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Asset-Backed Investment Securities = Fraud?
Asset-Backed Security Trusts purchased Notes = not a "Loan" with Trust Deed
Most purported "loans" by Washington Mutual, Indymac, Countrywide, and many other "lenders" in the
past 5 years were actually disguised purchases of Notes by Pools or "Special Purpose Vehicles" (SPV)
created by Lehman Brothers. These SPVs , as fronts for Securitization Trusts were pre-funded by
investors for the express purpose of purchasing said Notes to enable the Trust to be the holder of Asset
Backed Securities.
A Simple Summary of the Situation:
The Homeowner expects to be a "Borrower" that will receive a "Loan" from the Bank.
If the Bank funded the loan and then sold it, it would still be a loan that was sold,
but the Bank does not fund it - the wire comes directly from the Bank for the Trustee of the SPV and
Securitization Trust.
Lehman Brothers arranged for investors to purchase certificates in the Trust in advance, and arranged
for the Trust and SPV to purchase Financial Assets from each Homeowner directly. The Bank gets a
commission as a finder's fee, but the bank never funded the loan. Neither the Trust nor SPV was a
bank, so Usury may apply. In all cases, the Homeowner was tricked into believing the Bank funded a
Loan, when the Bank just was paid a commission for finding a Homeowner willing to sell the Note,
which was a Financial Asset when acquired by a Trust or Commercial Paper when acquired by an
SPV. The Bank's Commission was also for the Bank to allow its name to be on the Note and Deed of
Trust/Mortgage, and often to act as Servicer to get monthly fees.
The Homeowner was never told the truth about who funded the transaction, because a Deed of Trust
would not normally be allowed for a Financial Asset purchased by a Securitization Trust (a Security
covered by Security Laws), or a Commercial Paper which is covered by the Uniform Commercial
Code Division (UCC) 8, whereas Secured Transactions with a Deed of Trust are covered under UCC 9.
The biggest question is:
Was it Fraudulent Misrepresentation to lie to the Homeowner?
This question is one you need to discuss with your lawyer.
Was this a setup that the Bank, SPV, and Trust knew was doomed to fail?
Lenders know that Loans with Balloon Payments, Adjustable Rates, Interest Only Periods, and
Negative Amortization are Doomed to Default.
These kinds of loans are less secure that fixed rate loans. Lehman Brothers, the Banks, and other
Lenders KNEW THIS.
Does it make you angry that they were betting you'd default?
Most Prospectuses for the Trusts outline your probable default time, and use "Credit Enhancement"
like Pool Insurance to offset losses by Default and Foreclosure.
Did the Investors in the Trust get paid by Default Insurance? Then why do you still
owe?
AIG was bailed out, so Default Insurance could continue to be paid? <<< See below:
Lehman Brothers collapse September2008 triggered the collapse of Banks that used
them
Read more at Time, Wikipedia, TimesOnline UK, Investopedia (free, skip welcome screen).
This caused a SubPrime Crisis. Wikipedia SubPrime Crisis Timeline.
Other Banks fail as a result: Bloomberg, Mortgage Lender Implode-o-meter, WallStreet Journal, The
Most Complete List of Lender Fallout
Why weren't they stopped? London Guardian
Treasury Secretary Paulson tried to stop it - according to the book A Colossal Failure of Common
Sense: The Inside Story of the Collapse of Lehman Brothers .
The "Lender" named in the Note and Deed of Trust or Mortgage (e.g. Washington Mutual, Indymac,
Countrywide, etc) did not fund the transaction, and therefore was not really the "Lender" at all. They
acted only as a "Nominal Lender", named in the Note only to facilitate the creation of a Deed of Trust or
Mortgage to secure the Note as an alleged "Loan", when it was not a "Loan", but rather the
receptacle for an Asset-Backed Investment Security. Frank J. Fabozzi and Vinod Kothari, in
their book "Introduction to Securitization" state on page 5 "The asset securitization process
transforms a pool of assets into one or more securities that are referred to as Asset-Backed
Securities."
