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U.S., Banks Near Plan to Freeze Subprime Rates

This is an interesting story from the WSJ.com:

"The Bush administration and major financial institutions are close to agreeing on a plan that would temporarily freeze interest rates on certain troubled subprime home loans, according to people familiar with the negotiations... The plan is being negotiated between regulators including the Treasury Department and a coalition of mortgage-related companies including Citigroup Inc., Wells Fargo & Co., Washington Mutual Inc. and Countrywide Financial Corp. People familiar with the talks say the individual members have agreed to follow any agreement reached by the coalition, which is called the Hope Now Alliance."

"Details of the plan, which could be announced as early as next week, are still being worked out. In general, the government and the coalition have largely agreed to extend the lower introductory rate on home loans for certain borrowers who will have trouble making payments once their mortgages increase.

Many subprime loans carry a low "teaser" interest rate for the first two or three years, then reset to a higher rate for the remainder of the term, which is typically 30 years in total. In a typical case, the rate would rise to around 9.5% to 11% from 7% or 8%. That would boost an average borrower's payment by several hundred dollars a month."

This raises a lot of questions. The credit derivatives based on these loans will now face lower payments. If market rates float higher, and these mortgages and contracts are forced downward, how will they effect valuation? Will the insurers be on the hook for the difference? How exactly do you determine who gets the rate freeze, and who doesn't? Moral hazard is imminent. Some will be better off falling behind to get the rate freeze, or will they.

"Treasury officials say financial institutions are likely to set criteria that divide subprime borrowers into three groups: those who can continue to make their payments even if rates rise, those who can't afford their mortgages even if rates stay steady, and those who could keep their homes if the maturity date of their mortgages were extended or the interest rates remained at the teaser rates. Only the third group would be eligible for help.

The creditors are likely to look at whether the borrowers have equity in their homes, despite falling house prices, and whether their incomes are holding steady."

"Mr. Paulson, who is philosophically opposed to federal meddling in markets, at first rejected a sweeping approach to loan modifications when the idea was floated by Federal Deposit Insurance Corp. Chairwoman Sheila Bair. But he shifted his position recently. He told The Wall Street Journal last week that it would be impossible to "process the number of workouts and modifications that are going to be necessary doing it just sort of one-off.""

I think he has a point. Furthermore, what about those who took loans that they knowingly just couldn't afford. Normally, the market would shake them out. Now, it won't necessarily do so. I think they should just focus on those who were fraudulently led into mortgages that were not in their best interests. Those are the people you want to save, not the ones who tried to get a McMansion on a starter home budget, and got caught in a bind that they should have seen coming.

Ambac is Effectively Insolvent & Will See More than $8 Billion of Losses with Just a $2.26 Billion Market Cap

I came to this conclusion after a detailed analysis of Ambac's portfolio (at least what Ambac has made public, which was sufficient) covering exposure in the Structured Finance, Sub-prime RMBS and the Consumer Finance business. Ambac's management was forthcoming enough to publish a portion of their insured portfolio which allowed me to review each structure.

I am short Ambac and MBIA (for whom I have also released research), so be aware of my position as I present this opinion. I profit not necessarily from whether ABK can continue as an ongoing concern (which is in doubt and wouldn't hurt my shorts to say the least), nor from an infusion of capital (whether it be debt or equity, either of which would be a poor investment from my perspective) but from the significant decline in value of the existing shares in which I have taken a bearish position. To determine my short position, I calculated relative nominal book valuations, actual economic book valuations and produced standard financial forecasts. Of interest is the loss tail analysis wherein I have estimated the present value of the future losses.

As it stands now, ABK's equity value will be totally wiped out with a 175 basis point move in their insured's underlying – which seems like a very, very likely possibility. My Ambac analysis is much more granular than that of MBIA's (see A Super Scary Halloween Tale of 104 Basis Points Pt I & II, by Reggie Middleton ) where I discussed the predicament of the ratings agencies, the monolines, and in particular, MBIA.

The referenced predicament is exacerbated by the fact that some, such as Ambac, are truly insolvent, thus a mere waiving of the "Magic Ratings Wand" will not pay the claims when they come due. More to the point, the monolines have grown too big for their capital base, specifically their equity base. They are insuring much more than they can handle in the case of an outlier event. I don't consider the burst real estate bubble and the consequent mortgage debacle much of an outlier, for anyone could have seen it coming if they simply opened their eyes.

