THE REAL UPSHOT OF THE SEC LAWSUIT AGAINST GOLDMAN SACHS AND WHAT IT MEANS FOR FORECLOSURE DEFENSE CASES GOING FORWARD
April 20, 2010
Unless you live in a cave, you have obviously been made aware of the lawsuit filed by the Securities and Exchange Commission against Goldman Sachs claiming fraud in connection with the formation of securities “backed” by mortgage loans which were destined to fail. As such and finally, the public is being made aware of what we have known about and have been litigating and presenting to the courts for going on three years now. What is not being openly discussed, however, is the upshot of what this means for foreclosure defense practice, although the Wall Street Journal article of April 19, 2010 on the issue hinted at it.
The Journal made specific mention of the fact that those who created the securities which were based on mortgages destined to fail purchased “insurances”, including credit default swaps, against the failures so that when the failures did occur, big bucks came to those who created the problem. These “insurances” are those which we have been asking for in discovery in our cases around the country, and include excess interest reserves, lender-placed insurance policies, bankruptcy bonds, and other policies taken out by the securitized mortgage loan trusts so that in the event of default, the loan would be paid so that those who purchased the mortgage-backed securities would continue to receive the benefits of their investment. The securitized trust prospectuses, which are available on the SEC’s webiste, set forth the various types of insurances and credit enhancements and state that they are for the purpose of, among other things, “payment of defaulted loans.” Obviously the borrower was a direct beneficiary of such insurances, and in many instances, the premiums for these insurances were funded from line-item charges paid by the borrower at the closing for loans which were either pre-sold or otherwise destined for securitization. You really don’t think that those who created these trusts were going to spend their own money for the insurance premiums, do you? It was OPM all along.
What the Journal and the lawsuit also did not discuss is the fact that practically all of the securitized mortgage loan trusts have the same structure, whether created by American Home Mortgage, Bear Stearns, Deutsche Bank, or whoever. Even a cursory examination of a few of the trust prospectuses will reveal this incredible boilerplate.
This revelation by the SEC comes on the heels of the abominable decision from Virginia which simply turned a blind eye to everything that is in the 22-page SEC Complaint and the realities of securitization of mortgages. Now that the process, horrors, and realities of securitization have finally been made public, the Courts will have powerful ammunition to examine the veracity of any “default” claimed by a servicer, trustee of a securitized mortgage loan trust, or alleged “successor” to the loan.
There will obviously be more on this to come.
Jeff Barnes, Esq., www.ForeclosureDefenseNationwide.com