The ramifications of this process are that there was no "loan" funded by the "Nominal Lender". In fact, it
can be alleged in court that the "Nominal Lender" was paid in full, plus a commission. Also, the Deed of
Trust or Mortgage can't secure an Asset-Backed Investment Security or a Financial Asset directly
purchased by a Trust (Security), and the Homeowner was tricked into thinking he was a "Borrower" of a
"Loan", when he was actually a Seller of a Note to a Securitization Trust or SPV. The Trust or
SPV had no right to a Deed of Trust or Mortgage to a purchased Note that was not evidence of a
debt or obligation - it can't be a Secured Transaction covered under UCC 9,when it's an
Investment Security covered under UCC 8. The "Nominal Lender" shouldn't be able to foreclose on
an asset in an Investment Security with an invalid Deed of Trust or Mortgage, fraudulently procured
under the guise of a "Loan", when it wasn't a Loan, but rather the "Purchase of a Note" into an AssetBacked Investment Security, and the "nominal Lender" was paid in full, plus a commission for
something it did not fund.
Can a "nominal Lender" that didn't fund the transaction, but rather fraudulently allowed its name to be
put on a Note and Deed of Trust or Mortgage to trick a Homeowner into signing a Deed of Trust or
Mortgage to secure an Investment Security, assign a Beneficial Right it never had to another
Beneficiary?
WaMu almost never Assigns the Deed of Trust or Mortgage, but forecloses directly or through Chase,
its new owner.
WaMu is the Servicer, and Trust wording also calls it the Originator, but the Trustee for the Trust or
SPV purchased the Notes directly - WaMu did not fund the loan.
The Trust was fully formed before the purchase, and its Trustee wired the funds into escrow. The
originator almost never funds directly to sell it.
Fraud can be alleged that the Borrower was tricked into believing it was a loan to procure a Deed of
Trust or Mortgage, and the true nature of the Transaction was not disclosed.
Fraud can also be alleged (after research) that the Pool Insurance paid the Investors after multiple
Defaults and Foreclosures. If they were paid, why the foreclosure?
Further, fraud can be alleged that the Deed of Trust (UCC 9) is invalid for an Investment
Security/Commercial Paper (UCC 8) (you can't have both). A foreclosure is improper, and should
be voidable.
The direct purchase of the Note by the Trustee for the Trust or SPV appears to violate the procedures
specified in FAS 140 - "Statement of Financial Accounting Standards 140" by the Financial Accounting
Standards Board (FASB).
The Bank signs a Mortgage Loan Purchase Agreement with a Representative of the Trust and/or SPV,
yet the Bank doesn't fund the purchase of the note, and can't sell what it hasn't bought.
The Pooling and Servicing Agreement clarifies all the fine points they don't want you to know. The
Assignment and Assumption Agreement clarifies further.
Credit Enhancement is used to sweeten securitization trusts. Trusts containing Sub-Prime Notes usually
have Pool Insurance to cover Defaults and foreclosure. If enough Notes go into Default and Foreclosure,
the Insurance pays off the Investors. The Servicer usually continues to foreclose, even though the
investors were paid off.
Other insurance is often procured for fraud arising in the origination process - if you win for fraud, they
can collect that insurance, as well.
Indymac was foreclosing itself, but now it often forecloses through either OneWest Bank, its new
owner, or through Deutsche Bank, trustee for the Asset-Backed Security.
The Uniform Commercial Code (UCC) separates the different transactions into
different divisions:
Division 3 is for Negotiable Instruments.
Division 9 is for Secured Transactions (Negotiable Instruments that are Secured fall exclusively within
this Division, if not an Investment Security)
Division 8 is for an Investment Security (a transaction that is part of an asset-backed Investment
Security can't also be a Secured Transaction covered under Division 9.)
Quotes from the California Commercial (Uniform Commercial Code in California):
UCC 8-102: Uniform Commercial Code 8-102, as in California by California Commercial Code 8102,
defines "Security" and "Financial Asset" as:
(15) "Security," except as otherwise provided in Section 8103, means an obligation of an issuer or a
share, participation, or other interest in an issuer or in property or an enterprise of an issuer that is all of
the following: (A) It is represented by a security certificate in bearer or registered form, or the transfer
of it may be registered upon books maintained for that purpose by or on behalf of the issuer. (B) It is
one of a class or series or by its terms is divisible into a class or series of shares, participations,
interests, or obligations. (C) It is either of the following: (i) It is, or is of a type, dealt in or traded on
securities exchanges or securities markets. (ii) It is a medium for investment and by its terms expressly
provides that it is a security governed by this division.
