Injecting Integrity into the Mortgage Business

March 7, 2016

Trump Mortgage was a company started in 2006 and closed 18 months later, following a scandal that involved significant over-stating of the credentials of the company’s president, E.J. Ridings.   When Trump Mortgage closed, Donald Trump licensed his name to First Meridian Mortgage as his next partner in the residential mortgage business.  How well did First Meridian Mortgage, a/k/a Trump Financial, operate?

First Meridian Mortgage made money, but not because of its careful lending practices.  First Meridian Mortgage made money by selling its loans to big banks and securities companies so that the loans could be included in residential mortgage-backed trusts that were being created and sold at breakneck speed from 2004 through the first half of 2007.

Donald Trump asserted when Trump Mortgage began that he wanted to inject integrity into the mortgage industry.  The mortgages made by First Meridian Mortgage from 2006 through 2008 in Palm Beach County, Florida – a county Trump often calls home – show that First Meridian Mortgage was just one more mortgage company that contributed to the meltdown of the housing market.

In 2006 and 2007, First Meridian Mortgage recorded 242 mortgages in Palm Beach County, Florida, making it possible for buyers to purchase 152 townhouses, condominiums and houses.  The number of mortgages does not match the number of properties because First Meridian Mortgage very often used “piggy-backed” mortgages, giving a buyer a first mortgage for 80% of the purchase price, then a second mortgage for 5% to 20% of the purchase price, so that borrowers could purchase a home with little or no money down. First Meridian also offered adjustable rate mortgages with low teaser rates of 3.75% that could adjust as high as 11.75%.  Many of the mortgages also had prepayment penalty riders.

The lenders at First Meridian Mortgage favored loans for newly constructed townhomes in three developments: Legacy Place, Sonoma Bay and Ponte Verde at Palm Beach Lakes Condominiums. First Meridian Mortgage made loans to buyers of 85 townhomes at Legacy Place in Palm Beach Gardens, Florida.  Legacy Place is a townhome development nestled behind a shopping strip that includes Best Buy, Michael’s Crafts and PetCo on the north side and a large VFW Post and the south side. To the west, Legacy Place is bordered by railroad tracks and an industrial park. Units in Legacy Place went on sale in 2006.  In 2006 and 2007, the townhomes at Legacy Place sold from $210,000 to $360,000.

First Meridian Mortgage financed the purchase of 85 units in Legacy Place. Within a few years, 36 of thee units were in foreclosure.  43.35% of the loans failed.  After the foreclosures, these same units usually sold for $70,000 to $90,000 in 2009 and 2010. First Meridian Mortgage did not file a single foreclosure on a Legacy Place mortgage.  By the time of the defaults, often within the first two years of the inception, First Meridian Mortgage had sold the loans, primarily to securities companies so that the loans could be securitized and sold to investors.

There were plenty of financial losses from these Legacy Place mortgages, but the losses were suffered by pension funds, and other investors in mortgage-backed securities, not by First Meridian Mortgage.  The business model was to make very risky loans and sell the loans almost immediately to securities companies to include in mortgage-backed trusts.

The lenders at First Meridian Mortgage financed the purchase of 19 townhomes at Sonoma Bay in Riviera Beach, Florida.  The Sonoma Bay development was also completed in 2006 and was conveniently located just two blocks from a Wal-Mart.  The units sold from $170,000 to $290,000. Within a few years, 13 of the 19 units were in foreclosure. Again, all of the defaulted loans had been sold by First Meridian Mortgage so the foreclosures were filed by the banks and trusts that had purchased the loans. In 2010 and 2011, units in Sonoma Bay were selling for $30,000 to $60,000.

The lenders at First Meridian Mortgage financed the purchase of 11 townhomes at Ponte Verde Condominiums in West Palm Beach, Florida.  Ponte Verde was also completed in 2006 and the units sold from $170,000 to $250,000.  Within a few years, 9 of the 11 units were in foreclosure.

At the time the foreclosures were filed, all of the loans had been sold.  Ponte Verde Condominiums now sell for $85,000.

Of the 115 purchases financed by First Meridian Mortgage in Legacy Place, Sonoma Bay and Ponte Verde, 58, or slightly over 50%, went into foreclosure within just a few years of closing. Of the 58 foreclosures, 29 were by banks acting as trustees for mortgage-backed trusts and the remainder were by either mortgage servicing companies, banks or Fannie Mae.  It is vey likely that many of the foreclosures by mortgage servicers were also done on behalf of undisclosed mortgage-backed trusts.

Here are a few examples of how the trust losses piled up as a result of these loan practices:

Unit XX3 at Legacy Place was sold in 2006 for $238,507, with two mortgages from First Meridian Mortgage for $178,880 and $59,626 – the purchaser only needed to contribute $1 of his own money. A foreclosure action was filed in 2007 by U.S. Bank as Trustee for CSFB (Credit Suisse First Boston) ARMT 2006-2.  The trust sued on the first mortgage only.  The court entered a judgment in favor of the bank in 2008.  There remained $177,012 still due in principal, plus $12,450 in interest, plus $998 in taxes.  There were additional fees for inspections, attorney’s fees, appraisals and court costs bringing the total due on the first mortgage only to $206,056.  U.S. Bank bought the unit at auction for $100 in February 2009, and sold the unit in May 2009 for $78,000. Once the loan defaulted, the mortgage servicing fees also increased substantially. The trust lost well over $125,000 on this loan.

 

Unit 3XX at Legacy Place was sold in 2006 for $350,900, with two mortgages from First Meridian Mortgage for $280,720 and $52,635. The buyer’s cash contribution to the sales price was $17,545 or 5% of the total price. A foreclosure was filed in 2007 by U.S. Bank as Trustee for CSMC (Credit Suisse Mortgage Securities Corp.) 2006-4.  The trust sued on the first mortgage only. The court entered a judgment in favor of the bank for $320,138 in 2008. The total principal amount remained unpaid, plus over $35,000 in interest. U.S. Bank bought the unit at auction for $100 in March 2009, and sold the unit in April 2011 for $120,500.  The trust lost over $200,000 on this loan.

Unit 2XX at Legacy Place was sold in 2006 for $236,277, with two mortgages from First Meridian Mortgage for $189,000 and $35,440.  The buyer paid slightly less than 5% as a down payment. A foreclosure was filed in January 2008 by U.S. Bank as Trustee for SAMI (Structured Asset Mortgage Investments) II, Inc., Bear Stearns Alt-A, Series 2006-3 Trust. The trust sued on the first mortgage only.  The court entered a judgment in favor of the bank for $236,044 in February 2010. The total principal amount remained unpaid, plus over $36,000 in interest and $6,600 in taxes. U.S. Bank bought the unit at auction for $58,900 in May 2010 and sold it in July 2010 for $70,000. The trust lost over $166,000 on this loan.

First Meridian Mortgage used the Mortgage Electronic Registration Systems, Inc. to register its mortgages.  When the trusts and servicers filed for foreclosure, they used mortgage assignments created by document mills and robo-signers as evidence that they owned the mortgages.  Robo-signers who signed as officers of First Meridian Mortgage included China Brown and Herman John Kennerty of America’s Servicing Company, Brian Burnett of IndyMac,

Keri Selman of BAC Home Loans Servicing and Liquenda Allotey, Alfonzo Greene, John Cody and Christine Anderson of Lender Processing Services. Every assignment prepared by the robo-signers states that the trust supposedly acquired the mortgages long after the borrowers had defaulted.

There are no signs of an injection of integrity – just mortgage business as usual.