of 379:
“Retained interests in securitizations were $1.62 billion at December 31, 2004, of which $1.60 billion have either a AAA credit rating or are agency insured. ”
____________________
WMI Q1 2005 10-Q filed as of 05-10-2005:
https://www.otcmarkets.com/filing/html?id=3663289&guid=zv_3U6EIXgKqj3h
PDF page 71 of 123:
“Retained interests in securitizations were $1.77 billion at March 31, 2005, of which $1.76 billion have either a AAA credit rating or are agency insured. ”
____________________
WMI Q2 2005 10-Q filed as of 8-09-2005:
https://www.otcmarkets.com/filing/html?id=3842513&guid=zv_3U6EIXgKqj3h
PDF page 47 of 67:
“Retained interests in securitizations were $1.83 billion at June 30, 2005, of which $1.57 billion have either a AAA credit rating or are agency insured. ”
____________________
WMI Q3 2005 10-Q filed as of 11-07-2005:
https://www.otcmarkets.com/filing/html?id=3997941&guid=zv_3U6EIXgKqj3h
PDF page 44 of 67:
“Retained interests in securitizations were $1.94 billion at September 30, 2005, of which $1.44 billion have either a AAA credit rating or are agency insured. ”
____________________
WMI 2005 10-K filed as of 3-15-2006:
https://www.otcmarkets.com/filing/html?id=4277397&guid=zv_3U6EIXgKqj3h
PDF page 46 of 355:
“Retained interests in mortgage loan securitizations, excluding the rights to service such loans, were $2.80 billion at December 31, 2005, of which $2.19 billion have either a AAA credit rating or are agency insured. Retained interests in credit card securitizations were $1.64 billion at December 31, 2005. ”
____________________
WMI Q1 2006 10-Q filed as of 5-10-2006:
https://www.otcmarkets.com/filing/html?id=4408097&guid=jmR3UWUl8lFmnEh
PDF page 45 of 63:
“Retained interests in mortgage loan securitizations, excluding the rights to service such loans, were $2.26 billion at March 31, 2006, of which $1.86 billion have either a AAA credit rating or are agency insured. Retained interests in credit card securitizations were $1.75 billion at March 31, 2006. ”
____________________
WMI Q2 2006 10-Q filed as of 8-09-2006:
https://www.otcmarkets.com/filing/html?id=4587552&guid=jmR3UWUl8lFmnEh
PDF page 56 of 83:
“Retained interests in mortgage loan securitizations, excluding the rights to service such loans, were $2.27 billion at June 30, 2006, of which $1.70 billion have either a AAA credit rating or are agency insured. Retained interests in credit card securitizations were $1.74 billion at June 30, 2006. ”
____________________
WMI Q3 2006 10-Q filed as of 11-09-2006:
https://www.otcmarkets.com/filing/html?id=4754508&guid=jmR3UWUl8lFmnEh
PDF page 54 of 108:
“Retained interests in mortgage loan securitizations, excluding the rights to service such loans, were $1.98 billion at September 30, 2006, of which $1.43 billion have either a AAA credit rating or are agency insured. Retained interests in credit card securitizations were $1.72 billion at September 30, 2006. ”
____________________
WMI 2006 10-K filed as of 3-01-2007:
https://www.otcmarkets.com/filing/html?id=5003677&guid=jmR3UWUl8lFmnEh
PDF page 43 of 252:
“Retained interests in mortgage loan securitizations, excluding the rights to service such loans, were $1.90 billion at
December 31, 2006, of which $1.45 billion have either a AAA credit rating or are agency insured. Retained interests in credit card securitizations were $1.47 billion at December 31, 2006. ”
____________________
WMI Q1 2007 10-Q filed as of 5-10-2007:
https://www.otcmarkets.com/filing/html?id=5168665&guid=jmR3UWUl8lFmnEh
PDF page 40 of 61:
“Retained interests in mortgage loan securitizations, excluding the rights to service such loans, were $2.71 billion at March 31, 2007, of which $1.19 billion have either a AAA credit rating or are agency insured. Retained interests in credit card securitizations were $1.43 billion at March 31, 2007.”
____________________
WMI Q2 2007 10-Q filed as of 8-09-2007:
https://www.otcmarkets.com/filing/html?id=5358076&guid=jmR3UWUl8lFmnEh
PDF page 41 of 103:
“Retained interests in mortgage loan securitizations, excluding the rights to service such loans, were $2.92 billion at June 30, 2007, of which $2.66 billion are of investment grade quality. Retained interests in credit card securitizations were $1.59 billion at June 30, 2007, of which $1.51 billion are reported as trading assets on the Company’s balance sheet. “
____________________
WMI Q3 2007 10-Q filed as of 11-09-2007:
https://www.otcmarkets.com/filing/html?id=5532386&guid=jmR3UWUl8lFmnEh
PDF page 80 of 125:
“Retained interests in mortgage loan securitizations, excluding the rights to service such loans, were $2.29 billion at September 30, 2007, of which $2.12 billion are of investment-grade quality. Retained interests in credit card securitizations were $1.68 billion at September 30, 2007, of which $1.60 billion are reported as trading assets on the Company's balance sheet. ”
____________________
WMI 2007 10-K filed as of 02-29-2008:
https://www.otcmarkets.com/filing/html?id=5769335&guid=jmR3UWUl8lFmnEh
PDF page 59 of 378:
“Retained interests in mortgage loan securitizations, excluding the rights to service such loans, were $1.71 billion at December 31, 2007, of which $1.56 billion are of investment grade quality. Retained interests in credit card securitizations were $1.84 billion at December 31, 2007, of which $426 million are of investment grade quality.”
____________________
WMI Q1 2008 10-Q filed as of 5-12-2008:
https://www.otcmarkets.com/filing/html?id=5927846&guid=jmR3UWUl8lFmnEh
PDF page 81 of 157:
“Retained interests in mortgage loan securitizations, excluding the rights to service such loans, were $1.44 billion at March 31, 2008, of which $1.37 billion are of investment-grade quality. Retained interests in credit card securitizations were $1.83 billion at March 31, 2008, of which $418 million are of investment-grade quality. ”
____________________
WMI Q2 2008 10-Q filed as of 8-11-2008;
https://www.otcmarkets.com/filing/html?id=6093324&guid=jmR3UWUl8lFmnEh
PDF page 84 of 388:
“Retained interests in mortgage loan securitizations, excluding the rights to service such loans, were $1.23 billion at June 30, 2008, of which $1.13 billion are of investment-grade quality. Retained interests in credit card securitizations were $1.56 billion at June 30, 2008, of which $421 million are of investment-grade quality. ”
____________________
IMO...my conclusions as of March 21, 2019:
1) WMI was not allowed to consolidate any retained interests on the quarterly and annual financial that the Special Purpose Entities (SPEs) owned. Per CBA09 (a self proclaimed Certified Auditor) IHub post#501193, he stated that “Certficates are issued for the Residual Interest and held by SPE # 1 (Largest %) and Originator ( there retained % much smaller)”.
