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john gault's Blog

Payment Guarantees by Loan Servicers
by john gault | 2011/03/26 |

This material discusses the voluntary guarantees made by master servicers / servicers, and the misapplication of those payments.

john gault's Blog ::

After reading Leigh Attridge's post regarding that poor guywho is in jail serving time for getting a 'liar loan' offered by his friendly local broker, it appears it's time to address the IRS' potential role in 86ing bs claims. 

Maybe the rest of the world already got it, but I only recently became aware of 'payment stream guarantees' by master servicers / servicers. 
Some if not all the PSA's apparently oblige the servicers or master servicers (someone) to continue the payment stream to the investors. This means they have to pay up when the borrower is not.  Default may only be called by the note owner or maybe its authorized agent. But, the loan is not in default as long as the guarantor makes the payment stream. 

Servicers may not call a note in default on their own behalfs regarding another matter, that is, their guarantee (they can't call defaults anyway - they don't own the notes) . The borrower was not involved in the guarantee, has no obligation to the guarantor, and the guarantor is in fact a 'volunteer', which is a legal  determination as used here.  Default may be called on a note, of course, but the owners' note is not is default. The servicers are stuck making the payments, but the note may not be called because it's not in default.  The note owner will not (or should not) call the note in default because it isn't in default. 
Since the guarantors know this, they brought in MERS who is nobody, but still the best they could come up with to try to go after the property that way. Someone please tell me they weren't devious enough to plan this when they came up with MERS to 'offset' the voluntary guarantee. 

How might the use of MERS 'offset' this? 

Because the volunteer guarantor was able to hide behind MERS' alleged status in the deeds of trust / mortgages without revealing the identity of the true note owner or persons entitled to payments. That person would not be calling the note - it wasn't in default. 

When bad players claimed they were owed anything or that the note was in default, they were lying, because it wasn't.  They just didn't  want to continue the payment stream they voluntarily guaranteed.  But, they are legally volunteers and have no right against the borrower to reimbursement of their voluntary payments, and anyway reimbursement is not about or a path to the note being in default.

 A note would be in default and enforceable against the borrower, of course, if the volunteer guarantors quit making the payment stream, but apparently they can't contractually.
Whether or not the volunteer guarantors could prevail on a claim of 'unjust enrichment' or some such against the borrower I can't think just now, but I doubt it.  It was a voluntarily "assumed risk", which is also an affirmative defense available to the homeowner. 
But there is no collateral for an unjust enrichment award even if they got one. It would still not be a path to the borrower's home. Sure, they could obtain judgments month by month right after month by month litigation with the homeowner, (or I guess they could stock-pile a few months) but then they could just get in line with everyone else. By everyone else, I mean any of the borrower's other creditors. Just like delinquent rent when a tenant skips early on a lease, any claim for unjust enrichment could only be made each month as monies are paid by the guarantor.  
So they used and hid behind the "MERS' deeds of trust" to foreclose.  Now they're having to try to pull it off in their own names. Their chances are certainly better when courts are not apprised of the guarantees.  

Regardless of the dead-on accuracy (if not, it's in the hood) of ALL the above, although I believe it is so,  if the volunteer guarantor is in fact making the payment to the owner, each payment made reduces the principle of the note appropriately. But then, the servicer or other entity turns in a proof of claim or other form depending on the venue, showing an amount due on the loan which does not include the principle reduction made by the volunteer guarantor and further showing accrual of earned interest and other charges, which accrual and charges are fiction. It's my understanding these payments made by the volunteer guarantors are to be entered and maintained in a separate ledger.
If this is all true, then obviously, in addition to the rest of it, the note is not in default and false numbers are being submitted on claims, numbers which do not include the voluntary guarantee payments. Further, it's my understanding that some servicers are actually reimbursed these payments by FNMA, yet they claim these bogus amounts nonetheless.

The IRS could probably make a dent in the national debt by looking into the numbers being submitted falsely and the subsequent tax consequence (bogus tax deductions) for the volunteer guarantors. They may have a business deduction coming for their voluntary payments, when not reimbursed by FNMA or anyone else, but those numbers should not be included in the amount the borrower allegedly owes one way or another.

