Category Archives: ATTORNEYS

MERS IS FOR THE BENEFIT OF A WAREHOUSE BANK.

Borrower must understand that MERS holds alleged legal title to the interest granted by Borrower in the Security Instrument. However, if necessary to comply with law or custom, MERS (as nominee for Lender and Lender’s successors and assigns) has the right: to exercise any or all of those interests, including, but not limited to, the right to foreclose and sell the Property; and to take any action required of the Lender including, but not limited to, releasing and canceling this Security Instrument Deed of Trust (attached as Ex. A to Def.’s Req. for Judicial Notice). Plaintiffs did execute a promissory note and deed of trust in favor of [Lender] and have yet to discover the link for which MERS is either a party or responsible for anything of value.

Having yet to hear the matter as to MERS and its name appearing on the Deed and not the note, we examine Knighton v. Merscorp, Inc. Here the Fifth Circuit United States Court of Appeals was presented with theopportunity to decide whether a claim under Section 8(b) could be brought when only one culpableparty received an unearned fee.    However, the court sidestepped the issue.    The case was broughtbefore the court on an appeal from the district court’s dismissal of a multi‐district litigation case forfailing to state a claim on which relief could be granted.The plaintiffs brought claims against Merscorp, Inc. and Mortgage Electronic Registrations Systems, Inc. (collectively, MERS), entities that served as the mortgagee of record in the public land records and had charged a one‐time and nominalfee for each registered mortgage.  

The bulk of the plaintiffs’ Section 8(b) claim was that MERS violated RESPA because the services performed by MERS did not benefit the borrower. MERS advanced several arguments in favor of dismissal, one being that for an actionable claim under Section 8(b), a plaintiff must allege that an unearned fee be split between two parties.

Note , while acknowledging the decision by the Second Circuit in Cohen I, the Knighton court refused to decide whether a split in the fee is required, instead holding that there was no allegation that the fee was not earned.The court found that there was no requirement that the service performed have a benefit that inured to the borrower, and that in exchange for the fee, “MERS performed the service of being the permanent record mortgagee in the public land records, regardless of how many times the beneficial and servicing rights to the mortgage loans were bought and sold.”  Therefore, the court affirmed the dismissal because there was no allegation of an unearned fee.

We disagree! A nominee is used to shelter identity of investors and guard against undue exposure to risk and for transferring purposes by its high profile and high net worth investors. Its a Nominee named in place of the principal name in the original note subject to having to identify the real party in interest. MERS serves all the above and fails in its earliest disclosure under RESPA section 8. Where the nominee is paid 432 for its registration services it is boons that MERS is a successors and assigns to the original note. One CANNOT act the benficiary one and beneficial interest can exist at that time and whereupon the agreement for MERS as nominee for the beneficiary on the note does not figure into logical or ethic mind set for the participating parties thought the life of the loans.

Not even one disclosure revealing MERS is found in the files we review , subject to RESPA Sec 8 compliance requirements for settlements of loans. CitiFinancial Group is a leading participant in the subprime crash who avoided adding MERS till recently for this reason. MERS added to the Deed with the Beneficial interest shown alongside of upon the mortgage or deed of trust is no less a “CBA” under HUD enforcement of definition’s for a Controlled Business Affiliation, which it is a violation or Rex X under RESPA . This is the opine with no reference to overcharging. Until the decision by the Third Circuit United States Court of Appeals in Alston v. Countrywide FinancialCorp.,district courts had occasion to address the analysis of the Sixth Circuit in Carter. In Alston, the Third Circuit agreed with Carter, holding that “it is clear to us that the plain, unambiguous language of section 8(d)(2) indicates that damages are based on the settlement service amount with no requirement that there has been an overcharge.”   

In reaching this conclusion, Alston was certainlyreferring to the “any charge paid” language contained within Section 8(d)(2) that was referred to inCarter.   Summing up its opinion, the Alston court concluded that, regardless of whether there was anovercharge, a consumer is entitled to damages for a violation of Section 8 for the individual settlementservice that was involved in the violation.  Therefore, in other words, the court staed:[A] single real estate closing may involve several different services, but the charge for each distinct service will not necessarily violate section 8 . . . . [A] homebuyer is entitled to three times any charge paid, but only for the service connected to the kickback or fee‐split.It appears that until another circuit court addresses the issue, the decisions in Carter and Alston will indicate another step by the courts to broaden the scope of Section 8. Holding that a plaintiff does not have to have a cognizable economic injury in order to bring suit, the decisions in Carter and Alston drastically increase the number of potential plaintiffs with MERS over Section 8 lawsuits and will the litigation over settlement service fees.20See Carter v. Welles‐Bowen Realty, Inc., 493 F. Supp. 2d 921, 927 (N.D. Ohio 2007) (Carter I); Contawe v. Cresent Heightsof America, Inc., No. Civ.A. 04‐2304, 2004 WL 2244538, at *3‐4 (E.D. Pa. Oct. 1, 2004); Mullinax v. Radian Guaranty, Inc., 311F. Supp. 2d 474, 486 (M.D.N.C. 2004); Moore v. Radian Group, Inc., 233 F. Supp. 2d 819, 825‐26 (E.D. Tex. 2002; Morales v.Attorneys’ Title Ins. Fund, 983 F. Supp. 1418, 1427 (S.D. Fla. 1997); Durr v. Intercounty Title Co. of Ill., 826 F. Supp. 259, 260‐62 (N.D. Ill. 1993)