Now, if a big monoline fails or is even downgraded, a large part of the credit market goes with it.  This level of catastrophe may be too much for the powers that be. This portends a bailout of some sort or fashion, or maybe the players will just be forced to take their market medicine. Only the future will tell.

Welcome to the World of Dr. FrankenFinance!

Many of the large institutions that are the bellwethers of industry (certain industries, at least) are the victims of Dr. FrankenFinance. Due to the machinations of Doctorates of Philosophy (PhDs), who are much smarter than I am (academically at least), there has been an explosion of financial activity in the past decade. From off balance sheet structures to insured debt, to the securitization and sale of balance sheet liabilities, these doctors (known in today's parlance as financial engineers) have enabled companies to do what just a decade or two before had been considered impossible and just the stuff of fantasy. But wait, did they truly weave magic? Or was it the result of financial alchemy? Or was it just pure, old fashioned math? Well, whatever it was considered in its creation, it can now be now considered… A Monster!

Why a monster, you ask? Well, The Doctors' FrankenFinance have enabled corporate America (and corporate Europe and Asia as well, I just don't have the time to cover them in this blog piece), to bring to life certain aspects of the profit cycle that were heretofore non-existent. Examples of which are:

• profiting from assets that do not drag down ROA and ROI metrics (i.e., holding business assets off balance sheet);
• funding operations with "disappearing" liabilities (i.e., holding liabilities off balance sheet);
• creating the unlimited balance sheet by writing loans off of someone else's balance sheet (i.e., loan securitization otherwise known as OPM – other people's money); and
• using allegedly 3^rd party opinions from companies with highly conflicted interests in conjunction with insurance and guarantees from companies levered over 100x to sell junk bonds as AAA .

Yet, you see, these distortions of financial nature have truly indeed created monsters. Let's take a look:

• Off balance sheet accounting: When Dr. FrankenFinance takes things past the alchemical and into the mysticism of Voodoo, we get … Zombies. Lennar, the nation's largest homebuilder, is borderline insolvent. Click the zombie link to see my analysis. Long story, short – this would not be the case if they were not allowed to sock half of their debt away from investors' eyes. Or at least, investors would have had a chance to value the company accordingly. To make matters even worse, up until yesterday, the nation's largest bank (and itself a prime benefactor/recipient cum victim of FrankenFinance science, see below) has been issuing bullish buy reports on this company and its entire sector for months.
• More off balance sheet accounting: Citigroup, BofA, HSBC, JP Morgan Chase and all of the other major SIV (structured investment vehicle) vendors. The monster behind the madness of these guys' creations have come home to roost.
• Using other peoples money: The problem with this aspect of FrankenFinance is that it breeds irresponsibility. If you make loans and it ain't your money, you really don't give a damn who pays it back and who doesn't. These geniuses only considered the short term ramifications of such actions though. In the intermediate term, we get companies like... American Home Lending, Countrywide and Washington Mutual.
• Using allegedly 3^rd party opinions from companies with highly conflicted interests in conjunction with insurance and guarantees from companies levered over 90x to sell junk bonds as AAA: Here we have the Scary Halloween Tale of 104 Basis Points where we delved into the inner machinations and secrets of MBIA, and the subject of my next dark missive - Ambac Financial (which should be online in an hour or two).

Nouriel Roubini and Global Recoupling - Pt 2 of the Great Global Macro Experiment!

Roubini is one of the few renown economists that I can vibe with. He has been lockstep with me on my views of real estate recession, and he is also in agreement with my views on global contagion and re-coupling (more accurately, I never believed we decoupled in the first place). To get an idea of how I am investing my modest amount of money, read For those who feel the world has decoupled from the US economically - and in the financial markets, I bring you “The Great Global Macro Experiment” , for it explains how the US exported its proprietary brand of asset inflation and hyper-growth activity to the rest of the world. This is what got me into real estate investing, to begin with. The issue is, with every boom there is the requisite bust. This is what got me into shorting real estate. The opportunity lies in the fact that many, till this very day, fail to understand the extent of the upcoming real estate bust, and fail to understand the linkages that will export this bust to the rest of the world. It has already spread from residential real estate to mortgages and derivative finance. Commercial real estate is up next (reference my first post on this blog in September), then the large retirement funds, then the full blown export to the rest of the world via the realization after this Christmas holiday that the US consumer will no longer support the world's extra normal growth. Which financial market and economy is most bubbliciously inflated, and set to fall the most??? You smart guys have guessed it, the Asian economies being led by China. European financial an real assets are to be routed along the way. This graph from Calculate Risk gets the prize for the "picture is worth a thousand words" contest.