The IRS should try a few audits of claims made by these entities if they're so interested in mortgage fraud.  Yeah, you're not supposed to tell tales on a loan application - but you're sure as heck not supposed to tell tales which are as tall as the skyscrapers they're being told in.   
What the IRS might also be looking at is the fact that 10 entities could be taking tax deductions on the same loan, with the current state of affairs and lack of identification of the owner. And maybe those guys are passing around foreclosure 'rights' for their own reasons, like best advantage tax or income wise that year. Like B of A ended up with Countrywide's garbage.  B of A gets a few months' payments out of some poor bloke in  a 'trial' modification and then passes the servicing rights off to yet another entity who will then foreclose. Dang!  That's cold. There's more to that racket, but it's another story for another day.

But, heck, for all I know, Uncle Sam already got this 'loan sold 10 times', saw the Ponzi schemes collapsing like a house of cards (they only work as long as someone keeps feeding the kitty) and that's why these miserable curmudgeons had to be propped up with TARP and other monies.  

So, Mr. IRS Agent, if you want to really score,  follow the real money. 




1531 words | 4750 views | 3 comments | log in or register to post a comment

I'm trying to understand what you are saying here

I am pretty sure what you are saying here is wrong, but perhaps I am just not understanding how you are using the terms.  You say:

Some if not all the PSA's apparently oblige the servicers or master servicers (someone) to continue the payment stream to the investors. This means they have to pay up when the borrower is not.  Default may only be called by the note owner or maybe its authorized agent. But, the loan is not in default as long as the guarantor makes the payment stream.

My understanding is that once a loan is delinquent a certain amount of time-- spelled out in the PSA-- the servicer can foreclose or take other measures to collect. 

The servicer does make advance payments to the investors when the borrower fails to make payments, but it is of course keeping track of how much they have advanced to the investors.  In return for the obligation of making this advance, the servicer is given the power to take action to get the amount it has advanced back.  When there's proceeds from a foreclosure or mortgage insurance or whatever, or the borrower brings themselves current, the servicer takes the amount they have advanced off the top, with interest.  (Note that this arrangement gives the servicer incentive to collect on delinquent loans and not just let them rot)

In this arrangement, I do not see where the servicers are ever "stuck" making advance payments indefinitely without the authority to foreclose.  The loan is in default; the borrower is in violation of the rules laid out in the agreement they signed when they accepted the loan.  The servicer, in compliance with the PSA and whatever laws apply, can initiate foreclosure.



by Slade Smith | 2011/03/28 | log in or register to post a reply

FNMA guaranteed the MBS pool mortgage loans

It reimburses the servicers for these "advances". 

by john gault | 2011/05/03 | log in or register to post a reply

Shared Risk Servicing Option and FNMA Guaranty

Some servicers participate in what is calledl 'Shared Risk Special Servicing Option".(more on this later!) 

Here is a quote from a FNMA prospectus:

                                                          " FNMA Guaranty"

We guarantee to the MBS Trust that we will supplement amounts received by the MBS Trusts required to permit timely payments of principal and interest on the certifcates."

"Interesting" articulation.....

Theoretically, it would follow that FNMA had the 'option',  then, to buy the note back.  I haven't found this - yet - but it seems logical. ( But even that reduces an investor's expected rate of return)  FNMA cannot have the 'option' to foreclose without buying thedefaulted note - a foreclosure would result in a  loss to the investor, such as would vitiate the guaranty. If FNMA has the option to foreclose without buying the note by taking the hit on the loss, it seems to me that this act would also vitiate the guaranty and result in a fractional-owner check for $1.24 in place of the anticipated return. 

If FNMA does have the option of purchasing a defaukted note it has guaranteed, it is certainly not a holder in due course, having taken the note with notice of its dishonor, and is subject to any number of affirmative defenses.



by john gault | 2011/05/04 | log in or register to post a reply
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