expert.witness@live.com

Arises when IRS assesses that taxes are owed

FEDERAL GOVERNMENT
1. Federal priority provision relates to all claims by federal government. Debtor must be insolvent, and when debtor must manifest it in three ways [see class notes]. When those two conditions apply and any of the debtor’s property is sold, the feds get paid first except for choate creditors–complete creditors. Choate=has done everything they can do to reach the highest status as a secured creditor. Name, amount subject to lien must both be definite,which means JLC, SP with future advance/after acquired can’t be choate.
2. Federal tax lien act. Applies to debts owed feds for unpaid taxes. Arises when IRS assesses that taxes are owed, a letter is sent out demanding payment, debtor fails to pay, and a tax lien is filed. When tax lien arises, it dates back to assessment not filing. General rule is only creditors who have choate lien at time tax lien arose have priority. Exceptions: special parties when tax lien FILED (mechanic’s lien holders, JLC’s, perfected SP’s, and purchasers of the collateral). Protected parties take free of tax lien, period (bona fide purchaser of motor vehicle who does not know of tax lien, buyer in the ordinary course of business, bona fide purchaser of personal property of taxpayer of less than $250, attorney’s liens).

Countrywide Views

The allegations against Countrywide are noteworthy in a number of respects. In particular are the beliefs of the SEC brought against this failed subprime mortgage market leader. Their Executive elite are alleged to have gained a corporate philosophy that failed to provide greater scrutiny of predatory lending practices. In general the law will look to some measure of causal effect that can support or validate the allegation of unconscionable practices

In the Countrywide matter, the gravamen is for understanding why a market leading industry giant fell victim to unconscionable lending practices . . .was it simply “greed” ?

M. Soliman
Expert.Witness@live.com

Letter to Foreclosure Lawyers

June 16, 2011

Dear Counsel

How are you? By now, I had hoped to copyright what I know [LOL] It is no less frustrating, when knowing everything implicit for argument and necessary in foreclosure defense can’t seem to make it into pleadings. What should be included as compelling subject matter with the current legal community is left on shelf. These things I make reference of are assets accounting and transfer policies, unpublished procedures and even secrets concerning insider shortcomings.

Seriously, the things that I would have wanted argued in every case to date is long overdue. The opposition or sectors SOP is flawed in recovery and vulnerable. Therein is where they violate the federal and state law. Origination is the lowest hanging fruit in arguments of a breach and subject to claims for which lenders merely circumvent constructs of the law. It’s upon having to execute in reverse order upon foreclosing on ones title where I see the “parties” violations of law taking place. Knowledge is gained over time, in ones career and affords them the role of insider. As compelling as the inside track may be I have found it’s never a lock to assume it will be openly embraced by friendlier judicious allies. And here I sit watching others guess and promote one off decision after another that WILL come back and be later decided against. It’s because the courts decisions I see are erred and made in misunderstanding of what is not seen and not that which is portrayed.
A deed for example is not removed or separated from the note. Bifurcation is not what is portrayed in pleadings. Diversity and jurisdiction are problems. Declaratory relief and other injunctive remedies are constantly confused with claims fallen unto a private right of action. Its guess work that I see going on from my perspective. Brilliant people are humbled here while the technical insider crowd on WS remains tight lipped.
What’s really hard is to watch title holders needlessly lose or fall victim to one juridical elixir after another. It’s seeing folks lose their homes with substance for arguments being left on the table.
There is only one quickest path between to pints of reference.

I was part of one of the first securitizations offered through Continental Grain. We spent three years trying to make the platform work for us. I was surrounded by brilliant people alongside of me while working under top tax attorneys who were the TRS managing a REIT CAIT I & II.

I am outspoken about title defenses by those owning six homes that generate cash flow going on to years… and while not making a payment. It’s no more or less moot for what does not compute on one claim to title cannot on 100 statutory business trust claims to fee simple title.

If my vernacular is overbearing or thinking seems to leap from A to Z I believe it’s in tune with following the balance sheet versus the law. But I will be straightforward in telling you we are woefully wrong to discount the structure of the subject matter versus the weaker opposition your meeting in court. Your opposition is the economic and financial brains backed by institutional Ivy League academia and tax attorneys. Over my career, nearly everything we did was hyper focused on GAAP. That includes trading bulk pools of assets, managing delivery, warehousing, IT reconciliations and subservicing. You live by GAAP and adherence to IRS code. (While FASB codified pronouncements were a joke for compliance…ask the IASB)

Your strategy should consider the street that still looks to one and only one thing for maintaining compliance. That is SEC “Accredited” Regs. Tax Code and GAAP. Everything we did on yonder was to preserve the tax shelter of the trust and guard peripheral features like operating a TRS, compounding retained earnings, anything related to transferring an NOL, managing phantom income liabilities and creating the necessary WAC/WAM and CPR balanced against market conditions (what the consumer would accept). When the public cries out they do not understand what is said here – then you know the trust mechanism is working. It was set up to reap various economic features as mentioned herein and above. Yet the one feature that reins over all others are the most endeared and protected. . . That is the ability to overcome the overcome the law.

M.Soliman

ISSUES AND UNDERSTANDING OF VULNERABILITY.
. . . What Counsel should know and does not seem to get.

Haircut, RESPA & HUD I
Curtailments & GAAP
Nominee and Code Violations
Structured fiancé and robust proposition
Satisfaction and a window
Credit Bid and ledger
Liens as security Vs. Security liens
Accrual accounting for Basis in assets
The GSE and Private Label Conversion
Bailment and Nominee
Government Long term Goal
US Transition from Deed to UCC
Qualifying the Core asset

M.Soliman
Expert.Witness@live.com

MORTGAGE ASSETS FAIR VALUE

Fair Value and Historical Cost: The BasicsAccounting standard-setters have defined fair value in divergence.  All of them are essentially variations on current market value or an estimate, where a market value is unavailable or regarded as unreliable, of what the market valued be if there were a market. For this reason, fair value is also referred to as markto-market.There are various alternatives to fair value as a basis of measurement in accounts. The principal one, and in the context of the current debate the only one seriously considered as an alternative, is “historical cost”,or in the context of financial instruments, “amortized cost”. The amortised cost of financial instrumentsinvolves adjusting the original cost for subsequent cash flows (eg loan repayments) and reducing the valuefor any impairment provision (eg bad debt).

The accounting rules set out how impairment provisions must be estimated. They may be best illustrated using the example of a portfolio of mortgages, as follows:

— When there is a problem with an individual mortgage, it is reduced in value or written off entirely as a bad debt. This is sometimes called a specific provision.

— The bank may also know that there will be other problem mortgages, based on past experience, without knowing which mortgages. For example, redundancy or divorce might create problem mortgages before the bank finds out about the problems. The bank may make a provision for bad debts for these. This is sometimes called a collective impairment provision.

A bank may also expect that some of its loans will run into problems in the future, particularly in the current economic conditions. The accounting rules do not allow the bank to make a provision for future problems. This restriction on provisioning was introduced to prevent company management from manipulatingtheir profits. In the past,management was suspected of manipulating results to give smooth profits by increasing provisions in good times and releasing them in downturns. While it may be prudent to save in good times and use the savings to cushion the bad times, it  was never clear why management expected more future losses in good times than they did when things turned bad.

The method for making impairment provisions is also relevant. They are made based upon the management estimate of the
cash flows they will receive on the problem loans (payments, recoveries fromcollateral, costs). The cash flows are discounted12 according to the time that they are expected to be received.The accounting rules require the interest rate from when the instrument was first acquired to be used as thediscount rate.

We have gone into these points in some detail because it is important to understand them for the purposesof the current debate.

Fair Value and Historical Cost:
The DifferencesThere are two major diVerences between fair value accounting and historical cost accounting:

— Fair value accounting recognises gains values above their historical cost. Another way of putting this is that fair valuerecognises unrealised gains, whereas historical cost only recognises realised gains—ie, gains that arise when assets are sold.

— When assets fall in value, this is recognised under both fair value and historical cost accounting.

But whereas fair value means the assets are written down to market value (or an estimate of whatthat might be in the absence of an active market), historical cost means that assets are subject toan impairment review where there is evidence that values have dropped. There are similarities in the process for making impairment valuations and estimating market values using models. Both would estimate future cash flows and discount the cash flows to reflect the timing of payments.

There are three basic reasons why fair value and the impairment model for historical cost will have divergent values at present.  12 Discounting reflects the fact that £1 today is worth more to someone than the promise of £1 in the \future. Discounting is a process to reduce the current value of future payments to reflect the time value of money (eg inflation) and the risk that the amount will not be paid.

A “Deed for Bond” is Clearly Defined in Civil Code of Procedures

Requirements under mortgage Law
Validity of a Chattel Mortgage Contract
1. Stock certificates issued in formation of a trust and later sold would yield to the certificates “holder” the ownership in the assets the proceeds were used to acquire.
2. Herein the example given would be a “deed for bond” clearly defined in the states civil code of procedures governing a non judicial or the judicial, foreclosure rights.
3. The deed of trust or mortgage that is initially recorded is owned by the certificates holders. The validity of the recorded mortgage speaks unto itself as a perfected lien.
4. The certificates deemed to be “chattel” is in certain instances, made liquid under securities laws.
5. The deed for bond concept is further validated by the state enforced CCP over matter and appropriate jurisdiction.
6. Their value is marked to market, the total amount of the lien on real property and liquidity is Pro Tanto, or to that extent of the law what the bearer of the paper is entitled for like consideration.

The Clearing House Letter to the FDIC

1 The members ofThe Clearing House are: ABN AMRO Bank N.V.; Bank of America, NationalAssociation; The Bank of New York Mellon; Citibank, N.A.; Deutsche Bank Trust

Company Americas; HSBC Bank USA, National Association; JPMorgan Chase Bank,

National Association; UBS AG; U.S. Bank National Association; Wachovia Bank,

National Association; and Wells Fargo Bank, National Association.