So, there you have it - an outline of my investment activity for the next fiscal quarter.

From the Roubini site:

This analyst started arguing against the "decoupling" hypothesis in the summer 2006;  see 12 Reasons Why the World Will Not De-Couple From the Coming U.S. Growth Slowdown…Or “Why When the U.S. Sneezes the World Gets the Cold”…and The Fairy Tale that the World Will "Decouple" from the Coming U.S. Recession...

I elaborated my views in the recent Global Recoupling Rather than Decoupling as the US Heads towards a Recession  While there I discussed how Europe will not decouple from the U.S. hard landing the argument holds a fortiori for China, Asia and other emerging market economies.

Paradoxically China is the one country that has, so far, decouple the most – both in real and financial terms from the U.S. but it will also be the first and most serious victim of a U.S. led recession. The decoupling of China is clear as its growth rate has not decelerated, in spite of the U.S. slowdown, and its financial markets have – so far – blissfully avoided (thanks in part to its financial system partially isolated via capital controls from the global one)  the turmoil and volatility that hit the US and Europe since the summer. But the reason for the Chinese growth decoupling is that, until recently the US slowdown was still modest (short of the coming hard landing) and it was not concentrated in private consumption but rather housing: China is mostly exporting low-priced consumer goods to the U.S. and the re-coupling of China will occur soon once the US consumer recession is in full swing. Thus, the biggest victim of a US consumer led recession will be the country – China - that, so far, has decoupled the most from the US.  And for China a fall in its growth rate from 11% towards 6-7% would be the equivalent of a "hard landing" as China – to maintain its social and political stability given its widening income and wealth inequality – needs to grow at least 10% a year in order to move about 15 millions poor farmers from the rural to the urban and industrial sector every year. No wonder that Chinese officials have started to express serious concerns about the current sharp slowdown in Chinese exports to the US, from an annualized growth rate of over 20% in Q1 to a rate of 12.4% in Q3 of this year ("If demand in the US drops further, Chinese exporters will be devastated by a rapid and continuous fall in orders," a Chinese official report said).

And once there is a sharp growth slowdown in China the next victims of this re-coupling will be East Asia and commodity exporters.

Tie-in to the Halloween Story

Will the downgrading of one, albeit small, insurer cause a daisy chain effect that will pressure other similarly insured securities and vehicles downward? If downgraded, the bonds insured by ACA will be downgraded, forcing some selling which will cause devaluation (by marking to market) which may cause the value of holdings of other entities to drop, which may cause further downgrading - and so on. Just a thought - I haven't performed any research on this.

NEW YORK, Nov 9 (Reuters) - Standard & Poor's on Friday said it may cut its ratings on ACA Financial Guaranty Corp, the insurance arm of ACA Capital (ACA.N: Quote, Profile , Research), saying the company's substantial loss in the third quarter may impair its ability to generate a satisfactory level of new business.

ACA Capital on Thursday reported a $1.0 billion net loss for its third quarter, compared with earnings of $16.1 million during the same period in 2006, S&P said in a statement.

"Exacerbating the issue is the fact that the significant slowing of the subprime mortgage market directly affects two of ACA's three product lines, possibly necessitating significant changes to the company's business model," S&P said.

"Also relevant is the potential deterioration of collateral in ACA's structured credit transactions and the company's constrained liquidity, resulting from a lack of access to its existing liquidity facility," S&P said.

Voodoo, Zombies, Lennar’s Off Balance Sheet Accounting and Other Things of Mystery & Myth

Before we get started with my dark missive, let's clarify the title with a few definitions and a brief history lesson:

Voodoo Accounting - Any form of accounting that does not follow principles of conservatism. While there are many methods by which financial statements can be fudged, it always comes down to inflating revenue or hiding expenses. Any method that boosts profitability through accounting tricks eventually catches up with the company. As soon as it does "poof", past profits disappear like magic. (Hence the name "voodoo accounting"). My calculation of Lennar's fully consolidated financial statements show that about 40% of its full recourse debt lies off balance sheet.

Zombie - Companies that continue to operate even though they are insolvent or near bankruptcy. Zombies often become casualties to the high costs associated with certain operations. Most analysts expect zombie companies to be unable to meet their financial obligations. Also known as the "living dead" or "zombie stocks".