I contend that CBA09 is correct in his statement, due to his past experience in bank auditing.
2) if you tabulate and add all the retained interests that WMI were allowed to report on their quarterly and annual reports, the total for retained interests in MBS + ABS (credit card securitizations) , the grand total is
$101.94 billion.
3) WMI securitized approximately $692 billion from 2000 to 2008.
$101.94 billion / $692 billion = 14.73% retained interests/beneficial interests in certificate participation in MBS/ABS Trusts that WMI subsidiaries created.
3) I believe there is an even greater percentage of retained interests in SPEs which were not allowed to be consolidated on the quarterly and annual financial reports!
4) I also contend that the WMI Escrow Marker Holders are the rightful owners to all the retained interests/beneficial interests!
5) IMO... I believe the minimum recoveries to WMI Escrow Marker Holders is at least $101.94 billion excluding annual compounded interests for 10 and a half years.
The last three remaining adversary proceeding cases were versus the Official Committee of Unsecured Creditors of Washington Mutual, Inc.:
“Official Committee of Unsecured Creditors of Washi v. Morgan, Case No. 10-53154
Official Committee of Unsecured Creditors of Washi v. Sharma, Case No. 10-53147
Official Committee of Unsecured Creditors of Washi v. Rachel M. Mileur, Case No. 10-53133“
http://www.kccllc.net/wamu/info/3950
__________________
IMO...if the Unsecured Creditors want their recoveries, it would be to their best interests to formally close out the adversary proceeding cases and close out the BK cases ASAP.
So I don’t know what is preventing the court clerk from closing out the last three remaining cases.
I don’t know why it’s taking the court clerk so long to close the adversary case proceedings of the Ex-employee claimants which were all disallowed as of February 01, 2019 and made final on February 22, 2019
But ....
Browning case was closed yesterday (March 14, 2019).
As of this morning (March 15, 2019 @0730 CST) the only three remaining adversarial proceeding cases are:
Morgan
Sharma
Mileur
http://www.kccllc.net/wamu/info/3950
Per the Tranquility Decision as of December 20, 2011:
https://www.leagle.com/decision/inbco20111220845
"462 B.R. 137 (2011)
In re WASHINGTON MUTUAL, INC., et al., Debtors.
United States Bankruptcy Court, D. Delaware.
December 20, 2011.
Attorney(s) appearing for the Case
Brian S. Rosen, Esquire , Adam P. Strochak , Esquire, Weil Gotshal & Manges LLP, New York, NY, Mark D. Collins, Esquire , Chun I. Jang, Esquire , Julie A. Finocchiaro, Esquire , Richards, Layton & Finger, PA, Wilmington, DE, for Debtors.
Donna L. Culver, Esquire , Morris, Nichols, Arsht & Tunnel LLP, Wilmington, DE, for Tranquility Master Fund, Ltd.
Robert J. Boller, Esquire , Fred S. Hodara, Esquire , Robert A. Johnson, Esquire , Akin Gump Strauss Hauer & Feld LLP, New York, NY, for Official Committee of Unsecured Creditors.
MEMORANDUM OPINION1
MARY F. WALRATH, Bankruptcy Judge.
Before the Court is the objection of Washington Mutual, Inc. ("WMI") to the claim filed by Tranquility Master Fund, Ltd. ("Tranquility"). The crux of the issues presented is whether Tranquility has properly pled a claim and if that claim should be subordinated. For the reasons set forth below, the Court finds Tranquility has sufficiently pled its claim and that WMI has not stated a basis to subordinate Tranquility's claim.
I. BACKGROUND
On September 26, 2008, WMI and WMI Investment Corp. (collectively, the "Debtors") filed voluntary petitions under chapter 11 of the Bankruptcy Code.
Prior to the filing WMI had directly or indirectly owned all of the outstanding capital stock of Washington Mutual Bank ("WMB") and WMB's subsidiaries, including WaMu Asset Acceptance Corp. ("WaMu Asset Acceptance") and WaMu Capital Corp. ("WaMu Capital").
WMB originated residential mortgages, which were then pooled and transferred to special-purpose trusts (the "WaMu Trusts"). The loans were also pooled with those of third parties into similar trusts (the "WMALT Trusts"). The Trusts sold securities to WaMu Asset Acceptance for resale to investors. From 2006 through 2007, WaMu Asset Acceptance sold approximately $71 million in WaMu and WMALT Trust Certificates to Tranquility.
On March 30, 2009, Tranquility filed a proof of claim against the Debtors in the amount of approximately $49 million, to which the Debtors objected. The parties subsequently briefed and argued several legal issues, which were decided by an
[462 B.R. 140]
Order entered on November 12, 2010, sustaining in part and overruling in part the Debtors' objection. The Order permitted the filing of an amended claim by Tranquility, which was filed on November 30, 2010. Several remaining issues raised by the Debtors' claim objection have now been briefed and argued. The matter is ripe for decision.
II. JURISDICTION
This Court has jurisdiction over this matter, which is a core proceeding. 28 U.S.C. § 1334 & 157(b)(2)(B).
III. DISCUSSION
A. Standard of Review
The parties have agreed to treat these matters in the nature of a motion to dismiss. (D.I. 2531 at 8-9.) Under this standard, a claim is sufficient if "the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009). A claim is sufficient if it is "facially plausible," a determination that is based upon the reviewing court's "judicial experience and common sense." Id. at 1950.