(9) "Financial asset," except as otherwise provided in Section 8103, means any of the following: (A) A
security. (B) An obligation of a person or a share, participation, or other interest in a person or in
property or an enterprise of a person, that is, or is of a type, dealt in or traded on financial markets, or
that is recognized in any area in which it is issued or dealt in as a medium for investment. (C) Any
property that is held by a securities intermediary for another person in a securities account if the
securities intermediary has expressly agreed with the other person that the property is to be treated as a
financial asset under this division. As context requires, the term means either the interest itself or the
means by which a person's claim to it is evidenced, including a certificated or uncertificated security, a
security certificate, or a security entitlement.
UCC 8-103(d): Uniform Commercial Code 8-103(d), as in California by California Commercial Code
8103(d) applies:
(d) A writing that is a security certificate is governed by this division and not by Division 3
(commencing with Section 3101), even though it also meets the requirements of that division.
However, a negotiable instrument governed by Division 3 (commencing with Section 3101) is a
financial asset if it is held in a securities account
UCC 3-101: Uniform Commercial Code 3-101, as in California by California Commercial Code 3101
states:
3101. This division may be cited as Uniform Commercial Code--Negotiable Instruments.
UCC 3-102: Uniform Commercial Code 3-102, as in California by California Commercial Code 3102
states:
3102. (a) This division applies to negotiable instruments. It does not apply to money, to payment
orders governed by Division 11 (commencing with Section 11101), or to securities governed by
Division 8 (commencing with Section 8101).
: : : : :(b) If there is conflict between this division and Division 4 (commencing with Section 4101)
or Division 9 (commencing with Section 9101), Divisions 4 and 9 govern. [If it is Secured,
Division 9 for Secured Transactions applies instead]
Cornform to UCC 8-102(15) [and (9)], each Note that is purchased by the SPV:
(A) It is registered upon books maintained for that purpose, and is transferable,
(B) It is one of a class (the classes are defined in the 424(b)5 Prospectus)
(C)(ii) It is a medium for investment and by its terms expressly provides that it is a security governed
by this division.
How do some lawyers fight this Fraud?
1) the "nominal Lender", who didn't fund the transaction and was paid in full plus a commission, has
nothing to Assign, but rather it can be alleged in court that the Homeowner was tricked into signing a
Deed of Trust or Mortgage to secure an Investment Security, which it could not be legally used to
secure, under the fraudulent misrepresentation that it was a Loan.
2) when the "nominal Lender" loses its Beneficiary status (see above #1), the Trustee for the assetbacked security usually takes up the fight, alleging that the asset-backed security is the owner of the
debt. Many lawyers are alleging that the investor is the Beneficiary, as Certificate Holder, and that the
trust was just a vehicle. Essentially, the "nominal Lender" and the Trustee are not the proper party to sue
or foreclose.
Is this Legitimate or Contrived? - Are Lawyers actually alleging this?
Neil Garfield is one of the foremost lawyers teaching other lawyers about the process. Some of his links
are;
Asset Securitization Comptroller’s Handbook ,
Another Resource Corroborating Our Securitization Model ,
Trustee for Investors: Powers and Limitations (with livinglies annotations)— Critical in Your
Presentation in Court
Another prominent lawyer working in this process is Michael T. Pines in Encinitas, CA:
Pines and Associates.com
reventuresrealty.com
Blogspot.com
The Comptroller of the Currency issued a Handbook for Asset Securitization:
You can download the Cover Letter at Cover Letter
The Comptroller's Website shows the Handbook as "Out of Print".
Attorney Neil Garfield provides a PDF of the Handbook at Handbook
(Asset Securitization Comptroller’s Handbook; http://livinglies.files.wordpress.com/2009/08/assetsecuritization-comptrollers-handbook.pdf)
Quote p. 11: "Third-party credit support is often provided through a letter of credit or surety bond from a
highly rated bank or insurance company."
Quote p. 21: "Surety bonds. Guarantees issued by third parties, usually AAA-rated mono-line insurance
companies. Surety bond providers generally guarantee (or wrap) the principal and interest payments of
100 percent of a transaction."
Quote p. 39: "Most prospectuses on asset-backed securities issued by banks clearly state that the
offering is not an obligation of the originating bank."