Insolvency - a financial condition experienced by a person or business entity when their assets no longer exceed their liabilities.

Lennar Corporation - a company that I am short that is:

1. borderline insolvent;;
2. makes use of voodoo accounting to book profits from assets held off balance (to boost performance metrics) and conceals significant debt off balance sheet as well (to health metrics);
3. is operating at negative margins;
4. significantly discounting an exorbitant amount of inventory that is extremely overvalued in a highly unfavorable macro environment that is getting worse, not better.

Enron - The Enron scandal was a financial scandal that was revealed in late 2001. After a series of revelations involving irregular accounting procedures bordering on fraud, perpetrated throughout the 1990s, involving Enron and its accounting firm Arthur Andersen, it stood at the verge of undergoing the largest bankruptcy in history by mid-November 2001. Enron filed for bankruptcy on December 2, 2001.

As the scandal was revealed, Enron shares dropped from over US$90.00 to just pennies. Enron's plunge occurred after it was revealed that much of its profits and revenue were the result of deals with special purpose entities (limited partnerships which it controlled). The result was that many of Enron's debts and the losses that it suffered were not reported in its financial statements. In addition, the scandal caused the dissolution of Arthur Andersen, which at the time was one of the world's top five accounting firms.

Historical dictionary ends here, Dark Missive restarts...

Unfortunately, it appears that I have reached formatting limits of the blogging mechanism that I am leasing, so the charts may be a little difficult to read. Here is a .pdf verstheion of the analysis portion of this blog post (the part without my smart ass opinions) which should be more legible for those who have a problem reading the html blog version below. Feel free to distribute it at will. 

Now, to the point - Lennar is leveraged to the hilt. They have a significant amount of debt, a murderous macro environment, a dead business model, and cut throat competition. They also have a lot of secrets hidden off balance sheet. I will leave the research report below untouched, and simply add some highlights here (due to my inability to post the edits).

Now, after that brief history and vocabulary lesson, I need someone like Stephen Kim from Citibank to issue another fundamentally silly, yet overly bullish report on the homebuilders again so I can strengthen my short position on Lennar. Before the pundits and legal eagles come after me, let it be known that I am not accusing Lennar of fraud or wrongdoing, but I am accusing them of underperformance and the use of off balance sheet vehicles to conceal assets, debt, and risk from investors. What's the difference, you ask? Well, there is reality in the accounting sense, and economic reality. Lennar has $5.5 billion of off balance sheet debt, more than a billion of that fully recourse or otherwise holding the company directly liable. They have not violated GAAP rules, to my knowledge. But, the economic reality is that debt is debt, liabilities are liabilities and ROI and ROA are real measures of performance. Despite the fact that LEN's books are kosher from an accounting perspective belies the fact that they are highly misleading from an economic perspective, which is the perspective that rewards the investor.

To put this into perspective, notice that a proper forensic consolidation of Lennar's full recourse debt (and debt that can attach to the parent company assets through contractual means) shows that Lennar carries about half of its debt, and probably even more of its total liabilities off balance sheet and does not report on it. That is scary for a company that is writing down assets by the billions and is facing sequential quarterly losses in a negative macro environment amongst intense competition. As mentioned in the parenthetical, I have been very, very conservative in this forensic examination. Absolutely no non-recourse debt is involved (I had $3.5 billion of non-recourse to choose from, and it still draws debt service and encumbers assets). My models are flexible enough to granularly segregate the various tranches of debt and include them at will.

Properly including contractually enforceable and full recourse debt shows an extremely high probability of bankruptcy in 8 quarters. The currently published probability is in the high 80% range, though to be conservative the graph states 72%.

Including JV's
Debt Rating  (Including JV's)	2005	2006	2007E	2008E	2009E	2010E	2011E	2012E
Working Capital / Total Assets	0.55	0.55	0.50	0.47	0.39	0.35	0.27	0.22
Retained Earnings / Total Assets	0.32	0.37	0.32	0.28	0.22	0.13	0.05	(0.02)
EBIT (trailing 12 months) / Total Assets	0.16	0.07	(0.14)	(0.12)	(0.14)	(0.17)	(0.16)	(0.13)
MV of Equity / BV of Total Liabilities	1.26	0.50	0.86	0.91	0.91	0.88	0.88	0.81
Sales (trailing 12 months) / Total Assets	1.11	1.31	0.91	0.68	0.67	0.73	0.82	0.88
Z-score ( Including JV's )	3.50	3.03	2.02	1.77	1.52	1.30	1.23	1.18
Debt rating	CCC+	CCC	CCC-	CCC-	D	D	D	D

In my opinion, and according to some extremely thorough research, Lennar should have been rated as deep junk as far back as 2005. It's debt to enterprise value, debt to equity, debt to capitalization, and practically any other metric that measures debt or earnings quality looks dismal, indeed.

