Obama's recent proposal to wind down Fannie Mae and Freddie Mac and give the private sector a monopoly on issuing mortgage-backed securities came under fresh scrutiny on Monday after previously-sealed court documents in USA et al v. American Home Mortgage Servicing Inc et al revealed that many mortgage-backed security issuers never had legal title to the mortgages backing their securities, David Dayen at Salon reports.
According to Dayen, the lawsuit claims that a key step in the securitization process, the physical delivery and endorsement of the promissory note and mortgage, never occurred in many cases, "forcing the production of a stream of false documents, signed by 'robo-signers,' employees using a bevy of corporate titles for companies that never employed them, to sign documents about which they had little or no knowledge."
The forged documents were endorsed by employees of companies long bankrupt, executives who signed their name eight different ways, or "people" named "Bogus Assignee for Intervening Assignments" so that the banks could establish standing to foreclose in courts. The end result, according to white-collar fraud expert Lynn Szymoniak, is that over $1.4 trillion in mortgage-backed securities are still, to this day, based on fraudulent mortgage assignments.
The lawsuit against Wells Fargo, Bank of America, JPMorgan Chase, Citi and GMAC/Ally Bank was settled in early 2012 for $1 billion, but now that the evidence is unsealed, Szymoniak and her legal team are free to pursue the other named defendants, including HSBC, the Bank of New York Mellon, and US Bank. “I’m really glad I was part of collecting this money for the government, and I’m looking forward to going through discovery and collecting the rest of it,” Szymoniak told Salon.
Recovering the money these banks illicitly acquired is a positive development, but will amount to little if the system which allowed banks to engage in this behavior returns. As Dayen writes, "the last time banks tried this, they ignored the law, failed to convey the mortgages and notes to the trusts, and ripped off investors trying to cover their tracks, to say nothing of how they violated the due process rights of homeowners and stole their homes with fake documents."
Read more in Dayen's article at Salon.
See 60 Minutes's 2012 report on Szymoniak below: