These can include mortgage documents, information available in the public record, and other information found through fighting a lawsuit in the courts. Thus, borrowers should be aware of these various categories of documents and how they can help in defending a home.

The original mortgage documents are the most important in defending against a bank’s foreclosure attempt. If there are any mistakes or fraudulent aspects discovered in these, the entire loan may be invalidated or a court-ordered loan modification plan may be put into place.

It is estimated that over 85% of all residential mortgages funded over the past 7 years are non-compliant or fraudulent.  Signs of abusive lending or clauses that may provide remedies to foreclosure should be searched for by the borrowers.  A Forensic Loan Audit will best determine if a loan is non-compliant.

There are five documents that homeowners may wish to consider the most important when they are searching for the original paperwork. These are the following:

- HUD-1 Settlement Statement

- Truth in Lending disclosure and Rescission Notice

- Note for the loan

- Deed of Trust or Mortgage

- Appraisal

If a mortgage servicing company is involved in the collection of the payments on a monthly basis and responsible for the foreclosure process, homeowners should begin collecting documents related to the servicing. Servicer abuse is rampant, as the entire industry was set up from the beginning to prey upon homeowners and reward corrupt or fraudulent companies for pushing people into foreclosure.

There are several documents that homeowners should attempt to obtain from servicers and compare with their own copies of documents and calculations.

- Payoff Statement

- Complete payment history

- Contact history and notes on the account

- Disclosure of current owner of underlying loan

- Servicing transfer notice(s)

- Pooling and Servicing Agreement (PSA)

After obtaining the documents from the original lending transaction and relevant information from the servicing company, homeowners should begin to look into public records. The bank, its attorneys, and any potential bidders will examine public records to find out as much as possible about the owners and the property. Borrowers should do the same to research the lender, servicer, and owner of the loan.

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Searching public records can present endless sources of information for homeowners in researching mortgage companies. Just a few ideas are listed here:

- Land records from the county recorder

- Securities and Exchange Commission documents

- Complaints against companies with regulatory agencies

- Record of company through Better Business Bureau and other advocacy groups

- Records of other lawsuits the bank has been involved in

- General internet searches

- Corporate documents and accounting statements

Before going into court, these documents can help homeowners begin to build a decent case for why a foreclosure should not allowed to go through. There are also numerous other documents that can be obtained in the discovery process in court, which will be covered in a later article. The types of documents and the purposes for each in the defense of the home present vast potential for homeowners trying to stop foreclosure.

Just like lenders examine borrowers’ records to determine if they will qualify for a loan, homeowners should go through the exact same series of steps to determine if a bank has a legitimate right to foreclose or not. In many cases, they may uncover enough irregularities in the loan to force the bank into a mortgage modification or, if that is not offered or appropriate, have the entire foreclosure lawsuit dismissed out of court.

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A wide variety of CMO securities with different cash flow and expected maturity characteristics have been designed to meet specific investment objectives. While CMOs offer advantages to investors, they also carry certain risks which will be further explained in this document. To determine if CMOs fit within your investment portfolio, you should first understand the distinctive features of these securities.

CMOs were first introduced in 1983. The Tax Reform Act of 1986 allowed CMOs to be issues in the form of REMICs, creating certain tax and accounting advantages for issuers and for certain large institutional and foreign investors. Today, almost all CMOs are issued in REMIC form. Remember that throughout this CMO explanation, REMICs and CMOs are interchangeable.

THE BUILDING BLOCKS OF CMOS

Mortgage Loans and Mortgage Pass-Throughs –

When a CMO is created, it begins with a mortgage loan extended by a financial institution (such as a savings and loan, commercial bank or mortgage company) to finance a borrower’s home or other real estate. The homeowner usually pays the mortgage loan in monthly installments composed of both interest and “principal”. Over the duration of the mortgage loan, the interest component of payments in the early years gradually declines as the principal component increases.

To obtain funds to generate more loans, lenders either “pool” groups of loans with similar characteristics to create securities or sell the loans to issuers of mortgage securities. The securities most commonly created from pools of mortgage loans are “mortgage pass-through securities” (MBS) or “participation certificates” (PCs). MBS represent a direct ownership interest in a pool of mortgage loans. As the homeowners whose loans are in the pool make their mortgage loan payments, the money is distributed on a pro rata basis to the holders of the securities.

Several factors can affect the homeowners’ payments. Typically, the homeowner will “prepay” the mortgage loan by selling the property, refinancing the mortgage or otherwise paying off the loan in part or whole. Most mortgage pass-through securities are based on fixed-rate mortgage loans with an original maturity of 30 years, but experience shows that most of these mortgage loans will be paid off much earlier.

While the creation of MBS greatly increased the secondary market for mortgage loans by pooling them and selling interests in the pool, the structure of such securities has inherent limitations. MBSs only appeal to investors with a certain investment horizon – on average, 10-12 years.

CMOs were developed to offer investors a wider range of investment time frames and greater cash-flow certainty than had previously been available with MBS. The CMO issuer assembles a package of these MBS and uses them as collateral for a multiclass security offering. The different classes of securities in a CMO offering are known as tranches, from the French word for slice. The CMO structure enables the issuer to direct the principal and interest cash flow generated by the collateral to the different tranches in a prescribed manner, as defined in the offering’s prospectus, to meet different investment objectives.