The Third Circuit has implemented a two part analysis: "First the factual and legal elements of a claim should be separated. The [court] must accept all of the complaint's well-pleaded facts as true, but may disregard any legal conclusions." Fowler v. UPMC Shadyside, 578 F.3d 203, 210-11 (3d Cir.2009). See also Iqbal, 129 S.Ct. at 1949-50 ("Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice. . . . When there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief."). "The plaintiff must put some `meat on the bones' by presenting sufficient factual allegations to explain the basis for its claim." Buckley v. Merrill Lynch & Co., Inc. (In re DVI, Inc.), Bankr.No. 03-12656, Adv. No. 08-50248, 2008 WL 4239120, at *4 (Bankr.D.Del. Sept. 16, 2008).
B. Control Person Liability
Tranquility alleges that WaMu Asset Acceptance solicited, offered, and sold WaMu and WMALT Trust Certificates to Tranquility pursuant to offering documents containing material misrepresentations and omissions. The misstatements in the offering documents include statements regarding whether the underlying mortgages were independently appraised in accordance with applicable law, were not subject to any claims or defenses, and had accurate loan-to-value ratios. Tranquility also contends that information from a study done on past and expected future default rates on the underlying mortgages was omitted from the offering documents.
Tranquility bases its claim against the Debtors on a theory of control person liability under both section 15 of the Securities Act of 1933 and section 25504 of the California Corporations Code. The federal and state statutes incorporate substantially similar language and impose joint and several liability upon a control person when a controlled person violates the statutes2 by selling securities by means of a written communication containing a material misstatement or omission.3
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The Debtors object to Tranquility's control person liability claims on two grounds: (1) the Debtors' lack of control over the underlying violators and (2) Tranquility's failure to plead sufficiently culpable participation by the Debtors.
1. Control
Tranquility contends that WMI centrally managed the Washington Mutual organization—including WaMu Capital, WaMu Asset Acceptance, and the WaMu and WMALT Trusts—through its executive officers and board of directors. WMI's executive committee allegedly controlled the strategy and direction of the organization as a whole through the work of its subsidiaries. Tranquility asserts that WMI controlled the offering entities as divisions of an integrated mortgage-backed securities production "factory."
To support its allegations, Tranquility cites WMI's 10-K reports that show WMI itself recognized the organization as one integrated company with consolidated financial reports. Additionally, Tranquility cites WaMu's uniform code of conduct governing all employees of the organization as evidence that WMI controlled, managed, and influenced the employees of all direct and indirect subsidiaries in the performance of their duties.
Tranquility also asserts that at all times the heads of the subsidiaries' day-to-day operations, risk management, and control functions reported to Kerry Killinger, WMI's Chairman and Chief Executive Officer. According to Tranquility, WMI, through Mr. Killinger, directed and controlled the organization's entire corporate strategy, including the appraisal and securitization practices of its subsidiaries. Tranquility also contends that Stephen Rotella, WMI's President and Chief Operating Officer, directly oversaw the day-to-day operations of the home loans business line and froze internal initiatives to improve underwriting, appraisal, and credit risk practices. Tranquility asserts that Ronald Cathcart, WMI's Executive Vice President and Chief Risk Officer, has admitted in a written statement to a Senate Committee that he submitted numerous reports to senior management detailing control weaknesses throughout the WaMu organization and highlighting a continual problem with adherence to policies, particularly in the mortgage area where line managers encouraged policy exceptions. It also cites the testimony of David Beck, WMI's Executive Vice President and Chief Investment Officer, that WMI's senior management were directly involved in WMB's decisions to securitize and sell Option ARM mortgages with significant known but undisclosed delinquencies. Finally, Tranquility contends that WMI also controlled its subsidiaries' risk management and compliance with regulations through committees of its Board of Directors, including the audit, enterprise risk management, credit policy, finance, and market risk committees.
The Debtors respond that it is inappropriate for Tranquility to utilize the Debtors' use of the terms "controlling" and "company" in its SEC filings to support a finding of the control necessary for control
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person liability. The Debtors assert that these statements simply refer to the regulatory requirements imposed by federal banking authorities and that the latter's definition of control is not the applicable standard. In fact, the Debtors contend that WMI was just a holding company that had little or no involvement in the day-to-day operations of either WaMu Capital or WaMu Asset Acceptance. Specifically, the Debtors assert that WMI had no involvement in the appraisals at issue, the securitization process, or setting appraisal policy. The Debtors argue that despite overlapping board members at WMI and its subsidiaries, the companies are still completely separate legal entities. Additionally, the Debtors argue that a board member's actions on behalf of a subsidiary should not be imputed to the Debtors simply because that person was also a WMI board member.
The Court finds that Tranquility has pled facts sufficient to support its claim that the Debtors controlled WaMu Capital and WaMu Asset Acceptance. In the context of section 15, control means "the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise." Rochez Bros. Inc. v. Rhoades, 527 F.2d 880, 890 (3d Cir.1975). While the Debtors are correct that the use of the term "control" in their SEC filings is not dispositive, Tranquility has alleged several other facts to support its contention that WMI controlled its subsidiaries, including the statements of Mr. Cathcart and Mr. Beck regarding the structure of the organization, the information the Debtors received about their subsidiaries, and the policies the Debtors set for the organization as a whole.
2. Culpable Participation
The Debtors also claim that Tranquility has not met its pleading burden because it fails to allege culpable participation by the Debtors as a part of its control person liability claims under both the state and federal statutes. See, e.g., Dutton v. Harris Stratex Networks, Inc., 270 F.R.D. 171, 178 (D.Del.2010) (requiring a pleading of culpable participation that supports "the reasonable inference that defendants had the potential to influence and direct the activities of the primary violator"); Tracinda Corp. v. DaimlerChrysler AG, 197 F.Supp.2d 42, 55 (D.Del.2002) (holding that a section 15 claim must allege culpable participation); Kainos Labs., Inc. v. Beacon Diagnostics, No. C97-4618, 1998 WL 2016634, at *15 (N.D.Cal. Sept. 14, 1998) (finding that culpable participation is a required element of control person liability claims under California Corporations Code section 25504).
The Debtors contend that Tranquility expressly stated that it was not asserting any "knowing, intentional, or reckless misconduct" by WMI and, therefore, it has failed to allege that the Debtors were culpable participants in the underlying violation. (Amended Claim at ¶¶ 301 & 309.) The Debtors argue that even if culpable participation is an affirmative defense to be raised by the Debtors rather than an element of the claimant's prima facie case, Tranquility's pleadings have removed any dispute of fact on this issue and render its claim ripe for dismissal at the pleading stage. See Stanziale v. Nachtomi (In re Tower Air), 416 F.3d 229, 238 (3d Cir. 2005).