I am sure many of you are saying that they just have to last a few quarter to grow out of this…

This graph of gross margins looks more like a Stephen King animated horror graphic than a financial projection, but it is highly justified (see the report below). Lennar will probably not see positive numbers until after 2012.

Now, on to the formal analysis:

It appears as if Tousa has stopped trading permanently

It was last sighted at 16 cents. Lev has filed. Reference the warnings about Tousa earlier in this blog. I am working on a piece now about a very large builder who should be going down the penny stock route as well. I'll try to get it up tonight.

Deutsche Bank Foreclosures Dismissal Verified

The post regarding the granted motion to dismiss has been verified.  See the previous post for details. In a nutshell, the owner of pooled mortgage assets sought to foreclose on properties backing the mortgages, and the judge found that they did not show proper assignment from the mortgage originator or servicer, or any evidence that they actually owned the mortgages. This has the potential for wide reaching consequences. I doubt if most of the CDO's have properly had their alleged mortgages properly assigned (and this might have had to happen several times as the mortgage was bounced around the food chain). If you think certain tranches of structured products have been considered worthless in the past...

Click here to download the judge's ruling - Download Deutsche Bank foreclosure motion dismissed.pdf.

PS

It appears as if Plaintiff's counsel insulted the court by stating "You just don't understand how these things work, your honor". Yep! Real bright move...

A Super Scary Halloween Tale of 104 Basis Points Pt I & II, by Reggie Middleton

I've had this research on MBIA sitting on my desktop for some time now, too busy to convert it into a post for the blog. The macro situation stemming from the real estate bust is unfolding just as I have surmised, albeit a bit quicker and more far reaching than I originally thought. It is scary, for nobody wants to see bad things happen to other people, and I don't want to get caught in a financial downturn regardless of how well prepared I try to make myself. On the other hand, these situations create significant opportunity for gain, primarily from those who refuse to acknowledge the fact that the wave is not only coming, but has reached us quite a while back. I have learned unequivocally what many probably new for some time now. What is that you ask? You really just can't trust government data. Now, I don't want to get into politics and conspiracy theories, but the data as of late has been so far removed from the obvious reality for many that it is almost signaling that the government doesn't even want you to heed the data and is giving you the requisite warning signals. Examples of which are employment data and inflation. Alas, and as usual, I digress, as such is the mind of insane idiot savant that my kids call Dad.

Now, back to the title - What so special about the number 104? It is the number that will probably scare the pants off of anyone who is in equity investors, or potentially anyone who is a customer, of MBIA's insurance and guarantee products. It is the number that when reached, will leave the equity investor with shareholder certificates worth nothing. It is the number where MBIA's equity is wiped clean. Why are you being so damn cryptic Reggie, you ask? Because, I need for you to go through this history of how we came to this point before I explain in detail, so as to get a clear and comprehensive understanding of the situation. That is part of it; the other part is just because I feel like it. Now, let me give you a little cartoon of what the number is, then a background of how we got in this mess to begin with, then an analysis that shows how I got to this number. As usual, you can click on any graph to enlarge it.

And then...

Some time ago I came across this report on the MBIA and ABK by Pershing Square and found it absolutely intriguing. I posted it on this blog on September 3rd, when these companies were trading in the 60's and 70's roughly, and respectively (sometimes it actually pays to read this blog:-). I was actually impressed enough to take a small short position of my own without doing my own forensic analysis. This is something that I regret. Why? Because I am willing to assume significant risk once I convince myself of the strength of a position. Using third party research, I dabble at best - and rarely do I use third party research. So, I dabbled when I should have looked harder and took a significant position. After the fact, I looked further into the industry on an anecdotal basis, then all of a sudden, Bam! The proverbial feces hit the fan blades. The stocks fell so far, so fast, I was taken aback. So, I asked part of my analytical team to take a look at these guys, for I knew that a major problem the monolines, the banks, and the builders all had was a lack of understanding and respect for the rate of decline in value and default of instruments linked to bubble real estate - combined with excessive leverage. So they took a cursory look for me, and they pretty much confirmed my suspicions, but it is not straightforward. There conflicts of interest issues that goes far and wide. So much so, that I will most assuredly not be making anymore friends with this blog. Many of the financial professionals know this, but the layman may not.