 Norman R.

Nelson

General Counsel

450 West 33rd Street

New York, NY 10001

tele 212.612.9205

norm.nelson@theclearinghouse.org

December 17, 2008

Mr. Robert E. Feldman

Executive Secretary

Federal Deposit Insurance Corporation

550 17th Street, NW

Washington, D.C. 20429

Attn: Comments

Re: RIN 3064-AD35:

Notice of Proposed Rule Making–Assessments

Dear Mr. Feldman:

The Clearing House Association L.L.C. (“The Clearing House”), an association of

major commercial banks,1 appreciates the opportunity to comment on the Federal Deposit

Insurance Corporation (the “FDIC”) notice of proposed rulemaking on risk-based

deposit insurance assessments and the FDIC’s proposed restoration plan (the

“Proposal”). 73 Fed. Reg. 61560 (Oct. 16, 2006). The Clearing House understands

the FDIC’s need to increase its deposit-insurance assessments in light of the

extraordinarily high deposit-insurance losses in the current year. As we

discuss below, however, we are concerned that certain aspects of the Proposal

are excessive and would produce unintended negative effects on our members and

their customers.

I. Recapitalization of the Deposit Insurance Fund (“DIF”)

Our member banks are prepared to do their part to

maintain a strong and well-capitalized deposit-insurance system. We strongly

agree that a financially sound DIF is essential to support the country’s

financial system, and our member banks recognize that bank premiums have funded

all this support since the FDIC’s creation. Nonetheless, the FDIC must balance

its efforts to rebuild the DIF quickly against the consequences that would

occur from unnecessarily diverting resources from financial institutions that

could use them to meet customer credit needs.

Our nation is faced with the most severe economic

crisis it has experienced in many decades. Central to the current economic

crisis is a severe disruption in the credit markets that has included the

collapse of banks, thrifts, investment banks, insurance companies and other

financial-services companies. We appreciate that the FDIC considered these

circumstances and the current strength of the financial-services industry when

incorporating in its restoration plan the full five-year range for rebuilding

the DIF authorized by Congress.

We respectfully submit, however, that, given the

circumstances, the five-year period should be extended as contemplated by

Congress. In the Federal Deposit Insurance Act, Congress expressly provided the

FDIC with flexibility to extend the period in which the DIF must be restored to

1.15 percent beyond five years on account of “extraordinary circumstances.”2 The current

economic crisis is presumably what Congress considered as it is without

question extraordinary. In fact, the FDIC has invoked its systemic-risk

authority, which prior to September had never previously been used, to provide

guaranties on transaction deposits and senior unsecured debt.3 In addition,

the Secretary of the Treasury (after consultation with the President) and the

Board of Governors of the Federal Reserve System (the “Federal Reserve”) each

made comparable systemic-risk determinations for these guaranties.

Accordingly, The Clearing House agrees with

several other observers and strongly urges the FDIC to extend the period for

restoration of the DIF to at least seven years(which may need to be further extended in the

event of a protracted economic crisis) and, as discussed below, to delay any

increase in assessments beyond the first quarter of 2009 until the effect on

the DIF of recent government intervention programs can be analyzed. If the FDIC

decides to go forward with immediate increases in the assessment rate, The

Clearing House strongly recommends that the FDIC adopt more modest increases

commensurate with a longer restoration period.

The Clearing House appreciates that a strong DIF

is essential to maintaining depositor confidence and supports changes to the

premium calculation that truly reflect the risk of loss to the FDIC. Our member

banks are, however, deeply concerned that the aggressive recapitalization

proposed by the FDIC, although well intentioned, would unnecessarily restrict

their ability to lend in the context of the current extraordinary disruption of

the financial markets. In addition, we believe that the assessment rates

contemplated by the Proposal fail to consider, and thereby potentially

undermine, efforts by Congress and the Department of the Treasury (the “Treasury”)

to support bank liquidity and stimulate lending in the economy.

Congress instructed the FDIC, when setting

assessment rates, to take “into account economic conditions generally affecting

insured depository institutions so as to allow the designated reserve ratio to

increase during more favorable economic conditions and to decrease during less

favorable economic conditions, notwithstanding the increased risks of loss that

may exist during such less favorable conditions.”4 The deeply

troubled economic conditions prevalent today clearly are in line with this

Congressional intent.

Despite this, just yesterday the FDIC approved

raising the existing assessment schedule uniformly by 7 basis points for the

first quarter of 2009. As a result, Category I banks (considered to be the

healthiest) that are well-capitalized and have CAMELS ratings of 1 or 2 will

pay between 12 and 14 basis points for this period. Even at the minimum base

assessment rate, such a large increase will have a significant effect on earnings

and capital, and therefore lending capacity, at the most financially sound

institutions. By way of example, if a large bank,

“Bank  X”, has $750 billion in assessable deposits, applying the FDIC’s proposed

minimum assessment rate (12 basis points), it is paying at least $900 million a

year in assessments. Each basis point increase in the deposit assessment would

cost Bank X $75 million. When the FDIC applies the proposed risk-based

assessments, in the best case scenario Bank X is paying at least 8 basis

points, which would total $600 million per year. The Proposal allows the FDIC

to charge up to 21 basis points, which would cost Bank X over $1.5 billion per

year.

