In the latest smackdown of the big banks making the rounds, namely JP Morgan Chase Bank, Natl. Assn. v Butler, heroic Judge Arthur Schack puts Fannie Mae in her place more than any other judge I’m currently aware of. He takes Fannie to task over a portion of Fannie’s Servicing Guide (Part VIII, Chapter 1, Section 102) that I have always found shockingly arrogant and at odds with the law.
Schack quotes the whole offending section, but I’ll just give the most arrogant parts:
“Fannie Mae is at all times the owner of the mortgage note, whether the note is in our portfolio or whether we own it as trustee for an MBS trust.In addition, Fannie Mae at all times has possession of and is the holder of the mortgage note, except in the limited circumstances expressly described below. [SNIP]
[Schack italicizes the following section] In any jurisdiction in which our servicer must be the holder of the note in order to conduct the foreclosure, we temporarily transfer our possession of the note to our servicer, effective automatically and immediately before commencement of the foreclosure proceeding. When we transfer our possession, our servicer becomes the holder of the note during the foreclosure proceedings. [SNIP]
[Schack also italicizes the following section] This Guide provision may be relied upon by a court to establish that the servicer conducting the foreclosure proceeding has possession, and is the holder, of the note during the foreclosure proceeding, unless the court is otherwise notified by Fannie Mae.”
Schack correctly concludes that “FANNIE MAE’s Servicing Guide, with its deceptive practices to fool courts, does not supercede New York law.” I had the same thought when I first encountered this fiat decree of Fannie Mae’s when researching my own lawsuit against Fannie Mae and others a couple of years ago. It is a relief to hear a judge articulate this so starkly.
However, I am somewhat dismayed to read that Schack refers to Fannie Mae as the “owner” of the note and mortgage throughout his decision. Schack appears to be relying on affidavits from Fannie Mae/Chase types for this information, as he must. I haven’t read the affidavits on which Schack relied, but I have read information from Fannie Mae’s own trust documentation and website that puts the lie to the idea that Fannie Mae owns anything.
Fannie Mae Tells Us It Owns Nothing
UPDATE 10-8-13! The document referenced in the following sentence used to say what is quoted below. However, reader P Nach pointed out that as of 10-8-13, the document no longer makes that statement, and in fact any Google search with “The mortgages that back a Fannie Mae MBS are held in a trust on behalf of Fannie Mae MBS investors and are not Fannie Mae assets” in quotes brings up practically only this site. Fortunately, back in 2011, I printed out and scanned the page from Fannie’s website that contained this statement. I have uploaded it here and you can view and download it here–any future readers who may find this link removed or not working, please let me know in comments (UPDATE 10-9-13! Reader P Nach submitted a Fannie Mae PDF she found which contains the “not assets” statement on page one–link here: 2012 02 06 Fannie Mae-Basics-of-MBS):
[ORIGINAL SENTENCE AND LINK: A PDF from Fannie Mae’s own website entitled “Basics of Fannie Mae MBS” explains Fannie Mae’s lack of ownership very simply and succinctly:]
“In general, mortgage-backed securities are commonly called “MBS” or “Pools” but they can also be called “mortgage pass-through certificates.” An investor in a mortgage-backed security — the certificateholder — owns an undivided interest in a pool of mortgages that serves as the underlying asset for the security. Interest payments and principal repayments from the individual mortgage loans are grouped and paid out to investors.
The mortgages that back a Fannie Mae MBS are held in a trust on behalf of Fannie Mae MBS investors and are not Fannie Mae assets. As a Fannie Mae MBS investor, the certificateholder receives a pro rata share of the scheduled principal and interest from mortgagors on the loans backing the security. Interest is paid at a specific interest rate. The certificateholder also receives any unscheduled payments of principal.”
So from the above, we see that Fannie itself says that certificateholders–not Fannie–own the beneficial interest in the mortgage pool (Fannie says in other documentation that it can also purchase these types of certificates, although I haven’t seen any indication that Fannie smokes its own dope). Even more importantly, we see that Fannie itself says that the mortgages (i.e., the promissory notes) that are supposedly in the pools/trusts are NOT Fannie assets.
The very definition of the term “asset” of course involves “ownership,” as spelled out at Investopedia’s definition of “asset,” which it defines as:
“A resource with economic value that an individual, corporation or country owns or controls with the expectation that it will provide future benefit.”
Therefore, Fannie admits it neither owns nor controls the promissory notes. So if Fannie Mae itself admits that it does not own the notes and mortgages in the pools, why are Fannie’s goons swearing to Schack that Fannie does own them?
Some people may not be satisfied with such an admission in the text of a website meant to simplify matters. OK, well how about these jewels from the “Fannie Mae Amended and Restated 2007 Single-Family Master Trust Agreement for Guaranteed Mortgage Pass-Through Certificates evidencing undivided beneficial interests in Pools of Residential Mortgage Loans” dated January 1, 2009:
“By delivering at least one Certificate of a Trust in the manner described in Section 3.1, the Issuer [i.e. Fannie Mae] unconditionally, absolutely and irrevocably sets aside, transfers, assigns, sets over and otherwise conveys to the Trustee [i.e., Fannie Mae], on behalf of related Holders, all of the Issuer’s [Fannie Mae] right, title and interest in and to the Mortgage Loans in the related Pool, together with any Pool Proceeds.”
“Concurrently with the Issuer’s [Fannie Mae] setting aside, transferring, assigning, setting over and otherwise conveying Mortgage Loans to the Trustee for a Trust: (a) the Trustee [Fannie Mae]… acknowledges that it holds all of the related Trust Fund in trust for the exclusive benefit of the related Holders [of certificates issued by the Trust]…”
Note that Fannie Mae as Issuer irrevocably transfers all of its interest to Fannie as Trustee, and that Fannie Mae as Trustee says that it holds all the money in the trust for the exclusive benefit of the certificateholders. So again, Fannie Mae admits it doesn’t own notes.
Fannie’s Duplicity–All Things To All People?
Notice the duplicity of Fannie Mae made plain in these documents. In the Fannie Servicing Guide, Fannie’s intended audience is obviously its servicers, so they want the servicers to believe that Fannie Mae is “at all times” both the owner and holder of promissory notes. However, in the other two documents (the “Basics of Fannie Mae MBS” website excerpt and the Amended 2007 Trust Agreement) excerpted above, Fannie’s intended audience is investors and potential investors, both of whom Fannie wants to believe that they (the investors or potential investors)–and not Fannie–are the owners of the promissory notes.
So why is anyone letting Fannie Mae get away with saying that it owns promissory notes (and by extension the deeds of trust/mortgages) and can foreclose due to that ownership? Please spread this info far and wide.