THE HIGH CREDIT QUALITY OF CMOS

The Government National Mortgage Association (GNMA, or Ginnie Mae) an agency of the U.S. government, along with U.S. government-sponsored enterprises (GSE) such as the Federal National Mortgage Association (FNMA, or Fannie Mae) or the Federal Home Loan Mortgage Corporation (FHLMC, or Freddie Mac), guarantee most MBSs. Ginnie Mae is a government-owned corporation within the Department of Housing and Urban Development. Fannie Mae and Freddie Mac have federal charters and are subject to some oversight by the federal government, but are publicly owned by stockholders.

Fannie Mae and Freddie Mac issue and guarantee pass-through securities.

Ginnie Mae only adds its guarantee to privately issued pass-throughs backed by government issued (FHA and VA) mortgages. Fannie Mae and Freddie Mac have issues CMOs for quite some time; the Department of Veterans Affairs (VA) began to issue CMOs in 1992, and Ginnie Mae initiates its own CMO program which began in 1994. Securities guaranteed or guaranteed and issues by these entities are known generically as “agency” mortgage securities. The agency guarantees enhance their credit quality for investors. In addition, the mortgages backing Fannie Mae and Freddie Mac mortgage securities must meet strict quality criteria. Those backing GNMA pass-throughs are underwritten in accordance with the rules and regulations of the FHA and the VA, which insure them against default.

The extent of the agency guarantee depends on the entity making it. Ginnie Mae, for example, guarantees the timely payment of principal and interest on all of its mortgage securities, and its guarantee is backed by the “full faith and credit” of the U.S. government. Holders of Ginnie Mae mortgage securities are therefore assured of receiving payments promptly each month, regardless of whether the underlying homeowners make their payments. They are guaranteed to receive the full return of face-value principal even if the underlying borrowers default on their loans. Mortgage securities issued by the VA carry the same full faith and credit U.S. government guarantees.

Fannie Mae guarantees timely payment of both principal and interest on its mortgage securities whether or not the payments have been collected from the borrowers. Freddie Mac also guarantees timely payment of both principal and interest on its Gold PCs and CMOs. Some older series of Freddie Mac PCs guarantee timely payment of interest, but only the eventual payment of principal.

Although neither Fannie Mae or Freddie Mac securities carry the additional full faith and credit U.S. government guarantee, the credit markets consider the credit on these securities to be equivalent to that of securities rated triple-A or better.

Some private institutions, such as subsidiaries of investment bank, financial institutions and home-builders, also issue mortgage securities. When issuing CMOs, they often use agency mortgage pass-through securities as collateral; however, their collateral may include different or specialized types of mortgage loans and/or pools, letters of credit and other types of credit enhancements. These private-labeled CMOs are the sole obligation of their issuer.

To the extent that private-label CMOs use agency mortgage pass-through securities as collateral, their agency collateral carries the respective agency’s guarantees. Private-label CMOs are assigned credit ratings by independent credit agencies based on their structure, issuer, collateral and any guarantees or outside factors. Many carry the highest AAA credit rating.

As an additional investor protection, the CMO issuer typically segregates the CMO collateral or deposits it in the care of the trustee, who holds it for the exclusive benefit of the CMO bondholders.

For the above reasons described, CMOs are considered by a select few platforms to be an asset that is easy to validate and prove ownership. In addition, the trading platform is able to be added as the CMOs Beneficiary allowing for the appropriate financing lines to be obtained.

The result is a CMO asset that can be purchased for pennies on the dollar with nominal returns and subsequently placed and traded successfully in a Private Trading Program with yields the owner once only dreamed of.

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Who are these Securities Lenders?

There are hundreds of companies around the world who are security lenders. Often called sec lenders, these corporations range from banks such as the Bank of New York and CitiBank to specific security lender companies such as eSecLending and Wachovia. Financial corporations such as Pension Financial Services and Jefferies and Company also provide sec lenders. Furthermore, these companies are based globally, big name lenders in London, Tokyo, Hong Kong, Germany, Netherlands, Canada and all around America.

Why do People use Securities Lenders?

Securities lenders will increase the overall performance of the borrowed stock. By borrowing securities, traders can take place in strategies such as pairs trading and risk arbitrage thus making a higher income. They are able to take place is higher risk trading with the cover of shorts and the prevention of fails. Securities lenders also help to manage balance sheets and finance inventory. Furthermore, security lenders act as a middle man, helping the traders along the way.

How Does Securities Lending Actually Work?

Security Lending is often used in short selling on the stock market. A trader will deliver the borrowed stock to another party in order to satisfy the order they agreed on. The sec lender will charge an annual fee for the lending of the stock. The trader will return the borrowed stock at a later time, hopefully when the stock price is down. That way they can re-sell the borrowed stock at a lower price than they initially borrowed it at and pocket the extra money.

Unfortunately, short selling has been taken to a whole new level called naked short selling. It has already had a horrible impact on our market in recent weeks and now the SEC has had to ban short selling altogether for a short while. However, the media speaks of the short selling ban because of corruption in security lending, but they do not mention naked short selling. Why is this?

This is probably due in part to the fact that the first words that come to mind when naked short selling is mentioned is “terrorist attack.” Naked short selling is an attack on the market because it is intentional. Those who initiate the attack know what they are doing and what effect it is going to have on the market. The market is going to tumble, which is exactly what has happened in recent weeks.

There is a very interesting report that explains security lending in detail and how naked short selling has a horrible impact on the securities market. This report is called Wall Street Under Attack: Naked Short Selling and the Illegal Hacking of the U.S. Securities Market.

The U.S. has an incredible financial system, but there are individuals trying to ruin it by taking advantages of loopholes and hurting individuals and companies. America must become educated on this and how it ties into our existing financial crisis so that a stop can be put to it.

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