Other metrics further demonstrate the effect of this increase. For example, if Bank X were able to earn 1.20% pre tax on this deposit base, the Proposal would reduce Bank X’s earnings, at the 12 basis point rate, by 10%. For many banks that arestruggling to produce earnings in the current environment, the percentage loss
of earnings would considerably higher. In addition, Bank X’s lending capacity

would be reduced by approximately $6 billion annually assuming a 10x multiplier

and a 33 1/3% effective tax rate. the effect is comparably significant even at smaller institutions. For instance, at a bank, “Bank Y”, with $50 billion in assessable deposits, applying the minimum
assessment rate for Category I institutions, Bank Y will pay $15 million in
deposit assessments for the first quarter of 2009. Each basis point increase in
assessments would cost Bank Y $5 million a year. Under the Proposal, beginning
in April 2009, Bank Y could pay between $40 million to $105 million per year in
assessments.

Sucha large increase in deposit-insurance assessments more than doubles current

premiums and is anticipated to rebuild the reserve ratio to 1.15 percent in

four years, not five. Indeed, the FDIC expects the assessment income to be so

large that the reserve ratio will reach 1.21 percent in five years. This dramatic

increase in assessment rates would run counter to current government policy

objectives, including programs involving the DIF itself.

TheEmergency Economic Stabilization Act (“EESA”) signed into law on October 3,

2008 raised deposit insurance levels to $250,000. Congress, while authorizing

this coverage, specifically excluded the increase in coverage from the

calculation of the DIF ratio. Furthermore, on October 14, the FDIC created the

Temporary Liquidity Guarantee Program (the “Guarantee

Program”), which extended deposit insurance coverage to all non-interest

bearing transaction deposit accounts while also leaving this increased coverage

out of the DIF ratio. These actions strongly support a policy objective to

avoid an unduly onerous insurance premium increase.

Moreover,

under the Guarantee Program, the FDIC established a 10 basis-point surcharge

that applies to non-interest bearing transaction deposit accounts not otherwise

covered by the $250,000 deposit insurance limit. The amount collected by this

surcharge is added to each participant’s deposit-insurance premium.

Inlight of these new programs and the worsening economic climate, The Clearing

House respectfully submits that the analysis on which the FDIC based the

assessments in the Proposal is out of date and that the Proposal has

effectively been overtaken by these developments. Both the transaction deposit

guaranty and $250,000 coverage limit are set to expire on December 31, 2009,

suggesting that a comprehensive review of the nation’s deposit-insurance system

will occur next year in the context of the then-current economy. Accordingly,

The Clearing House strongly urges the FDIC to remove any increase in

assessments from the final rule and to make any significant change to the

assessment system only after a full review of these issues within the context

of this comprehensive review.

Ifthe FDIC decides to move forward with increases in the assessment rates, we

urge the FDIC to take full advantage of the discretion afforded to it by

Congress to design and administer the deposit-insurance system to avoid

pro-cyclical deposit-insurance assessment increases. A gradual increase in the

assessment schedule over the next few years would be more appropriate,

considering the present economic recession and financial turmoil will likely

ebb over time. By contrast, the significant increase contemplated by the

Proposal is inconsistent with government efforts to shore up bank capital and

bank liquidity under the Guarantee Program and the Capital Purchase Program

(“CPP”) under the Troubled Asset Relief Program, established pursuant to the

EESA. Our member banks strongly support their obligation to strengthen FDIC

resources, but propose doing so in a way that is less pro-cyclical and that

keeps more resources available for credit extensions.

Mr. Robert E. Feldman -6- December 17, 2008

II. Calculation of AssessmentsOurmember banks support the FDIC’s

objective to charge riskier banks a higher

assessment for deposit insurance, fostering market discipline through the

deposit insurance cost that a bank pays. However, we believe that the Proposal

falls short of achieving this objective because the measures of risk

contemplated by the Proposal are misdirected and do not adequately evaluate

risk in the event of a failure. The FDIC’s risk of loss in the event of the

failure of a depository institution is a function of two principal factors. The

first is the amount of recoveries on the unencumbered assets, i.e., assets that

are not pledged and are therefore available to the FDIC to pay deposit

liabilities. The second is the aggregate amount of equity and liabilities that

are subordinate to the claims of depositors.

For

the reasons discussed more fully below, The Clearing House has several concerns

with the Proposal’s approach for calculating assessments, including reducing

the assessment rate based on amounts of unsecured debt and increasing the rate

based on amounts of secured debt. A fundamental flaw to this approach is that

it ignores the value of a wide-range of unencumbered assets in the

determination of loss, while disproportionately penalizing institutions for

holding what is arguably one of the few viable sources of funding and liquidity

in today’s difficult markets. Accordingly, The Clearing House recommends that

the FDIC abandon the adjustments for assessment rates for unsecured and secured

liabilities. Instead, we urge the FDIC to adopt a simpler approach that bases

assessments on (1) the amount of insured deposits (as opposed to assessable

deposits) and (2) the unencumbered assets available to pay insured deposits in

the event of a liquidation (as opposed to the adjustments based on

secured/unsecured liabilities). The Proposal uses substitutes for unencumbered

assets—secured liabilities and unsecured liabilities—that we believe are

significantly flawed for several reasons that we outline below. If the FDIC

decides to move forward with the Proposal’s changes to the assessment system

based on secured and unsecured assets, we strongly urge the FDIC to consider

the following recommendations in the final rule.

