The layers of the onion

McGookey Law
Jun 20, 2013

The story of Jim and Jessie

I’ve often said that successful securitized mortgage loan defense requires peeling away the layers of an onion. The "layers” I am referring to are the fraud meant to cover up the extremely sloppy document handling and retention procedures used by the banks during the securitization process, and to prevent the homeowner from discovering the core truth about his or her loan. By stripping the fraud away, the bank’s conduct is fully exposed, leading it to be much more compliant in working with the homeowner to help him or her save the home.

Before we get into how “The Layers of the Onion Principle” manifested itself in Jim and Jessie’s Story, we must digress a moment and talk about why it’s necessary to go through the onion peeling process in the first place. By definition, loan securitization is a process by which mortgage loans are bundled by the thousands and sold as stock certificates. That means that the bank you are dealing with is not your lender in the sense that it does not own your home. Not being the owner of your loan in turn means that your bank has nothing to lose by foreclosing on you, no matter how upside down you are on your mortgage. On the other hand, it has everything to gain, as it has financial products, such as mortgage insurance, which pay off upon foreclosure.

Now back to Jim and Jessie’s case. They came into our office with a foreclosure complaint in January of this year after starting to miss payments on a loan modification agreement they entered into in 2009. Although the loan modification was by no means a bad one, having an interest rate of 5 percent, their monthly payment of principal and interest of $1,636 on the loan balance of $245,000, was still beyond their reach.

As we entered into the case, it was immediately apparent that serious issues surrounded the validity of the loan documents presented. In accordance with our standard practice, we served written discovery (i.e. requests for information) on Jim and Jessie’s bank, beginning the “push-back” process. All we can surmise from the bank’s reaction is that it must have had more to hide than what met the eye. Consider the end result of the bank’s loan modification offer to Jim and Jessie as an alternative to answering the questions we put to them:

                            Old loan            New loan
Monthly PITI        $1,636              $951
Interest rate         5 %                   3.91 %
Loan balance       $245,057          $176,000

With a principal reduction of almost $70,000, we believe it is very safe to say that Jim and Jessie’s bank didn’t want us to get to the core of the onion. What’s at the core of your loan?

Copyright 2013 Daniel L. McGookey