Tranquility responds that the California statute and the federal statute do not require culpable participation to establish control person liability. See In re Suprema Specialties, Inc. Sec. Litig., 438 F.3d 256, 284 (3d Cir.2006) (requiring culpable
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participation for a claim under section 20(a) but not for a section 15 claim); In re Worldcom, Inc., 377 B.R. 77, 105 (Bankr. S.D.N.Y.2007) (stating that culpable participation is not required under the federal statute even for a section 20(a) claim); Hellum v. Breyer, 194 Cal.App.4th 1300, 1317, 123 Cal.Rptr.3d 803 (Cal.Ct.App. 2011) (holding that a pleading of culpable participation is not required under the California statute). Tranquility contends that it need only plead and prove a primary violation and that WMI "exercised actual power or control over the primary violator." Worldcom, 377 B.R. at 105 (citing Howard v. Everex Sys., Inc., 228 F.3d 1057, 1065 (9th Cir.2000)). Once it has sufficiently pled these elements, the burden then shifts to the Debtors to prove that they acted in good faith by demonstrating that there was no scienter. Worldcom, 377 B.R. at 105.
Tranquility acknowledges, however, that courts are split on the issue of whether culpable participation must be pled to support its federal claims. Compare In re Digital Island Sec. Litig., 223 F.Supp.2d 546, 561 (D.Del.2002) (requiring a claim to state "with particularity the circumstances of . . . the defendant's culpability as control persons") with Jones v. Intelli-Check, Inc., 274 F.Supp.2d 615, 645 (D.N.J.2003) (holding that culpable participation does not have to be pled to survive a motion to dismiss). See also In re Am. Bus. Fin. Servs., No. 05-232, 2007 WL 81937, at *11 (E.D.Pa. Jan. 9, 2007) (acknowledging the split in case law on the issue of culpable participation). Tranquility urges the Court to conclude that culpable participation is not required to be pled as part of the prima facie case but is an affirmative defense to be raised by the Debtors. See, e.g., Howard v. Everex Sys., Inc., 228 F.3d 1057, 1065 (9th Cir.2000); In re Am. Bus. Fin. Servs., 2007 WL 81937, at *11.
The Court concludes that Tranquility is not required to plead culpable participation as a part of its prima facie case under either its state or federal control person liability claims. A prima facie case for control person liability only requires a plaintiff to plead facts showing the underlying violation and establishing the defendant's control over the underlying violator. Howard, 228 F.3d at 1065; Jones, 274 F.Supp.2d at 645. It would place an unreasonable burden on the claimant to require a pleading of culpable participation because "the facts establishing culpable participation can only be expected to emerge after discovery [and] virtually all of the remaining evidence, should it exist, is usually within the defendant's control." Derensis v. Coopers & Lybrand Chartered Accountants, 930 F.Supp. 1003, 1013 (D.N.J.1996). Although the Rochez Court states that there must be a finding of culpable participation before liability may attach, Rochez was beyond the pleading stage and made no mention of culpable participation as a pleading requirement. Rochez, 527 F.2d at 883-84, 890.
As a result, the Court concludes that Tranquility has stated a claim against WMI for control person liability under the California and federal statutes.
C. Material Assistance
Section 25504.1 of the California statute also imposes joint and several liability on every person who materially assists in any violation of section 25401 "with intent to deceive or defraud." Tranquility alleges that WMI is liable under this section. It contends that WMI had the requisite "intent to deceive or defraud" because it designed and controlled the entire securitization scheme through the use of subsidiary entities such as WaMu Capital and WaMu Asset Acceptance. Additionally, Tranquility claims that the Debtors had
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motive and opportunity to misrepresent and omit material facts regarding the appraisal and securitization process. Tranquility contends that even its allegations of recklessness by the Debtors are sufficient to support a finding of intent necessary to satisfy the requirements of the material assistance claims. In re Nuveen Funds/City of Alameda Sec. Litig., No. C 08-4575 SI, 2011 WL 1842819, at *23 (N.D.Cal. May 16, 2011) (stating that reckless intent could be sufficient for a finding of scienter). Finally, Tranquility asserts that the Debtors knew about the misrepresentations in the offering documents but remained silent.
The factual basis for Tranquility's allegations is in part the testimony of Mr. Beck at hearings before the Senate, in which he admitted that he understood there was fraud in some of the loans being securitized and did nothing to ensure that those loans were removed from the pools of mortgages being securitized and sold. Tranquility also relies on emails from February 2007 among David Schneider, WMI's Executive Vice President and President of Home Loans, Mr. Beck, and several other WaMu employees, discussing the urgent need to securitize and sell a larger-than-usual pool of loans because those loans had experienced higher than expected delinquency rates in the previous quarter which were expected to rise in the future. This information was not included in the offering documents. Tranquility asserts that the knowledge of WMI's executives, the omissions and misrepresentations in the offering documents, and WMI's incentive to sell these loans before unsuspecting investors became aware of the delinquency rates evidence the requisite intent to deceive or defraud for a material assistance claim.
The Debtors respond that Tranquility's allegations that the Debtor "knew, or was reckless in failing to know" about the material misstatements and omissions rise only to the level of recklessness, which is not a basis for liability. In re ZZZZ Best Sec. Litig., No. CV 87-3574, 1990 WL 132715, at *18 (C.D.Cal. July 23, 1990). The Debtors argue that Nuveen never even addresses the intent required for a material assistance claim and only discusses the intent required for the underlying violation. Nuveen, 2011 WL 1842819 at *22-23. Therefore, the Debtors assert Tranquility's material assistance claim should be dismissed for failing to allege the required intent to deceive or defraud.
The Court concludes that Tranquility has sufficiently pled its material assistance claim. The Debtors are correct that Nuveen only addresses the intent required for the underlying violation and not the intent required to sustain a material assistance claim. Id. The Debtors, however, cite only Tranquility's assertion that WMI "knew, or was reckless in failing to know" as the entirety of Tranquility's allegations. In fact, Tranquility's pleadings go well beyond allegations of recklessness, with multiple citations to specific knowing and intentional actions by the Debtors. See In re ZZZZ Best Sec. Litig., 1990 WL 132715 at *18 (holding that although "reckless" allegations are insufficient to state a claim for material assistance, allegations that are based on actual knowledge and intent to deceive and defraud are sufficient). Tranquility's material assistance allegations in this case reach far beyond the few words asserting a reckless level of intent and state a claim of intent to deceive or defraud.