What's wrong with the ratings agencies?

What's wrong with the ratings agencies? All of the major rating agencies feel MBIA is in good standing to weather the storm. Coincidentally, they all receive significant fees from the monolines and their customers. Hmmm! Now, there is this song by Kanye West, the rapper. A verse goes, "I'm not saying she's a gold digger…" Well, to make a long story short, any analysis born from compensation received from the entity you are analyzing will always be suspect, at least in my eyes. Conflicts of interest and financially incestuous relationships appear rampant to the paranoid conspiracy type (like me). If you remember my analysis of Ryland, I looked at data as far back as 1993. That gave a succinct, but barely acceptable snapshot of what to expect in turbulent times from a historical perspective. You would need much more data to analyze the more complex topic of MBS. It is believed by the naysayers, that the major ratings agencies have sampled data from only the good times, thus that is why their worst case scenarios still smell like roses. Their predictive prowess over the last few years doesn't look very impressive either. Massive swath of investment grade securities (that they, themselves, labeled investment grade - and were paid by the securities' issuers to do so) are being downgraded straight to junk. I know if I invested in AAA bonds that are losing principal and downgraded to junk in a year or two by the same rating that gave it an investment grade rating in the first place, I would be pissed. But, that is what happens without the proper due diligence, I guess. At least that is what the ratings agencies are bound to say. When looking at data gathered from the real estate boom, and not the busts, you get:

Deutsche Bank Foreclosures Tossed Out of Ohio Federal Court - "They Own Nothing!"

This story has not been verified, and I am not vouching for it, but it does bring up an interesting point.

The Eastern Ohio United States District Court, on October 31, 2007 dismissed 14 Deutsche Bank-filed foreclosures in a ruling based on lack of standing for not owning/holding the mortgage loan at the time the lawsuits were filed.

Judge Boyko issued an order requiring the Plaintiffs in a number of pending foreclosure cases to file a copy of the executed Assignment demonstrating Plaintiff (Deutsche Bank) was the holder and owner of the Note and Mortgage as of the date the Complaint was filed, or the court would enter a dismissal.

The Court's amended General Order No. 2006-16 requires Plaintiff (Deutsche Bank) to submit an affidavit along with the complaint, which identifies Plaintiff as the original mortgage holder, or as an assignee, trustee or successor-interest.

Apparently Deutsche bank submitted several affidavits that claim that Deutsche was in fact the owner of the mortgage note, but none of these affidavits mention assignment or trust or successor interest.

Thus, the Judge ruled that in every instance, these submissions create a "conflict" and they "do not satisfy" the burden of demonstrating at the time of filing the complaint, that Deutsche Bank was in fact the "legal" note holder.

While the decision is great for homeowners in distress (due to providing a new escape hatch out of foreclosure), it is a big blow to the cause of sorting out the high-finance side of the mortgage mess.

Jacksonville Area Legal Aid Attorney, April Charney, broke this news to us via email and made these comments in regards to the Ohio Federal Court ruling (emphasis ours):

This court order is what I have been saying in my cases. This is rampant fraud on every court in America or nonjudicial foreclosure fraud where the securitized trusts are filing foreclosures when they never own/hold the mortgage loan at the commencement of the foreclosure.

That means that the loans are clearly in default at the time of any eventual transfer of the ownership of the mortgage loans to the trusts. This means that the loans are being held by the originating lenders after the alleged "sale" to the trust despite what it says per the pooling and servicing agreements and despite what the securities laws require.

This also means that many securitized trusts don't really, legally own these bad loans.

In my cases, many of the trusts try to argue equitable assignment that predates the filing of the foreclosure, but a securitized trust cannot take an equitable assignment of a mortgage loan. It also means that the securitized trusts own nothing.

So with this decision, it appears confirmed that investors in the mortgage debacle may in fact own nothing---not even the bad loans they funded! It seems their right to the cash flow from the underlying properties does not extend to ownership of the properties themselves; thus clouding the recovery picture considerably.

Charney further remarked to us:

This opinion, once circulated and adopted by state and Federal courts across the country, will stop the progress of foreclosures, at first in judicial foreclosure states, across America, dead in their tracks.

See http://iamfacingforeclosure.com/article/20071113_Boyko/01.html for the full article.