Mortgage Investments May Meet SEC Issuance Guidelines while falling short of the Department of Housing and Urban Development Disclosure Requirements
By Maher Soliman
Press Release 12/20/2008
Los Angeles, California – Mortgage Pass-through investments under an SEC registration is an investment that mandates sound and detailed disclosure for certificate investors. However, conflict arises from the CDO and securities offerings and protections afforded borrowers by the Department of Housing and Urban Development and State codes.
The regulatory adherence requirements for both investors and borrowers can sustain the onslaught of legal scrutiny under an occasional foreclosure claim. However, no such luck given a major catastrophe such as the current domestic and foreign financial markets collapse.
The provisions set forth for homeowners and regulatory compliance are enforced by state code and HUD and lenders are acutely aware of that. Some insiders point to the difficulty trustees have making proper notice in a default as a breakdown due to the fact the securities commission has teeth and state laws governing foreclosure can bite. That said while HUD lacks both teeth and any bite.
Issuers of pass- through must maintain issuance structure with no apparent offset against civil code and procedures for lawful assignments and transfers. The issuance and structure of a pass through investment is something sure to surface as non compliant when the strain from foreclosure is triggered by mass defaults and folks start to pay attention. http://www.livinglies.WordPress..com is a popular homeowner web site known for challenging these transfers of title and interest and for making homeowners in default aware of their standing needed to file a claim of wrongful foreclosure. Now, experts agree there is a high probability for backdating, lack of timing when recording instruments and untimely substituting of trustees with regards to California civil code and the procedures for a non judicial process.
Nationwide Loan Services is a west coast foreclosure “court expert” based in Los Angeles, California. A compliance analyst with the firm, Maher Soliman is considered a secondary “expert” to attorneys, case development and for standing in a court. Soliman commented “There is considerable concern for the mass negligence and a potential for counter complaints caused from subsequent wrongful acts committed by attorneys representing the alleged beneficiary. Soliman who’s experience includes work as a secondary trading specialist has delivered billions of bulk whole loan assets into these pools for over a decade. He uses the alleged when refereeing to a beneficiary and states “these structures tend to be in strict compliance to the commission pursuant to each pass through investment prospectus’ filings of both 8K and 10 K disclosures. They deviate in form and substance when applying homeowner disclosure laws issued by the state and federal government as well as with accounting procedures. For example GAAP criteria on combinations and filing along with and rule changes proposed by The Federal Accounting Board Standards (FASB)” will have major impact on the recording and accountability matter in terms of recovenyance. Rule changes are proposed under [FASB 0.00] are an example of the need for change.
Securities issuers need to pay attention. Their securities profiles and legal forms vary according to jurisdiction and asset type. Therefore, proper compliance with filing the notices of default and notices of sale as well as the timing of each are all a monumental problem.
“In a default, the notices we see are confusing and disconnected. Therein is the claim of an absence of Joinder when you try to connect the parties and trail the assignments for subsequent conveyances by a substitute trustee. The pre-dated penmanship we see on alleged recorded documents is a bit of a joke”
Master Trust pool’s or a Trusts pool of assets exist for a term under one trust agreement. Owner trust by comparison cash flows are tailored to create certain maturities of tranches (ref. investor targets). Grantor trust’s are cash flows passed directly through to investors w/o manipulation
All collateral should be pledged to the trustee or other independent third party acting as agent for investors. The collateral should be segregated and pledged under normal ISDA requirements and in the possession of the trustee or some other fiduciary third party.
Important Criteria Considerations:
Securities assets must be immune from bankruptcy estate of seller (non-recourse financing). The originator retains no legal interest in assets, though some economic benefit may be retained.
Issuing vehicle is a “bankruptcy-remote” entity meaning the arrangement must prevent issuer from incurring additional liabilities or expenses. Restrictive covenants (promises) such as the issuer must not pursue voluntary bankruptcy proceedings and for no “substantive consolidation”, i.e. issuer’s assets is not considered part of originator’s assets.
It’s obvious from the above that any attempts to adhere to both SEC and to HUD regulatory requirements will cause the collateral to be questioned. In a foreclosure it likely causes the security to be at risk and the obligation to become impaired. If circumstances are found to impact the deed due to deceptive acts or unlawful conveyances the transaction may be voidable. Thereafter any conveyance will be void and fail in a trustee sale. There cannot be a recovenyance of the real estate if in fact the deed is viewed under California civil code as defect.
These matters where undisturbed due to the debtor capitulating will likely ensure these investment trusts and attorneys involved will be forced to answer a Grand Jury as for transparency claims including acts “estoppels” ” latches” and conveyances lacking “Joinder” all under a wrongful conveyance. The major concerns according to Soliman are for concealment by the combinations, unlawful conveyances becoming exposed and withholding of critical material information from a Trustor in a foreclosure. The next government body that will intervene will undoubtedly force its hand under Sarbanes Oxley legislation.