Quote p. 41: "In addition to loan quality problems, poorly designed automated underwriting and scoring
systems can adversely affect some borrowers or groups of borrowers."
Reference p. 89, et al. : 12 CFR 3, Minimum Capital Ratios; Issuance of Directives (including Appendix
A)
Specifically, what can be done?:
1) Get a Loan Audit from a company that also looks at improper document signing and recordings, and
will investigate the securitization process to find the problems that you can then have a lawyer use a the
basis for letter writing and/or incorporate into a complaint. We are LendersFraud.com
2) Get the Loan Auditor to write Qualified Written Requests (QWRs under RESPA) early to get more
ammo from the Lender/Servicer and other parties. It can take 60days. Here at LendersFraud.com, we
prepare great QWR's.
3) Find out if Pooling Insurance was already collected on for the Pool, and how much.
4) Hire a Lawyer to pursue the results from the Loan Audit (#1) and QWR (#2) to stop the foreclosure
with Letters and a Complaint with request for Injunction. In non-judicial foreclosure states, if you stop
the Foreclosure, you won't have to fight eviction. In judicial foreclosure states, the lawyer can help you
fight their judicial foreclosure.
Recommended Reading:
Structured Finance and Collateralized Debt Obligations: New Developments in Cash and Synthetic
Securitization (Wiley Finance)
Call Leo at (323) 830-2832 or Email me (at bwe002@gmail.com) ,
for a FREE Evaluation for your Situation.
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AIG was bailed out, so Default Insurance could continue to be paid?
Review & Outlook
AIG and Systemic Risk
Geithner says credit-default swaps weren't the problem, after all.
Updated Nov. 23, 2009 12:01 a.m. ET
TARP Inspector General Neil Barofsky keeps committing flagrant acts of political transparency, which if nothing else ought
to inform the debate going forward over financial reform. In his latest bombshell, the IG discloses that the New York Federal
Reserve did not believe that AIG's credit-default swap (CDS) counterparties posed a systemic financial risk.
Hello?
For the last year, the entire Beltway theory of the financial panic has been based on the claim that the "opaque," unregulated
CDS market had forced the Fed to take over AIG and pay off its counterparties, lest the system collapse. Yet we now learn
from Mr. Barofsky that saving the counterparties was not the reason for the bailout.
Enlarge Image
Timothy Geithner REUTERS
In the fall of 2008 the New York Fed drove a baby-soft bargain with AIG's credit-default-swap counterparties. The Fed's
taxpayer-funded vehicle, Maiden Lane III, bought out the counterparties' mortgage-backed securities at 100 cents on the
dollar, effectively canceling out the CDS contracts. This was miles above what those assets could have fetched in the market
at that time, if they could have been sold at all.
The New York Fed president at the time was none other than Timothy Geithner, the current Treasury Secretary, and Mr.
Geithner now tells Mr. Barofsky that in deciding to make the counterparties whole, "the financial condition of the
counterparties was not a relevant factor."
This is startling. In April we noted in these columns that Goldman Sachs, a major AIG counterparty, would certainly have
suffered from an AIG failure. And in his latest report, Mr. Barofsky comes to the same conclusion. But if Mr. Geithner now
says the AIG bailout wasn't driven by a need to rescue CDS counterparties, then what was the point? Why pay Goldman and
even foreign banks like Societe Generale billions of tax dollars to make them whole?
Both Treasury and the Fed say they think it would have been inappropriate for the government to muscle counterparties to
accept haircuts, though the New York Fed tried to persuade them to accept less than par. Regulators say that having taxpayers
buy out the counterparties improved AIG's liquidity position, but why was it important to keep AIG liquid if not to protect
some class of creditors?
Yesterday, Mr. Geithner introduced a new explanation, which is that AIG might not have been able to pay claims to its
insurance policy holders: "AIG was providing a range of insurance products to households across the country. And if AIG
had defaulted, you would have seen a downgrade leading to the liquidation and failure of a set of insurance contracts that
touched Americans across this country and, of course, savers around the world."
Yet, if there is one thing that all observers seemed to agree on last year, it was that AIG's money to pay policyholders was
segregated and safe inside the regulated insurance subsidiaries. If the real systemic danger was the condition of these highly
regulated subsidiaries—where there was no CDS trading—then the Beltway narrative implodes.