Therefore, the Court concludes that Tranquility has stated a claim against WMI for material assistance under both the California and federal statutes.
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D. Claim Subordination
The Debtors assert that should the Court allow Tranquility's claims to proceed, those claims must be subordinated under section 510(b) which provides that "a claim arising from the rescission of a purchase or sale of a security of the debtor or of an affiliate of the debtor . . . shall be subordinated to all claims or interests that are senior to or equal the claim." 11 U.S.C. § 510(b).
Tranquility asserts preliminarily that the Debtors' attempt to subordinate is procedurally improper at this stage. Rule 3007(b) of the Federal Rules of Bankruptcy Procedure states that "[a] party in interest shall not include a demand for relief of a kind specified in Rule 7001 in an objection to the allowance of a claim, but may include the objection in an adversary proceeding." Rule 7001( provides that a proceeding to subordinate any allowed claim must be brought as an adversary proceeding, unless subordination is provided by a chapter 11 plan.
The Debtors respond that Rule 7001( only requires an adversary proceeding for subordination of "allowed" claims and because they are objecting to Tranquility's claims, those claims are not "allowed" and Rule 7001( does not apply. The Debtors also assert that Rule 7001( specifically states that an adversary proceeding for claim subordination is not required when a chapter 11 plan provides for a class of subordinated claims, as the Debtors' plan does in this case.
The Court agrees with the latter argument. An adversary proceeding is only required for claim subordination if subordination is not provided for under a chapter 11 plan. In this case, the Debtors' plan has provided for a class of subordinated claims. Therefore, an adversary proceeding is not required to reach the issue of claim subordination, and the Court will consider it in the context of the Debtors' Objection to Tranquility's claim.
The Debtors contend that the WaMu and WMALT Trusts that issued the Certificates purchased by Tranquility were affiliates of the Debtors pursuant to section 101(2)(C) of the Bankruptcy Code, which defines affiliate as "a person whose business is operated under a lease or operating agreement by a debtor, or . . . an operating agreement with a debtor." 11 U.S.C. § 101(2)(C). The Debtors argue that the Pooling and Servicing Agreements between the Trusts and WaMu Asset Acceptance constitute de facto operating agreements which satisfy that element. Further, the Debtors argue that although the Debtors themselves are not a party to these Pooling and Servicing Agreements, if the Court accepts Tranquility's underlying allegations that the entire WaMu organization was acting as one entity, then WaMu Asset Acceptance's participation in these agreements would satisfy the requirement that the operating agreements be "by" or "with" the Debtors.
Tranquility responds that the Pooling and Servicing Agreements are not operating agreements within the plain meaning of the statute, and therefore the Trusts cannot be considered affiliates of the Debtors according to section 101(2)(C). Tranquility also argues that even if they were operating agreements, those agreements were not "by" or "with" the Debtors as required by the statute. See In re SemCrude, L.P., 436 B.R. 317, 321 (Bankr. D.Del.2010) (finding that even if the purported partnership agreement constituted an operating agreement it would not satisfy the section 101(2)(C) definition of affiliate because the agreement was between two non-debtors).
The Court finds that the Debtors have not adequately proven that the Pooling
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and Servicing Agreements constitute an operating agreement under the plain meaning of the statute. Even if they could, however, they cannot overcome the fact that WMI was not a party to those agreements. As in SemCrude, because the agreement in question is between two non-debtors, it cannot provide a basis for subordination under section 101(2)(C). Id. at 321.
The Debtors argue nonetheless that if the Court accepts Tranquility's underlying claims that WMI controlled the entire WaMu organization through the actions of its subsidiary entities, then WaMu Asset Acceptance's participation in the Pooling and Servicing Agreements should be treated as if the Debtors themselves were a party to these agreements. The Debtors provide no support for their contention that mere "control" of an entity is sufficient to ignore its legal separateness. Consequently, the Court rejects this argument as beyond the plain meaning of the definition of affiliate in section 101(2)(C).
The Debtors and Creditors' Committee finally argue that section 510(b) nonetheless applies to the sale of the WaMu Trust and WMALT Trust Certificates by WaMu Asset Acceptance. That section covers the sale "of a security of the debtor or of an affiliate of the debtor." 11 U.S.C. § 510(b). The Debtors and Committee argue that the securities sold need not be "issued by" the debtor or affiliate but need only be those "of" the debtor or "of" an affiliate of the debtor. They contend that the word "of" only requires that the debtor or affiliate be the seller of the securities and does not require that it be the issuer. Because WaMu Asset Acceptance, an affiliate of the Debtors,4 sold the Certificates issued by the Trusts, the Debtors and Committee contend that Tranquility's claim should be subordinated. The Committee argues that equitable considerations support this interpretation of section 510(b) because it is unreasonable to shift "even a small portion of the risk of illegality" of the issuance of a security to the creditors who did not agree to accept such a risk. Baroda Hill Invests. v. Telegroup (In re Telegroup), 281 F.3d 133, 140 (3d Cir.2002).
Tranquility responds that there is no legal basis for the Debtors' and Committee's argument. Tranquility notes that rather than citing case law in support of their position, the Debtors and Committee rely on a nearly 40 year old law review article to bolster their argument. See generally John J. Slain & Homer Kripke, The Interface Between Securities Regulation and Bankruptcy—Allocating the Risk of Illegal Securities Issuance Between Securityholders and the Issuer's Creditors, 48 N.Y.U. L.Rev. 261 (1973). Tranquility notes that the focus—and even the title— of the Slain & Kripke article shows its inapplicability because it discusses allocating the risk of the "issuance" illegal securities between securityholders and the "issuer's" creditors. Id. Tranquility contends that because the instant case does not involve the rights of the issuer's creditors, this article is inapplicable.
The Court agrees with Tranquility that there is no basis for subordination of its claim. The article and case law cited by the Debtors and Creditors' Committee address the competing interests of creditors and the buyers of securities issued by a debtor. See Telegroup, 281 F.3d at 140 ("Slain and Kripke were primarily concerned
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with actionable conduct occurring in the issuance of the debtor's securities"). Neither the Debtors nor their affiliates are the issuers of the Certificates.