Unsecured

Liabilities. The Clearing House recognizes the FDIC’s preference that a

bank be funded with unsecured liabilities that would be subordinated to claims

of  depositors in receivership, thereby providing a cushion that can reduce the FDIC’s loss in the event of a failure. In addition, our member banks agree in principle that

the presence of unsecured debt obligations reduces risks to the DIF and

therefore justifies a reduced assessment rate. However, we believe that the

Proposal is too limited and undervalues the risk mitigation of other unsecured

obligations.

As an initial matter, the FDIC’s multiplier (20 basis points) that it proposes to

apply to the ratio of long-term unsecured debt to total deposits at a large

institution discounts the risk mitigation effect of the unsecured debt by 80

percent. We believe that this multiplier is excessively low. The benefit of

unsecured debt is further underestimated in the Proposal because the FDIC

measures it against total deposits, and not only insured deposits, which are the

true proxy for the FDIC’s risk. Therefore, The Clearing House recommends that

the FDIC adjust upward the multiplier for unsecured debt and measure that

amount against only an institution’s insured deposits, not full deposit base.

In

addition, we suggest raising the proposed cap on assessment-rate reductions for

unsecured liabilities. The FDIC sets in the Proposal an arbitrary limit of 2

basis points with no stated legal or economic rationale. Meanwhile, the FDIC

itself recognizes that the greater the amount of unsecured liabilities, the

lower its risk of loss. Indeed, it is not inconceivable that a bank could

present essentially zero risk to the FDIC. The FDIC exacerbates this issue by

applying a significantly disproportionate cap on rate increases for secured

obligations. Consequently, the Proposal can lead to the result of increased

rates based on secured debt, even though there may in fact be unsecured debt to

offset the secured debt attracting no benefit. This could result in

institutions paying significantly higher assessment rates, regardless of their

relative risk.

Finally,

as we mentioned above, The Clearing House suggests that the FDIC use all

unencumbered assets of an institution as a measure of risk in calculating

premiums and not, as the Proposal currently contemplates, merely provide for a

downward adjustment for only for long-term unsecured debt instruments. Indeed,

at many institutions, including our member banks, there are substantial

unencumbered assets that afford the FDIC protection in the event of a

Mr. Robert E. Feldman -8- December 17, 2008

receivership.

The same factors that the FDIC cites as support for reducing deposit-insurance

premiums for unsecured liabilities operate for a wider range of unencumbered

assets as well. Consequently, we recommend that the FDIC abandon the

adjustments for secured and unsecured debt and instead adopt an approach that

bases assessments on an evaluation of an institution’s unencumbered assets. Our

member banks would welcome the opportunity to discuss with staff at the FDIC

alternatives for how such calculations and reporting could be performed.

Nonetheless,

if the FDIC retains the downward adjustment, we believe that all unsecured debt

should be included in determining the adjustment. In fact, short-term debt

absorbs loss upon failure just as well as long-term debt. In addition, we

strongly urge the FDIC to factor into account additional unsecured obligations

that serve as a cushion to FDIC losses in the event of default. We believe

there is no reason for excluding additional types of junior unsecured

obligations (regardless of term or structure) when they will in fact reduce a

deposit holder’s loss in the event of default. Applying a small credit only to

a narrow set of unsecured liabilities while significantly penalizing a wide

range of secured liabilities often used as prudent funding sources creates a

serious disparity in the assessments paid by financial institutions.

Secured

Liabilities.The Clearing House strongly opposes the upward adjustment in

the assessment rate based on the ratio of secured liabilities to domestic

deposits contemplated by the Proposal. This adjustment, unlike the one for

unsecured debt, is not discounted. In addition, it is capped at 50% of the

adjusted base assessment rate. For healthy Category I institutions with the

highest assessment rate, this would result in a penalty of seven basis points

on account of holding secured liabilities. This amount is unreasonably

disproportionate to the risk reduction afforded for unsecured debt. If the FDIC

decides to push forward with these adjustments, as opposed to adopting a

simpler approach like we recommend above, we strongly recommend that the FDIC

equally and fully include the effect of both forms of debt in the calculation.

The

Proposal also ignores the fact that a bank that uses assets to obtain stable,

secured funding may increase its loss given default but it also diminishes its

probability of default. Punishing a financially healthy bank that has little

probability of default with as much as

Mr. Robert E. Feldman -9- December 17, 2008

a  seven basis-point upward adjustment to its assessment is entirely contrary to

the notion of risk-based assessment.

In  addition, including secured lending as a risk factor is contrary to many well-established

programs that have implied government support. Banks routinely borrow secured

funds from the Federal Home Loan Banks (“FHLBs”), and this funding is an

important part of their liability structure. More recently, banks have become

regular borrowers from the Federal Reserve Banks through programs like the Term

Auction Facility. The Proposal specifically mentions both of these types of

secured borrowing as raising the risk to the DIF. It also lists repurchase

agreements that are routinely used by our member banks to obtain low-cost

funding by using excess securities.

