Notes on CitiBank v.xxxxxxxx

  1. The style of the case has only one Plaintiff which is CitiBank, N.A. as Trustee for Lehman XS Trust 2006-17.
  2. CitiBank has a trust division that administers trusts which is incorporated separately under the holding company CitiGroup Inc.
  3. The reason why CitiBank N.A. is named as trustee is that they were trustee in name only. Their name was “rented” to make it appear as though a funded trust existed. In fact, there are no trust documents, there are no duties of the trustee, there are no beneficiaries who could exercise any control or replace the trustee, and none of the investors money went into a trust account, nor did any indicia of ownership of notes and mortgages ever pass through a trust account that was controlled by CitiBank. It wasn’t administered by their trust division because there was no trust and there are no assets of the fictitious investment pool that was sold to investors.
  4. Thus the investors thought they were “buying” residential mortgage backed securities (RMBS). But the investment pool was a fictitious entity or nominee with no power, no assets and no interest in the loans claimed to be part of the pool of assets in the “trust”. It was a ruse used to persuade investors --- pension funds etc. --- to buy what was thought to be triple A rated securities, that were insured and hedged.
  5. What the investors did not know was that their money was diverted to a “warehouse” lender controlled by the investment bank, to fund loans in which the originator was usually a thinly capitalized entity completely dependent upon the underwriting approval of the aggregator and the funding by the alleged warehouse lender.
  6. Most originators were a new kind of entity called “originators” because that is all they did. Even when the originator was an actual depository institution the loan was subject to a purchase and assumption agreement, which by operation of law and contract made all such loans originated, underwritten and funded in this manner, the loan was s aid to be owned not by the investors but by the intermediaries.
  7. Hence the funding of the loan violated the terms of the PSA and Prospectus and violated the REMIC statute in the internal revenue code because the REMIC entity was ignored, thus creating a massive double taxation problem. When the market imploded and investors stopped buying the bogus mortgage bonds, the scheme collapsed like every other Ponzi scheme.
  8. A Ponzi scheme is generally defined as a series of fraudulent transactions in which fictitious assets are thought to be traded, bought or sold for the benefit of the investors; in fact, the scheme is funded not by the investments (there were no investments at all in Madoff’s case) but rather by the purchase of more mortgage bonds by investors who were unaware that thee ratings had been rigged just like the LIBOR And EuroBOR rates were rigged.
  9. Any adjustable loan tied to LIBOR is therefore probably misstated as to both principal and interest as a result of the LIBOR rigging, which involved the largest and oldest banks in the world.
  10. Lehman Brothers sought Bankruptcy protection in 2008. It is being rapped up now with hundreds of unanswered questions. But one thing that is certain is that Lehman was most probably the investment banker that created, underwrote and sold the bogus mortgage bonds and/or may have been the aggregator and/or warehouse lender for the subject transaction.
  11. By claiming assets purchased with investor money Lehman et al were able to name themselves as beneficiaries of the insurance and hedge products promised to the investors. Thus the Banks declared fictitious losses in order to collect on the insurance and the proceeds paid by counter-parties on credit default swaps and other hedges.
  12. In my opinion, the investment bank assumed the role of both fiduciary and agent for the investors regardless of where the money and any assets were deposited or held. Thus the payments received by the financial affiliate of the Master Servicer (another entity controlled by the investment banker) from insurance and hedge products were never paid to or credited to the investors.
  13. Had they done so, the entire foreclosure crisis would have been averted.
  14. Had they done so there would have been no need to fabricate, forge and otherwise affix robo-signed, surrogate-signed or other unauthorized signatures to documents to create the illusion of ownership by the investment pool AFTER the insurance and hedges and federal bailouts were paid to the banks.
  15. Had they done so, the loan receivable account from the investment pool would have been reduced proportionately and the balance due from the borrowers would have been correspondingly reduced, subject to potential claims for contributions from subservicers who continued to make payments even after the loan was declared in default, insurance and hedge products.
  16. The loan balances would have been reduced not by forgiveness but for payment, many times in full and sometimes overpaid because the investment banks “leveraged” their bets against the loans up to 42 times (Bear Stearns is an example, where they essentially sold the same loan 42 times. If Bear Stearns had modified, settled or reinstated the loans, they could have owed as much as $8 million on each $200,000 loan, which is why the pressure has been on for foreclosures and the banks are two-stepping the requirement that they modify mortgages.
  17. They did not do so because the banks were hiding huge profits from two principal channels --- the insurance and hedges on one hand, and the 2d tier yield spread premium on the other. Accounting for all the money would easily reveal by application of simple arithmetic that (a) the investors advanced far more money than was ever used for funding mortgages (Tier 2 yield spread premium) and that the banks had received, as agents from the investors, far more money than the investors had ever advanced.
  18. The year 2006 is in the name of the alleged asset pool for which CIti is the supposed Trustee. That means that the subject loan was to have been funded by the REMIC that issued the bonds to the investors, and that the loans were payable to the investment pool (REMIC) and secured by a mortgage or deed of trust showing the pool to be the payee and showing the pool to be the secured party. No such thing exists in the instant case. Both the PSA and REMIC statute require closeout and no further business activity after 90 days from the date of opening the pool for investments.
  19. But the loan had been funded before the pool opened and was supposedly transferred after the pool closed and during the Lehman bankruptcy.
  20. The funding of the loan came from the investors but NOT the REMIC as claimed in the Plaintiff’s complaint. The industry practice has been and continues to be the use of a single account dubbed “Custodial” by the investment bank without any reference to the individual REMIC entities, which did not exist anyway.
  21. The loan was funded by the “custodial” account with strict instructions that this money was not in any way to be touched or used by the named loan originator. The originator was paid a service fee as a nominee for an undisclosed lender (the investors using the investment bank as the intermediary much as one uses a check drawn on one’s depository bank to pay a vendor).
  22. At no time did the originator post the transaction as a loan receivable with a reserve for default because there was no risk of loss or use of the capital of the originator.
  23. The loan receivable belonged, by operation of law, to the investors who advanced the money. Those investors included all of the “buyers” of the bogus mortgage bonds of the fictitious REMIC plus the rest of the investors who had been solicited for investment in other REmIC entities that never received the money or the assets.
  24. The banks are using the ruse of foreclosure to distract the investors, the government and the borrowers from the fact that they were and are solely intermediaries that never advanced one cent to fund the origination or purchase of these loans.
  25. We are left with a chain of documents in which the wrong payee is named citing terms of repayment wholly different from (1) the terms of the mortgage bond and (2) the expectation of the investors.
  26. The attorney obviously represents Wells Fargo, who is now saying it is the servicer, but fails to produce any documentation showing how the ownership of the loan passed through several transactions where money exchanged hands to the REMIC entity and fails to produce any documentation from the Master Servicer appointing Wells fargo as the subservicer.
  27. As a result, Wells Fargo has no original documentation but only documentation derived from other documents none of which are original receipts for wire transfers, Check 21, ACH or cancelled check.