Even if the language in 510(b) was ambiguous, equitable concerns weigh against subordinating Tranquility's claim. Tranquility did not purchase a security of the Debtors and did not assume the risk (and potential rewards) that a shareholder of the Debtors assumed.
The theory behind the Slain and Kripke article, and section 510(b), is that it would be inequitable to elevate a shareholder's interest to the level of a creditor. This applies when the shareholder buys stock from an issuer but not when it buys stock from a third party. The example cited by the Debtors in oral argument illustrates this. If Tranquility bought stock of WMI from WMI, it would be assuming the risks normally associated with that stock, including the risk that WMI could become insolvent. If WMI had committed fraud in that sale, Tranquility would have a claim for that fraud, but it would be inequitable to treat Tranquility like the other creditors if WMI becomes insolvent because Tranquility assumed that risk.
The analysis changes, however, where Tranquility buys stock of another company, say Apple, from WMI. Tranquility is assuming the risks associated with owning stock in Apple, including that Apple may become insolvent, but not that WMI may become insolvent. If WMI defrauded Tranquility in the sale of Apple stock, therefore, Tranquility should be treated like any other creditor of WMI because Tranquility never assumed the risks of a WMI shareholder. If this were not the case, then all claims of customers defrauded by a broker/dealer would be subordinated and treated as if they were shareholders of that broker/dealer rather than customers or creditors. That would extrapolate section 510(b) far beyond its intent or plain language.
Therefore, the Court concludes that because the Certificates sold by WaMu Asset Acceptance were not securities of the Debtors or an affiliate of the Debtors, subordination under section 510(b) is not available.
IV. CONCLUSION
For the foregoing reasons, the Court finds that Tranquility has sufficiently stated a claim against the Debtors and the Debtors have not stated a basis for its subordination.
An appropriate order is attached.
ORDER
AND NOW, this 20th day of December, 2011, upon consideration of the Debtors' Objection to the Proof of Claim of Tranquility Master Fund, Ltd., and for the reasons set forth in the accompanying Memorandum Opinion, it is hereby
ORDERED that Tranquility has sufficiently stated a claim against the Debtors; and it is further
ORDERED that the Debtors have not stated a basis for its subordination.
FootNotes
1. The parties have agreed to have the Court consider the issues preliminarily on the standards applicable to a motion to dismiss. (D.I. 2531 at 8-9) Consequently, the Court is not required to state findings of fact or conclusions of law pursuant to Rule 7052(a)(3) of the Federal Rules of Bankruptcy Procedure.
2. For the purpose of this decision, the Debtors assume but do not admit the alleged underlying violations of the California Corporations Code and the Securities Act of 1933.
3. The federal statute states "[every] person who . . . controls any person liable under Section 11 . . . shall also be joint and severally liable with and to the same extent as such controlled person . . . unless the controlling person had no knowledge of or reasonable ground to believe in the existence of the facts by reason of which the liability of the controlled person is alleged to exist." 15 U.S.C. § 77o. The California statute states that "Every person who directly or indirectly controls a person liable under Section 25501 . . . [is] also liable jointly and severally with and to the same extent as such person, unless the other person who is so liable had no knowledge of or reasonable grounds to believe in the existence of the facts by reason of which the liability is alleged to exist." Cal. Corp. Code § 25504.
4. WaMu Asset Acceptance is an affiliate of the Debtors pursuant to the definition in section 101(2)(B) of the Bankruptcy Code as a "corporation 20 percent or more of whose outstanding voting securities are directly or indirectly owned . . . by the debtor." 11 U.S.C. § 101(2)(B). "
________________________
IMO...My conclusions as of March 11, 2019:
1) Excerpts from the Decision:
"The Court finds that Tranquility has pled facts sufficient to support its claim that the Debtors controlled WaMu Capital and WaMu Asset Acceptance. In the context of section 15, control means "the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise." Rochez Bros. Inc. v. Rhoades, 527 F.2d 880, 890 (3d Cir.1975). While the Debtors are correct that the use of the term "control" in their SEC filings is not dispositive, Tranquility has alleged several other facts to support its contention that WMI controlled its subsidiaries, including the statements of Mr. Cathcart and Mr. Beck regarding the structure of the organization, the information the Debtors received about their subsidiaries, and the policies the Debtors set for the organization as a whole."
The Court concludes that Tranquility is not required to plead culpable participation as a part of its prima facie case under either its state or federal control person liability claims. A prima facie case for control person liability only requires a plaintiff to plead facts showing the underlying violation and establishing the defendant's control over the underlying violator. Howard, 228 F.3d at 1065; Jones, 274 F.Supp.2d at 645. It would place an unreasonable burden on the claimant to require a pleading of culpable participation because "the facts establishing culpable participation can only be expected to emerge after discovery [and] virtually all of the remaining evidence, should it exist, is usually within the defendant's control." Derensis v. Coopers & Lybrand Chartered Accountants, 930 F.Supp. 1003, 1013 (D.N.J.1996). Although the Rochez Court states that there must be a finding of culpable participation before liability may attach, Rochez was beyond the pleading stage and made no mention of culpable participation as a pleading requirement. Rochez, 527 F.2d at 883-84, 890.
As a result, the Court concludes that Tranquility has stated a claim against WMI for control person liability under the California and federal statutes."
…
"The Court concludes that Tranquility is not required to plead culpable participation as a part of its prima facie case under either its state or federal control person liability claims. A prima facie case for control person liability only requires a plaintiff to plead facts showing the underlying violation and establishing the defendant's control over the underlying violator. Howard, 228 F.3d at 1065; Jones, 274 F.Supp.2d at 645. It would place an unreasonable burden on the claimant to require a pleading of culpable participation because "the facts establishing culpable participation can only be expected to emerge after discovery [and] virtually all of the remaining evidence, should it exist, is usually within the defendant's control." Derensis v. Coopers & Lybrand Chartered Accountants, 930 F.Supp. 1003, 1013 (D.N.J.1996). Although the Rochez Court states that there must be a finding of culpable participation before liability may attach, Rochez was beyond the pleading stage and made no mention of culpable participation as a pleading requirement. Rochez, 527 F.2d at 883-84, 890.
As a result, the Court concludes that Tranquility has stated a claim against WMI for control person liability under the California and federal statutes."