The  Proposal thereby threatens to contract substantially this crucial source of

liquidity at a time when it is most needed. The FHLBs and the Federal Reserve

Banks have been important sources of funding for banks since the freeze in the

capital markets. Penalizing banks for accessing these important funding sources

seems imprudent and inconsistent with market realities. Higher assessments for

holding secured liabilities will encourage financial institutions either to

decrease their lending activities or to seek out less reliable, more expensive

sources of alternative funding. In either scenario, the cost of funding for

borrowers will increase. Such unintended consequences are in direct tension

with mandates by Congress, and indeed the FDIC itself, for banks to make more

credit available at a reasonable cost in order to mitigate the current

recessionary trends.

In

fact, on November 10, 2008, the FDIC, Treasury and the Federal Reserve issued

an Interagency Statement on Meeting Needs of Creditworthy Borrowers stating

that, “[a]t this critical time, it is imperative that all banking organizations

and their regulators work together to ensure that the needs of creditworthy

borrowers are met.” Surely banks could continue to use these funding sources,

but they would be more expensive because of the increased assessment costs. As

a result, the cost of credit would increase at this critical time when credit

needs to be more reasonable.

Mr. Robert E. Feldman -10- December 17, 2008

The

treatment of secured debt in the Proposal also would render covered bonds less

attractive at a time when the FDIC itself has been fostering covered bonds as

an alternative funding vehicle. Given the virtual closing of the securitized

asset finance market, it is highly undesirable to adopt an assessment scheme

that will penalize the use of the covered bond alternative.

Finally,

our member banks are seriously concerned that the treatment of secured debt in

the Proposal will result in sharp increases in assessments when amendments take

effect to Statement of Financial Accounting Standards No. 140, Accounting for

Transfers and Servicing of Financial Assets and Extinguishments of Liabilities

(FAS 140). Beginning in 2010, FAS 140 will require banks to report on their

balance sheets assets in their off-balance sheet special-purpose vehicles and

variable-interest entities, which often include securitized assets. As a

result, the associated secured liabilities will come onto banks’ balance

sheets. Under the Proposal, including these secured liabilities when

determining the adjustment to assessment rates, in addition to the secured

funding discussed above, will cause several of our member banks to cross the

10% threshold for secured liabilities that triggers an upward adjustment to

assessments.

Brokered

Deposits.The FDIC requested comments on whether deposits resulting

from balances swept into an insured depository institution from customer

brokerage accounts at an affiliated broker-dealer should be excluded from the

definition of “brokered deposits” for purposes of the assessment calculation.

73 Fed. Reg. at 61,566. Our member banks strongly encourage the FDIC to exclude

these deposits from its brokered deposit assessment calculation because they do

not involve the risk that the FDIC perceives accompanies brokered deposits in

general. Under these sweep programs, a broker-dealer affiliated with one or

more insured depository institutions offers its clients a brokerage account

where the client can elect to have excess funds in the account automatically

invested, or swept, into deposit accounts at the affiliated depository

institution. These deposits are generally reported as “brokered deposits” on

the depository institution’s Call Report or Thrift Financial Report.

Mr. Robert E. Feldman -11- December 17, 2008

The

broker-dealer establishes the deposit account on the books of the affiliated

depository institution in its name, as agent and custodian for the customer,

with “pass-through” deposit insurance. The broker-dealer maintains records of

the deposit accounts held by each of its customers consistent with FDIC

requirements and sends the customer periodic account statements, including with

respect to the deposit accounts and year-end tax-reporting statements. Although

the customer of the broker-dealer is legally not a customer of the affiliated

depository institution, the customer has a long-term relationship with the

financial group of which the broker-dealer and the depository institutions are

part.

The

excess cash in a customer’s brokerage account is automatically swept daily into

the affiliated depository institution, resulting in a continual flow of funds.

Even though withdrawals are made by customers on a daily basis, the flow of

deposits into the depository institution tends to keep the level of total

deposits fairly constant. As a result, this deposit base tends to be stable,

behaving like core deposits. Deposits obtained under these programs generally

pay interest at rates that are at or below prevailing money-market mutual fund

rates. Thus, the deposits are not high rate or rate sensitive. These attributes

make them less like brokered deposits and more like core deposits. These funds

are not “hot money,” which the FDIC considers exceptionally risky. They represent

a product choice of an established customer relationship. Accordingly, The

Clearing House strongly urges the FDIC to exclude these deposits from the

definition of “brokered deposits” for purposes of the brokered deposit

adjustment in the Proposal.

In

addition, our member banks urge the FDIC to consider excluding from the

“brokered deposits” definition balances swept into an insured depository

institution from customer brokerage accounts at unaffiliated broker-dealers.

