Mortgage Principal Reduction Opportunity

Royo Legalese, LLC ... Principal Reduction Litigation Strategy

Chain of Title Issues Everywhere ... Who's My Lender?

In the dark ages, before 1990, buying a home was fairly straight forward.  You’d get a loan from you lender, make payments, and eventually get a free-and-clear title to your home. Everyone understood their obligation and their relationship with the bank. If you needed help you knew who to call. 

The Mortgage Electronic Registration System (MERS): In today’s market, buying a home is NOT so simple ... in most cases your loan will be monetized as a Mortgage Backed Security and lost forever in the Mortgage Electronic Registration System ("MERS"). Investment bankers created Special Purpose Vehicle Corporations (SPV) to convert your loan payments into Collateralized Debt Obligation (CDO). The CDO investors, in turn, would typically transfer the risk of homeowners defaulting on their mortgages to other investors via a credit derivative, typically called a Credit Default Swap (CDS), which acted like insurance on the CDO.

Meanwhile a loan servicing company is hired to collect mortgage payments. In today's crazy lending environment who do you call when you need help?  Is it the MERS administrator, the SPV director, the CDO manager, the CDS investor, the loan servicer, the title company, the loan originator, the FDIC, the Federal Reserve, The President ... Is anyone willing to help?
The Problem with MERS: MERS was developed in the early 1990s by a number of financial entities, including Bank of America, Countrywide, Fannie Mae, and Freddie Mac, to allow the securitization and easy sale of mortgages behind a veil of anonymity. The result was not only to cheat local governments out of their recording fees, but to defeat the purpose of the recording laws, which was to guarantee the clear chain of title.

Before the advent of MERS (before 1990), it would have been impossible to profitably collateralize a mortgage with no market value.  The bank didn't have a mechanism to conceal from government regulators the risk of financial loss from securitizing and reselling an otherwise non-marketable loan.  The actual beneficiary of every Deed of Trust on every parcel in the United States could be ascertained by merely reviewing the public records at the local recorder's office.

Securitization is a complex series of financial transactions designed to maximize cash flow and return liquidity to the lender in short order. The securitization and sale of assets is what allows the “off the balance sheet” boost in reported income for the lender. The lender secures immediate liquidity from assets that, in some circumstances, could not be readily traded in the capital markets.  On paper is sounds like a great idea … the bank sees the cash flow every month when the homeowner makes the mortgage payment, and also sees the quick return of its capital originally invested to fund the mortgage. It sounds simple, right?

Most homeowners have no idea who really owns their mortgage and they certainly don’t know why the balance owed keeps going up. In the real world securitization involves the creation of numerous Special Purpose Vehicle Corporations (SPV) designed to create the legal impression of an actual secondary market transaction. However, the residuals, credit enhancements, and other derivative rights retained by the lender in the transferred mortgage create a Pandora’s Box of problems. MERS made it easy for a lender to transfer the servicing rights after the origination of the loan to an entity so large that communication with the servicer became difficult if not impossible.  This cycle of origination, resale and securitization became the legacy of MERS.  The entire scheme was predicated upon the fraudulent designation of MERS as the 'beneficiary' under millions of deeds of trust.

MERS now holds over half of all new US residential mortgage loans. The courts are increasingly ruling that MERS is merely a nominee, without standing to foreclose on the collateral that makes up a major portion of the portfolios of some very large banks. The emerging case law against MERS is supportive of homeowners who seek relief using our principal reduction litigation strategy.

The Supreme Courts of Kansas and Arkansas; the U.S. Bankruptcy Courts for the Districts of Nevada and Idaho; the state courts in Missouri, Vermont, and South Carolina; and other courts which have actually dissected the MERS language in Deeds of Trusts and Mortgages have consistently said “NO” to MERS, and ruled that MERS is not the “Beneficiary;” that MERS has no authority to transfer the promissory notes because it was never the owner; that MERS is limited in its authority by its choice to designate itself “solely as nominee”; and that MERS thus essentially has no power to do anything.

To foreclose on real property, the bank must be able to produce a promissory note or assignment establishing title.
Why Loan Servicer’s won’t Help!  You should know something about who you're making payments too ... Once a mortgage loan is made, in most cases the original lender does not have any further contact with the homeowner. Instead, a Loan Servicer is hired to collect monthly payments, and given full authority to manage your loan - including the authority to modify or foreclose on a loan. 

Here's what the Loan Servicer doesn't want you to know: Unlike the actual investor or homeowner, the Loan Servicer makes money on a foreclosure, but a loan modification actually costs the Loan Servicer.  A Loan Servicer never loses any money from a foreclosure because they recover all of their expenses, including their very profitable junk fees, when a loan is foreclosed.  The Loan Servicer will even get paid before the original lender sees a dime. 

On the rare occasion that a loan modification is approved the Servicer avoids authorizing a principal reduction.  The usual routine involves adjusting the interest rate, payment terms, and monthly payment, but the most important aspect of any long-term loan modification should be a principal reduction.  Why does this happen? 

The Loan Servicer charges a monthly servicing fee (a fixed percentage of the unpaid principal balance of the loan).  A Loan Service has no interest in lowering your principal balance (The larger your loan balance the greater their profit from fees).  In fact, these fees give servicers an incentive to increase the loan principal by adding delinquent amounts and junk fees.

Loan Servicers are economically incentivized to foreclose. The end investor who ultimately funded your loan and who has an economic interest in helping you succeed as a homeowner, and the Credit Default Swap investor that is on the hook if you default, are not permitted to directly participate in the management or servicing of your loan.  These parties are a hostage to the system just like you, and are powerless to push the loan servicer to modify a loan or work out an arrangement by which a family can stay in their home.