…
"The Court concludes that Tranquility has sufficiently pled its material assistance claim. The Debtors are correct that Nuveen only addresses the intent required for the underlying violation and not the intent required to sustain a material assistance claim. Id. The Debtors, however, cite only Tranquility's assertion that WMI "knew, or was reckless in failing to know" as the entirety of Tranquility's allegations. In fact, Tranquility's pleadings go well beyond allegations of recklessness, with multiple citations to specific knowing and intentional actions by the Debtors. See In re ZZZZ Best Sec. Litig., 1990 WL 132715 at *18 (holding that although "reckless" allegations are insufficient to state a claim for material assistance, allegations that are based on actual knowledge and intent to deceive and defraud are sufficient). Tranquility's material assistance allegations in this case reach far beyond the few words asserting a reckless level of intent and state a claim of intent to deceive or defraud.
Therefore, the Court concludes that Tranquility has stated a claim against WMI for material assistance under both the California and federal statutes."
...
"The Court finds that the Debtors have not adequately proven that the Pooling
[462 B.R. 146]
and Servicing Agreements constitute an operating agreement under the plain meaning of the statute. Even if they could, however, they cannot overcome the fact that WMI was not a party to those agreements. As in SemCrude, because the agreement in question is between two non-debtors, it cannot provide a basis for subordination under section 101(2)(C). Id. at 321.
The Debtors argue nonetheless that if the Court accepts Tranquility's underlying claims that WMI controlled the entire WaMu organization through the actions of its subsidiary entities, then WaMu Asset Acceptance's participation in the Pooling and Servicing Agreements should be treated as if the Debtors themselves were a party to these agreements. The Debtors provide no support for their contention that mere "control" of an entity is sufficient to ignore its legal separateness. Consequently, the Court rejects this argument as beyond the plain meaning of the definition of affiliate in section 101(2)(C)."
...
"The Court agrees with Tranquility that there is no basis for subordination of its claim. The article and case law cited by the Debtors and Creditors' Committee address the competing interests of creditors and the buyers of securities issued by a debtor. See Telegroup, 281 F.3d at 140 ("Slain and Kripke were primarily concerned
[462 B.R. 147]
with actionable conduct occurring in the issuance of the debtor's securities"). Neither the Debtors nor their affiliates are the issuers of the Certificates.
Even if the language in 510(b) was ambiguous, equitable concerns weigh against subordinating Tranquility's claim. Tranquility did not purchase a security of the Debtors and did not assume the risk (and potential rewards) that a shareholder of the Debtors assumed.
The theory behind the Slain and Kripke article, and section 510(b), is that it would be inequitable to elevate a shareholder's interest to the level of a creditor. This applies when the shareholder buys stock from an issuer but not when it buys stock from a third party. The example cited by the Debtors in oral argument illustrates this. If Tranquility bought stock of WMI from WMI, it would be assuming the risks normally associated with that stock, including the risk that WMI could become insolvent. If WMI had committed fraud in that sale, Tranquility would have a claim for that fraud, but it would be inequitable to treat Tranquility like the other creditors if WMI becomes insolvent because Tranquility assumed that risk.
The analysis changes, however, where Tranquility buys stock of another company, say Apple, from WMI. Tranquility is assuming the risks associated with owning stock in Apple, including that Apple may become insolvent, but not that WMI may become insolvent. If WMI defrauded Tranquility in the sale of Apple stock, therefore, Tranquility should be treated like any other creditor of WMI because Tranquility never assumed the risks of a WMI shareholder. If this were not the case, then all claims of customers defrauded by a broker/dealer would be subordinated and treated as if they were shareholders of that broker/dealer rather than customers or creditors. That would extrapolate section 510(b) far beyond its intent or plain language.
Therefore, the Court concludes that because the Certificates sold by WaMu Asset Acceptance were not securities of the Debtors or an affiliate of the Debtors, subordination under section 510(b) is not available."
2) The WMB Subsidiaries (WaMu Asset Acceptance Corp. and WaMu Capital Corp.) were the entities that packaged the MBS Trusts (WaMu Trusts and WMALT Trusts) but WMI is ultimately the entity that has to bear the liability for all of its subsidiaries.
3) Therefore, if WMI bears the ultimate liability for all the MBS Trusts that were created by WMB subsidiaries, IMO...I contend that WMI is the rightful owner of all the beneficial interests in certificate participation in MBS Trusts that were created by all WMI subsidiaries.
4) WMI subsidiaries securitized $692 billion from 2000-2008, and I've calculated in previous posts that WMI possibly participated in 26.24% of all the securitized loans.
5) MBS Trusts issues are bankruptcy remote, and they are not subordinate to 510(b)
pm,
As I’ve stated before, my numbers are really truly irrelevant, there is nothing anyone can do to change the final outcome to WMI Escrow Marker Class 22 recoveries.
That being said, IMO...my previous numbers are still valid. I’ve been really busy and going through all the data regarding the MBS Trusts in the DB and US Bank websites are truly overwhelming.
So, with all my DD in the past, you can extrapolate a number that can make sense to you.
Now, the short answer to your question is: If you believe that Bonderman et.al. (with his army of analysts, acutuaries, forensic accountants, who have had insider information since 1996 and who have done their DD since 1996) are correct in their analysis of WMI in April 2008 (and I do believe in Bonderman’s DD) then you can sleep soundly at night knowing that Bonderman et.al. did not sell one share of WAMUQ and in fact released all of them.
Bonderman et.al. cost basis for WAMUQ = $8.75
Thus...IMO...WAMUQ recoveries will be at least $8.75!
PickStocks,
I’m going to say this simply:
Most have claimed my numbers are crazy and too high.
Some have claimed they are conservative.
IMO, it doesn’t matter what my numbers mean to anyone else, I’m comfortable with my numbers. There is no amount of factual DD that will make a difference in the final outcome regarding the WMI Escrow Markers, they cannot be traded.
And the most important factor, IMO...the WMI Escrow Markers have a value that is greater than zero!
Per my Ihub post #555889:
Excerpt:
"Per The Congressional Subcommittee report as of April 13, 2011:
https://www.hsgac.senate.gov/imo/media/doc/PSI%20REPORT%20-%20Wall%20Street%20&%20the%20Financial%20Crisis-Anatomy%20of%20a%20Financial%20Collapse%20(FINAL%205-10-11).pdf
Page 118 (PDF page 125 of 646)
“At the Subcommittee hearing on April 13, 2010, Mr. Beck explained the role of WCC in WaMu and Long Beach securitizations as follows:
“WaMu Capital Corp. acted as an underwriter of securitization transactions generally involving Washington Mutual Mortgage Securities Corp. or WaMu Asset Acceptance Corp. Generally, one of the two entities would sell loans into a securitization trust in exchange for securities backed by the loans in question, and WaMu Capital Corp. would then underwrite the securities consistent with industry standards. As an underwriter, WaMu Capital Corp. sold mortgage-backed securities to a wide variety of institutional investors.434
WCC sold WaMu and Long Beach loans and RMBS securities to insurance companies, pension funds, hedge funds, other banks, and investment banks.435 It also sold WaMu loans to Fannie Mae and Freddie Mac. WCC personnel marketed WaMu and Long Beach loans both in the United States and abroad.”
...
Footnote 434:
“434 April 13, 2010 Subcommittee Hearing at 53. Washington Mutual Mortgage Securities Corp. (WMMSC) and WaMu Asset Acceptance Corp. (WAAC) served as warehouse entities that held WaMu loans intended for later securitization. Mr. Beck explained in his prepared statement: “WMMSC and WAAC purchased loans from WaMu, and from other mortgage originators, and held the loans until they were sold into the secondary market. WCC was a registered broker-dealer and acted as an underwriter of securitization deals for a period of time beginning in 2004 and ending in the middle of 2007. In addition to buying and selling mortgage loans, WMMSC acted as a ‘master servicer’ of securitizations. The master servicer collects and aggregates the payments made on loans in a securitized pool and forwards those payments to the Trustee who, in turn, distributes those payments to the holders of the securities backed by that loan pool.” Id. at 163.”
________________________
Per the Purchase and Assumption Agreement:
https://bpinvestigativeagency.com/wp-content/uploads/2017/07/FDIC-Chase-PAA.pdf
Page 2 (PDF page 6 of 44)
“Assets” means all assets of the Failed Bank purchased pursuant to Section 3.1. Assets owned by Subsidiaries of the Failed Bank are not “Assets” within the meaning of this definition.”
_____________
Per Docket #10666 filed by the WMILT objection to Underwriters' claims as of September 14, 2012:
http://www.kccllc.net/wamu/document/0812229120914000000000006
PDF page 5-6 of 553:
"II. RELEVANT FACTUAL BACKGROUND
A. CHALLENGED PROOFS OF CLAIM; UNDERWRITING AGREEMENTS
5. A number of proofs of claim have been filed on behalf of the Underwriter
Defendants against WMI in these cases. The four proofs of claim at issue in this Objection, numbers 3935, 4045, 4046, and 4047, are the products of amendment to a host of previously filed claims:
• Claim No. 3935. Proof of Claim No. 3935 was filed on January 17, 2011 by Goldman Sachs on behalf of itself and Morgan Stanley, UBS, BofA, Credit Suisse and JPM, as a supplemental proof of claim to claim number 2909 (filed on March 30, 2009). It relates to an underwriting agreement between those Underwriter Defendants and WMI, dated September 11, 2006.
• Claim No. 4045. Proof of Claim No. 4045 was filed on July 14, 2011 by Morgan Stanley on behalf of itself and Credit Suisse, Goldman Sachs, Barclays, Citigroup, Deutsche Bank, JPM, Greenwich, UBS, BNY, Cabrera, KB&W, Ramirez, and Williams, as a supplemental proof of claim to claim number 3938 (filed on January 17, 2011), which, in turn, amended proof of claim No. 2569 (filed on March 30, 2009). It relates to an underwriting agreement dated December 11, was 2007 among, inter alia, Morgan Stanley and WMI.
• Claim No. 4046. Proof of Claim No. 4046 was filed on July 14, 2011 by Credit Suisse on behalf of itself and Barclays, Morgan Stanley, KB&W, Cabrera, and Williams, as a supplemental proof of claim to proof of claim number 3936 (filed on January 17, 2011), which, in turn, amended proof of claim number 3794 (filed on October 29, 2009). It relates to an underwriting agreement between those Underwriter Defendants and WMI, dated October 25, 2007.
• Claim No. 4047. Proof of Claim No. 4047 was filed on July 14, 2011 by Morgan Stanley on behalf of itself and Goldman Sachs, Credit Suisse, and Deutsche Bank, a supplemental proof of claim to claim number 3937 (filed January 17, 2011), which, in tum, amended proof of claim number 2584 (filed March 30, 2009). Proof of Claim No. 4047 relates to an underwriting agreement between those Underwriter Defendants and WMI, dated August 21, 2006."
_____________
IMO...my conclusions as of March 09, 2019:
1) All of the Underwriters' proofs of claims (No. 3935, 4045, 4046, & 4047)
Claim No. 3935 : "It relates to an underwriting agreement between those Underwriter Defendants and WMI, dated September 11, 2006"
Claim No. 4045: "It relates to an underwriting agreement dated December 11, 2007 among, inter alia, Morgan Stanley and WMI."
Claim No. 4046: "It relates to an underwriting agreement between those Underwriter Defendants and WMI, dated October 25, 2007."
Claim No. 4047: "Proof of Claim No. 4047 relates to an underwriting agreement between those Underwriter Defendants and WMI, dated August 21, 2006."
2) All proofs of claims were against WMI not against WMB, WMB,fsb, nor against any of WMB direct subsidiaries which created and securitized all the loans in the MBS Trusts and its prospectuses (i.e. Long Beach Securities Corp., WaMu Asset Acceptance Corp., Washington Mutual Mortgage Securities Corp., WaMu Capital Corp.)
3) The Underwriters knew exactly who to sue, and it was WMI not WMB (or any of its subsidiaries), and not WMB,fsb (or any of its subsidiaries). So the Underwriters, of all the parties, knew the exact entity to sue. In order for the Underwriters to receive their indemnification from the MBS Trust Agreements/Prospectuses, the Underwriters had to sue the entity that had the ultimate liability for the MBS Trust Agreements/Prospectuses created by the WMB subsidiaries. So if WMI is the ultimate entity that has the liabilities to all the MBS Trust Agreements/Prospectuses then IMO, WMI is also the ultimate entity that has rightful ownership to the retained bankruptcy remote beneficial interests in certificate participation in MBS Trusts which WMI subsidiaries created.
Therefore, IMO...WMI Escrow Marker Holders has rightful ownership to the retained bankruptcy remote beneficial interests in certificate participation in MBS Trusts created by WMI subsidiaries.