Interestingly, in Treasury's official response to the Barofsky report, Assistant Secretary Herbert Allison explains why the
department acted to prevent an AIG bankruptcy. He mentions the "global scope of AIG, its importance to the American
retirement system, and its presence in the commercial paper and other financial markets." He does not mention CDS.
All of this would seem to be relevant to the financial reform that Treasury wants to plow through Congress. For example, if
AIG's CDS contracts were not the systemic risk, then what is the argument for restructuring the derivatives market? After
Lehman's failure, CDS contracts were quickly settled according to the industry protocol. Despite fears of systemic risk, none
of the large banks, either acting as a counterparty to Lehman or as a buyer of CDS on Lehman itself, turned out to have major
exposure.
More broadly, lawmakers now have an opportunity to dig deeper into the nature of moral hazard and the restoration of a
healthy financial system. Barney Frank and Chris Dodd are pushing to give regulators "resolution authority" for struggling
firms. Under both of their bills, this would mean unlimited ability to spend unlimited taxpayer sums to prevent an unlimited
universe of firms from failing.
Americans know that's not the answer, but what is the best solution to the too-big-to-fail problem? And how exactly does one
measure systemic risk? To answer these questions, it's essential that we first learn the lessons of 2008. This is where reports
like Mr. Barofsky's are valuable, telling us things that the government doesn't want us to know.
In remarks Tuesday that were interpreted as a veiled response to Mr. Barofsky's report, Mr. Geithner said, "It's a great
strength of our country, that you're going to have the chance for a range of people to look back at every decision made in
every stage in this crisis, and look at the quality of judgments made and evaluate them with the benefit of hindsight." He
added, "Now, you're going to see a lot of conviction in this, a lot of strong views—a lot of it untainted by experience."
Mr. Geithner has a point about Monday-morning quarterbacking. He and others had to make difficult choices in the autumn
of 2008 with incomplete information and often with little time to think, much less to reflect. But that was last year. The task
now is to learn the lessons of that crisis and minimize the moral hazard so we can reduce the chances that the panic and
bailout happen again.
This means a more complete explanation from Mr. Geithner of what really drove his decisions last year, how he now defines
systemic risk, and why he wants unlimited power to bail out creditors—before Congress grants the executive branch
unlimited resolution authority that could lead to bailouts ad infinitum.
Another Resource Corroborating Our Securitization Model
Posted on August 12, 2009 by Neil Garfield
See Asset Securitization Comptroller’s Handbook
The basic model we have developed tracks the money and with that, the intent behind seemingly
irrational decisions.
For example, why would any lender seeking to make a profit grant a loan whose interest payments were
greater than the gross income of the borrower? That is not taking a risk. That is betting on a sure thing.
The loan will fail. It follows that if the parties creating these loans had a betting vehicle to make money
based upon the guaranteed failure of a specific pool of loans, the premiums paid for such a bet would be
chump change compared to the payoff.
For example, assume a loan for $250,000 with a 10 (10%) percent interest which means that the Note
says the borrower will be paying $25,000 per year in interest, plus principal, taxes and insurance.
Further assume that the borrower has a gross income of $20,000. Unless the borrower hits the lottery or
an inheritance we know as a certainty that this loan and all others like will fail as soon as the teaser
payment of $300 per month is reset to normal amortization.
First the intermediary securitizers go out and sell the $25,000 interest income to a hedge fund or pension
fund seeking to get a couple of points over the money market rates. If the Hedge Fund is satisfied with
5% return, rated AAA (investment grade) and “insured” then the Hedge Fund will purchase $500,000 in
5% mortgage backed bonds yielding the same $25,000. Note that funding of the loan is only $250,000
while the Wall Street underwriters have pocketed the balance ($250,000) of the $500,000 invested by
the pension fund or hedge fund. That is a $250,000 profit on a $250,000 loan. Get it? Of course the
essential strategy here is to make absolutely certain that the hedge fund never meets the borrower and
vica versa. Imagine the attitude of a hedge fund manager who finds out that his $500,000 bought a
$250,000 mortgage.
Now in order to cover the difference between the amount invested and the amount funded, they must
purchase a “bet” on the base loan of $250,000 and then a naked “bet” on the $250,000 that was not
funded (except into the underwriter’s pocket). AIG (among many others) was more than happy to
accommodate since they couldn’t pay off any of these bets anyway and were just collecting premiums.
