The more we learn about gaffes documentation of the mortgage industry, the tracks get more worrying than the financial statements of some of our largest banks may be less reliable than anyone imagined.
This is the last thing: Thanks to a court ruling on November 16 in Camden, New Jersey, we now know that an employee of Bank of America Corp., Linda DeMartini, said last year that the lender usually retained possession of the letters Mortgage notes and related documents, even after the loans were packaged into bonds that were sold to investors. If we are to believe what he said, raises the possibility that some of these loans should remain on the bank balance of the United States today.
Securitization contracts and usually require documents to be transferred to the trustee for holders of mortgage bonds, as said in a November 30 article on the testimony of DeMartini. If the documents are not delivered correctly, that the shirts of the question of whether the loan transfers were treated improperly sales for accounting purposes, and if the bank's assets and liabilities may be understated.
DeMartini statements also the site of Bank of America's external auditor, PricewaterhouseCoopers LLP, in a difficult situation. The company has no choice now under U.S. auditing standards, but to know definitely if DeMartini said is correct, and if the answer could affect any of the previous audit findings. PwC bill Bank of America 128 million U.S. dollars for its audit and other services last year. The mortgage issue in the judicial decision in 2006 originated by Countrywide Financial, which Bank of America bought in 2008.
His witness
Bank of America is to ignore testimony DeMartini, which is not surprising given the stakes. The PR office of the bank said DeMartini, a team leader in the department of the lender's mortgage management dispute, had no idea what he was talking and was not at work right to know the correct information, although The company flew him from California to testify. The company also said that his local New Jersey lawyer failed court case.
"The testimony is wrong," said Laurence Platt, an attorney for K & L Gates LLP in Washington, whom the bank responsible for answering questions about the case. "Countrywide policy and practice has been and continues to fully comply with the pooling and servicing agreements, including the forwarding of the documents necessary for the administrator."
A spokesman for Bank of America, Jerry Dubrowski, refused to answer questions about PwC, but said it was premature to speculate on the need for audit costs. A PricewaterhouseCoopers spokesman Steven Silber, declined comment. Countrywide Financial documents show the company sold more than 1 trillion dollars in loans from 2005 to 2007, mainly in the form of securities.
Newest
The last thing investors need now, of course, is a new reason to worry about too big to fail bank accounts. regulators the company would have every incentive to keep any serious problems come to light, for fear of destabilizing financial markets. PwC and other major distribution companies have not exactly covered themselves with glory, either, since the financial crisis began in 2007.
What Bank of America can not do is take back the words of DeMartini. During a hearing in August 2009, the U.S. Bankruptcy Judge Judith Wizmur DeMartini asked if the mortgage notes "ever moved to continue the transfer of ownership," according to a transcript released last week. Wizmur presided over a lawsuit filed against Countrywide in 2008 by the debtor, John T. Kemp, as part of its bankruptcy proceeding from Chapter 13.
DeMartini said, "I can not say that it is never moved because, I mean, with this many millions of loans as we have I would not dare to say that, but it is unusual for them to move." Bank of the United States attorney at the hearing back up his story, saying that the notes were not motivated in part by the risk of losing them.
Little attention
At one point Wizmur DeMartini said she would not feel comfortable testimony about the extent to which the notes were taken. She did not back off his statement about what was usual, however. DeMartini, who remains an employee, declined comment.
The possibility that mortgage irregularities could point to accounting errors has received little public attention compared to the scandal of the theft-signer foreclosure and investor demand for mortgage bonds' repayment.
Overall, the transfer of financial assets to qualify as a sale for accounting purposes, there must be an actual sale in the law. Otherwise, the transaction will be treated as a secured loan. A condition for the treatment of the sale is that the party receiving the asset should have the right to pledge or exchange. If the buyer does not receive all the necessary documentation, you may not have acquired rights or ability to control the asset.
As for the New Jersey case, the judge rejected a lawsuit Wizmur at his home in Kemp, a decision that Countrywide, which serviced the mortgage, not to transfer the note to the trustee, as required by contract to cover securitization of Countrywide your loan. DeMartini, who joined Countrywide 10 years ago, said Kemp note never left the possession of the company.
If all this was really a kind of error, is a doozy. One thing is clear: The judge believed him.
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