Financial institutions, including some of our member banks, operate sweep

programs under which cash balances are swept from an account at an unaffiliated

broker-dealer into deposit accounts at one or more third-party depository

institutions, with “pass through” deposit insurance. There is no price

competition among participating banks. Thus, as in the sweep program described

above, deposits that are placed in these programs generally pay interest at

rates that are at or below prevailing rates so

Mr. Robert E. Feldman -12- December 17, 2008

these

deposits also are not high rate or rate sensitive. In addition, these programs

provide a stable source of deposits for well-capitalized banks and do not

present the moral hazards typically associated with brokered deposits.

Consequently, The Clearing House recommends the FDIC exclude these deposits as

well when determining the brokered deposit adjustment.

Inequitable

Treatment of Large Institutions.The Proposal indicates

that, as of June 30, 2008, 45 percent of large banks would have been charged

the minimum assessment rate under the current system of risk calculation

methodology, versus 28 percent of small banks. The Proposal also states that

the anticipated impact of the new risk measurements will be that only 25

percent of large banks may qualify for the minimum rate, consistent with the

same percentage for smaller banks. As a result, the Proposal clearly makes it

more difficult for a large bank to be eligible for the lowest assessment rates.

We urge the FDIC to recognize that the largest institutions should not be

penalized solely on the basis of size with no relation to risk.

* * *

Thank

you for considering the views expressed in this letter. If you would like

additional information regarding this letter, or if it would be helpful to meet

with representatives of our member banks, please contact me at (212) 612-9205.

Sincerely,

Rule # 1 Lenders Forget “Reporting”

Everything done in life is reported. It’s reported to the IRS for revenue reporting purposes. Everything and anything you bring in to  court should merit the IRS code for specificity and use. If its works in the business trust .that does not mean it will succeed or work in a real property transfer.

Call M.Soliman for more information 213-880-6288

(Not legal or tax advisement -info purposes only)

Tagged , ,

HAMP Modification and B65 Modification for home retention workout options

So how can Servicers consider Borrowers for a HAMP Modification if servicing violates FAS 140 under GAAP?  Home retention workout options are offered only upon a title holder’s concession – you still do not get it? Lenders continue to foreclose under the veil of an FDIC receivership enforced by the Dept of Treasury. 

By serendipitously foreclosing on a bad investment we get side tracked by HAMP smokers hope for Hemp (?)  And …ONLY A BENEFICIAL INTEREST CAN FORECLOSE AND MERS IS THE MEANS AND METHOD FOR THE LOSS OF THAT ORIGINAL INTEREST . . . I told you so…embrace MERS (we are).
 
These delinquent “loans” are divested under GAAP accounting rules and prohibit a lender who must commit an accounting fraud in a recovery.
 
Borrowers can’t defend title under the complicated and difficult accounting rules that attorneys no less understand. A mortgage is HELD as an investment and not SOLD. Loans SOLD for STOCK compounds the problem. STOCKS charged off to ZERO are case shut. Therefore, the arguments favor fee simple interest in realty and demand the right to defend title and fight back.
 
Look, the mortgage is an encumbrance on title rights to the property. It cannot be enforceable under TARP if tendered for stock offered used as tender and for securing the investment in a “certificate versus a loan on real property.

Dual consideration, multiple of capital stock offerings, additional paid in capital, divestment, codified FAS 140 and on and on. One web enthusiast called our findings conjecture – “can he add?” In other words “do the general ledger and lose the case-law”. Or will case law circumvent “add and subtraction” shortfalls?
 
Look, a lenders mortgage is an “ECONOMIC” interest where lenders claims fail and question subrogation by state for failed investments. Why consumers cannot see the wrongful foreclosure under GAAP and FAS 140 violations prohibiting all-controlling interests in assets sold is unfortunate?
 
First the parties foreclosing seem to always  overemphasize a borrower’s obligation for repayment under the terms of the note and deed. Then consumer title holders must fight back the stigma of a moral obligation for the same argument. You cannot foreclose on a moral obligation.

The terms and conditions are no longer in effect as the lender fights to win back your home.

GAAP ACCOUNTING FOR A LENDER REGISTRANT

 XYZ Mortgage Lending and Securities sells a group of individual loans in their entirety with a fair value of $5,500 and a carry amount of $5,000 in a transfer that qualifies for sale accounting.

 XYZ Company

Fair Market Value X$5,500.00

MortgagesXXXXX X$5,000.00

Gain on Sale XXXXX0$500.00

XYZ will service the loans and has a call option to purchase loans at fair value from the buyer that are similar to the ones sold. XYZ Company assumes a limited recourse obligation to repurchase delinquent loans. XYZ receives a beneficial interest in the transferred assets. As is illustrated to the right under the new rule, the gain on the sale equals net proceeds of $5,500 less the carrying amount of $5,000, or $500.

Therefore 90% of the carrying amount of $5,000 was assigned to the proceeds received for the interest sold, and 10% of the carrying amount of $5,000 was assigned to the beneficial interests that continued to be held by the seller. In calculating the gain, the carrying amount of the loans sold of $4,500 was subtracted from the allocated fair value of the interest sold of $4,950 (4,950 – 4,500 = 450 gain):

Gain on Sale __________$500.00

Participating Intererest _$_50.00

Net Gain on Sale_______$450.00

Allocated FMV $4,950.00 Note: Gain on Sale less 10% of interest equals $4,950 Fair Market Value – Participating Intererest