While there are numerous ways of betting the principal bet of choice was the credit default swap, which
was excluded from regulation under a 1998 law passed by congress. The players were planning this a
long time before all this mess surfaced.
Now assume that the underwriter is intentionally setting up some pools that are weighted extra heavily
with the bad loans. This presents an opportunity they could not pass up. If you knew that a horse was
going to break a leg mid way through the race and you had the ability to bet on that how many bets
would you place on the that horse losing? ANSWER: as many as you could if you really knew for sure.
That is precisely what happened on Wall Street. Certain pools were weighted extra heavily with loans
that could not perform. Everyone piled in with the purchase of Credit Default Swaps betting against
those pools (at the same time they were selling to hedge funds as investors on one end and homeowners
as investors on the other end of the securitization chain). Goldman Sachs reversed position in 2006.
They stopped creating the pools and started buying insurance on pools of assets that never involved
them. They made a killing because AIG and others were given the money (courtesy of Secretary
Paulson, ex CEO of Goldman) to make good on those bets.
The relevance of this to foreclosure defense and offense is that the intermediaries not only knew, they
intended the loans to fail — even the good loans that were in bad pools. Those loans HAD to fail in
order for them to make a killing. If the loans were somehow saved, then the money spent on premiums
would have been a loss and the stock of the investment banks would have plummeted permanently.
Which brings us to loan modifications. If the loans are successfully modified the insurance doesn’t pay
off. So the money they expect to make evaporates. Hence they have left the modifications in the hands
of servicers who have no right to modify a loan with the idea that the whole modification idea turns out
to be a bust for reasons that nobody understood at the time — except now you do.
Trustee for Investors: Powers and Limitations (with livinglies
annotations)— Critical in Your Presentation in Court
Posted on December 31, 2008 by Neil Garfield
The complete Trustee powers from a standard Pooling and Servicing agreement:
Section 8.01 Duties of the Trustee. The Trustee, before the occurrence of an Event of Default and after
the curing of all Events of Default that may have occurred, shall undertake to perform such duties and
only such duties as are specifically set forth in this Agreement. In case an Event of Default has occurred
and remains uncured, the Trustee shall exercise such of the rights and powers vested in it by this
Agreement, and use the same degree of care and skill in their exercise as a prudent person would
exercise or use under the circumstances in the conduct of such person’s own affairs.
The Trustee, upon receipt of all resolutions, certificates, statements, opinions, reports, documents,
orders or other instruments {items for discovery} furnished to the Trustee that are specifically
required to be furnished pursuant to any provision of this Agreement shall examine them to determine
whether they are in the form required by this Agreement. The Trustee shall not be responsible for the
accuracy or content of any resolution, certificate, statement, opinion, report, document, order, or
other instrument.{Thus the Trustee cannot vouch for any allegation or fact or instruction issued
with regard to delinquency, default or foreclosure}
No provision of this Agreement shall be construed to relieve the Trustee from liability for its own
negligent action, its own negligent failure to act or its own willful misconduct.{This is why the Trustee
can and should be named as a potential defendant in a demand letter and defendant in a lawsuit}
Unless an Event of Default known to the Trustee has occurred and is continuing:
(a) the duties and obligations of the Trustee shall be determined solely by the express provisions of this
Agreement, the Trustee shall not be liable except for the performance of the duties and obligations
specifically set forth in this Agreement, no implied covenants or obligations shall be read into this
Agreement against the Trustee, and the Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed
therein, upon any certificates or opinions furnished to the Trustee and conforming on their face to
the requirements of this Agreement which it believed in good faith to be genuine and to have been
duly executed by the proper authorities respecting any matters arising hereunder;
(b) the Trustee shall not be liable for an error of judgment made in good faith by a Responsible
Officer or Responsible Officers of the Trustee, unless it is finally proven that the Trustee was
negligent in ascertaining the pertinent facts; and
(c) the Trustee shall not be liable with respect to any action taken, suffered, or omitted to be taken by it
in good faith in accordance with the direction of the Holders of Certificates evidencing not less than
25% of the
Voting Rights of Certificates relating to the time, method, and place of conducting any proceeding
for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee
under this Agreement.{authority required from certificate holders — the real holders in due
course}
Section 8.02 Certain Matters Affecting the Trustee and the Custodians. Except as otherwise
provided in Section 8.01:
(a) the Trustee and the Custodians {note the TWO parties distinguished: Trustees and Custodians}
may request and rely upon and shall be protected in acting or refraining from acting upon any
resolution, Officer’s Certificate, certificate of auditors or any other certificate, statement, instrument,
opinion, report, notice, request, consent, order, appraisal, bond or other paper or document believed
by it to be genuine and to have been signed or presented by the proper party or parties {items for
discovery} and neither the Trustee nor the Custodians shall have responsibility to ascertain or confirm
the genuineness of any signature of any such party or parties;{this means that nobody from Trustee
has authority to sign a sworn affidavit or give sworn testimony in court since they need know
nothing in their own personal knowledge, can rely on the statements of others (hearsay) and are
not bound by the truth or falsity of any fact.}
(b) the Trustee and the Custodians may consult with counsel, financial advisers or accountants and
the advice of any such counsel, financial advisers or accountants and any Opinion of Counsel shall
be full and complete authorization and protection in respect of any action taken or suffered or
omitted by it hereunder in good faith and in accordance with such Opinion of Counsel; {more
items for discovery}
(c) neither the Trustee nor the Custodians shall be liable for any action taken, suffered or omitted
by it in good faith and believed by it to be authorized or within the discretion or rights or powers
conferred upon it by this Agreement;{so they are admitting that if there is any break in the chain
of title, any defect in the securities, negotiability of the instruments, or any payment received that
occurred between any party on behalf of the borrower to any party on behalf of the investor, they
will not and cannot vouch for authenticity of the alleged default, but they can “say” it. This is the
difference between a letter and a sworn document or testimony}
(d) the Trustee shall not be bound to make any investigation into the facts or matters stated in any
resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval,
bond or other paper or document, unless requested in writing to do so by the Holders of Certificates
evidencing not less than 25% of the Voting Rights allocated to each Class of Certificates;{Discovery
item: did the Trustee make any investigation? If yes, what did they find out? If Yes, why did they
do so despite the clear wording that says they didn’t have any obligation to investigate and
obviously were not expected to perform one? If no, then are they not admitting they don’t know
the status of the loan, ownership of the note, enforceability of the mortgage or existence of the
obligation?}
(e) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either
directly or by or through agents, accountants or attorneys and the Trustee shall not be responsible for
any misconduct or negligence on the part of any agents, accountants or attorneys appointed with due
care by it hereunder; provided, further, the Trustee shall not be responsible for any act or omission of
any Custodian;{Discovery: who were the agents, accountants or attorneys appointed? Who is
responsible for the negligence, fraud or malpractice of the agents, accountants or attorneys? If
there was such an appointment by this Trustee, how was it done? Where is the document that
shows that? How do we know the lawyer in court is actually representing the Trustee, the
Investors, the servicer or someone else?}
(f) the Trustee shall not be required to risk or expend its own funds or otherwise incur any financial
liability in the performance of any of its duties or in the exercise of any of its rights or powers hereunder
if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity
against such risk or liability is not assured to it;{so how did the Trustee get its authority to proceed?
Who gave it the authroity? Who is paying the Trustee, its agents, accountants and attorneys?
Where are they getting the money for these payments? Is there any undisclosed third party
involved (Champerty and maintenance, — yes it still exists)}
(g) the Trustee shall not be liable for any loss on any investment of funds pursuant to this Agreement;
(h) unless a Responsible Officer of the Trustee has actual knowledge of the occurrence
of an Event of Default, the Trustee shall not be deemed to have knowledge of an Event
of Default, until a Responsible Officer of the Trustee shall have received written notice
thereof; and

(i) the Trustee shall be under no obligation to exercise any of the trusts, rights or powers vested in it
by this Agreement or to institute, conductor defend any litigation hereunder or in relation hereto at
the request, order or direction of any of the Certificate holders, pursuant to this Agreement, unless
such Certificate holders shall have offered to the Trustee reasonable security or indemnity satisfactory
to the Trustee against the costs, expenses and liabilities which may be incurred therein or thereby.
{THUS since the Trustee is NEVER deemed to have actual knowledge because the Trustee is required
ONLY to rely upon the representations of others without doing any investigation on its own, it may
never, in its own name bring a foreclosure action or order the foreclosure sale of any property. The
certificate holders, unless they have received information from a source other than the Trustee
(hearsay) are getting their information from the Trustee. Thus they are in no better position than the
Trustee to know anything. This brings to the forefront the most basic rule of evidence: a witness must
take an oath, have perceived something by their own senses, recall what they saw, and be able to
communicate it. The real parties are the investors and the borrowers. Everyone else is just a
middleman and none of the middlemen are taking responsibility for knowing anything, doing anything
or vouching for anything. Only a party who can offer admissible evidence may sue for any relief. In no
case we have seen so far, has any party ordered a notice of sale or filed a foreclosure suit with the
ability to offer admissible evidence. They are using conventional thinking to get around the rules of
evidence. And they don’t want anyone in court who really knows because if they tell the truth, the
testimony will be that the parties in court have all been paid in full, received fees that were never
disclsoed to the borrower or the investor, and that they have no idea whether the ivnestor has been
partially or completely paid through reserves, colalteralization, insurance, credit default swaps or
government bailouts. }
Section 8.03 Trustee Not Liable for Certificates or Mortgage Loans.
The recitals contained herein and in the Certificates shall be taken as the statements of the
Depositor and the Trustee assumes no responsibility for their correctness. The Trustee makes no
representations as to the validity or sufficiency of this Agreement or of the Certificates or of any
Mortgage Loan or related document. The Trustee shall not be accountable for the use or application
by the Depositor, the Securities Administrator or a Servicer of any funds paid to the Depositor,
the Securities Administrator or a Servicer in respect of the Mortgage Loans or deposited in or
withdrawn from any Collection Account or the Distribution Account by the Depositor, the
Securities Administrator or a Servicer.{This is your authority for saying these people need to be
brought to court to account for the money that was paid by the borrower and third parties and to
account for the alleged assignemnts or negotiation of notes, whose terms were changed by the very
act of pooling and then collateralizing within the Special Purpose Vehicle}
The Trustee shall have no responsibility for filing or recording any financing or continuation
statement in any public office at any time or to otherwise perfect or maintain the perfection of any
security interest or lien granted to it hereunder (unless the Trustee shall have become the
successor servicer).{Trustee cannot even vouch that the security still exists, ever existed or
whether it is still enforceable}
Section 8.04 Trustee May Own Certificates. The Trustee in its individual or any other capacity may
become the owner or pledgee of Certificates with the same rights as it would have if it were not the
Trustee.{Discovery item: did this happen? Where are these certificates now?}
Section 8.05 Trustee’s Fees and Expenses. As compensation for its activities under this Agreement,
the Trustee shall be paid its fee by the Securities Administrator from the Securities Administrator’s own
funds pursuant to a separate agreement. {Discovery Item} The Trustee and any director, officer,
employee, or agent of the Trustee shall be indemnified by the Trust Fund against any loss, liability, or
expense (including reasonable attorney’s fees) resulting from any error in any tax or information
return prepared by any Servicer or incurred in connection with any claim or legal action relating to (a)
this Agreement, (b) the Certificates or the Interest Rate Swap Agreement, or (c) the performance of
any of the Trustee’s duties under this Agreement (including any unreimbursed out-of-pocket costs
resulting from a servicing transfer), the Certificates or the Interest Rate Swap Agreement, other than any
loss, liability, or expense (i) resulting from any breach of any Servicer’s obligations in connection with
this Agreement for which the related Servicer has performed its obligation to indemnify the Trustee
pursuant to Section 6.05, (ii) resulting from any breach of any Responsible Party’s obligations in
connection with this Agreement for which the related Responsible Party has performed its
obligations to indemnify the Trustee pursuant to Section 2.03(j) or (iii) incurred because of willful
misconduct, bad faith, or negligence in the performance of any of the Trustee’s duties under this
Agreement. This indemnity shall survive the termination of this Agreement or the resignation or
removal of the Trustee under this Agreement. Without limiting the foregoing, except as otherwise
agreed upon in writing by the Depositor and the Trustee, and except for any expense, disbursement, or
advance arising from the Trustee’s negligence, bad faith, or willful misconduct, the Trust Fund shall pay
or reimburse the Trustee, for all reasonable expenses, disbursements, and advances incurred or made by
the Trustee in accordance with this Agreement with respect to: