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In 2003, Barclays began selling mortgage-backed certificates through its U.S. subsidiary shell companies

 Securitized Asset Backed Receivables LLC (“SABR”), a Delaware corporation with a principal place of business in New York, is a direct wholly owned subsidiary of Barclays Bank PLC (“Barclays”), a public limited company registered in England and Wales.

Barclays is one of the largest financial services groups in the United Kingdom, using subsidiary companies like SABR to engage in international banking, investment, and asset management.

SABR is simply a shell company for Barclays—SABR does not have, nor will it ever be expected to have, any significant assets or any business operations apart from acquiring and pooling residential loans for Barclays, as expressly delineated in SABR’s August 29, 2003 SEC Registration Statement. See SABR’s August 29, 2003 SEC Registration Statement at p. 39.

As early as 2003, Barclays began to offer asset-backed pass-through certificates on the open market through SABR.

For each series of certificates, SABR would allegedly establish a trust fund consisting primarily of a segregated pool of assets such as residential mortgage loans, home equity loans, home improvement contracts, co-op loans, manufactured housing conditional sales contracts, installment loan agreements, or pass-through or participation certificates issued or guaranteed by U.S. government entities (e.g. the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation).

Barclays as SABR would then sell shares in these trusts as certificates backed by the value, real or perceived, of the assets allegedly held in each trust.[1]

Given that the certificates expressly became obligations of the trust only, this method of pooling loans and selling their certificates became an effective and widely used system to launder toxic subprime mortgages, to cleanse bank ledgers of toxic assets, to profit from the sale of securitized toxic loans, and to profit from fees to hold and service these toxic loans.

To elicit interest and funding for these mortgage trust ventures in the U.S. market, Barclays called upon another of its shell companies, Sutton Funding LLC (“Sutton”), to sponsor trust creation, development, and marketing.

To service the trusts after creation, Barclays then often used another of its subsidiaries, Barclays Capital Real Estate Inc. (“Barclays CRE Servicing”), d/b/a or a/k/a HomEq Servicing Corporation (“HomEq Servicing”), as servicer.

Through this system, Barclays could control nearly every stage of this toxic loan-laundering racket.

 

Barclays may have targeted imploding lending institutions for cheap and unsupervised trust assets and then bribed superbanks to claim asset possession during decay

To show purported trust res, Barclays may have targeted and enlisted troubled banks desperate to unload their assets or too preoccupied to supervise their pilfer.

These included such imploding and bankrupt mortgage loan originators as Option One Mortgage Corporation (“Option One” was banned from mortgage lending and servicing in 2008); Fremont Investment & Loan (“Fremont” was liquidated and closed in 2008); NC Capital Corporation (“NC Capital” was bankrupt and liquidated in 2007); and WMC Mortgage Corporation (“WMC” imploded in 2007).

Barclays then sought irresponsible and avaricious superbanks to hold or claim to hold these specious assets as trustees and custodians, which may have included banks such as U.S. Bank National Association (“U.S. Bank”); Wells Fargo, National Association (“Wells Fargo”); and Deutsche Bank National Trust Company (“Deutsche Bank”).

These superbanks willingly agreed to avow possession and holding of these assets for Barclays because “[a]s compensation for its activities under the [trust] pooling and servicing agreement, the trustee [would] be entitled, with respect to each mortgage loan, to a trustee fee. The fees to the trustee [would] be required to be remitted monthly by the servicer [a Barclays’s subsidiary] to the trustee . . .”[2] See November 20, 2006 SABR Trust 2006-WMR Free Writing Prospectus at p. 89 (emphasis added).

Between 2003 and 2007, Barclays had Sutton sponsor and SABR register 30 such trusts, including the trust at issue in this litigation: the Securitized Asset Backed Receivables LLC Trust 2006-WM3 (“Barclays’s SABR-WM3 Trust”) allegedly created out of WMC mortgage loans.

 

WMC shut down in January 2007

WMC Mortgage Corporation (WMC) is a mortgage banking company established and incorporated in California in 1955.

WMC sold its prime mortgage loan origination business in 1998 and thereafter focused almost entirely on origination of sub-prime mortgage loans.

WMC was owned by a subsidiary of Weyerhaeuser Company until May 1997 when it was sold to WMC Finance Co.

On June 14, 2004, a subsidiary of the General Electric Company acquired WMC Finance Co., thereby acquiring WMC.

As of January 1, 2007, WMC assigned all of its mortgage loan servicing and operations to GE Money Bank (“GE Money Bank”) and transferred all of its employees and assets to WMC-GEMB Mortgage Corp., a wholly owned subsidiary of GE Money Bank; whether WMC properly assigned all of its mortgages and notes to WMC-GEMB Mortgage Corp. (“WMC-GEMB”), or GE Money Bank is unknown.

By March 2007, GE Money Bank had begun to implode, significantly reducing its offices and employees, and as of 2014, GE Money Bank no longer exists.

 

Barclays created a potentially empty and invalid SABR-WM3 Trust in December 2006

In 2006, Sutton began sponsoring and marketing Barclays’s 20th mortgage-related trust scheme: the Barclays’s SABR-WM3 Trust at issue in this litigation.

Earlier that year Barclays had already created numerous trusts purporting to hold the assets of several imploding subprime mortgage lenders, including:

  • Six trusts of Fremont assets (the SABR LLC Trust 2006-CB5 with U.S. Bank as trustee; the SABR LLC Trust 2006-FR2, SABR LLC Trust 2006-FR3, SABR LLC Trust 2006-HE1, and SABR LLC 2006-HE2 with Wells Fargo as trustee; and the SABR LLC Trust 2006-FR4 with Deutsche Bank as trustee)—Barclays named its own HomEq Servicing subsidiary as servicer for these trusts;
  • Three trusts of NC Capital assets (the SABR LLC Trust 2006-NC1 and SABR LLC Trust 2006-NC2 with U.S. Bank as trustee; and the SABR LLC Trust 2006-NC3 with Wells Fargo as trustee)—Barclays again placed its HomEq Servicing as servicer for one of these trusts (NC3), and paid Wells Fargo to act as servicer for the others (NC1 and NC2); and
  • One trust of Option One assets (the SABR LLC Trust 2006-OP1 with Wells Fargo as trustee)—Barclays employed Option One as a self-servicer.

Barclays then created four trusts purporting to hold WMC assets, including the Barclays’s SABR-WM3 Trust; these four trusts were:

  • The SABR LLC Trust 2006-WM1 with U.S. Bank as trustee and Wells Fargo as servicer;
  • The SABR LLC Trust 2006-WM2 with Wells Fargo as trustee and Barclays’s HomEq Servicing as servicer; and
  • Barclays’s SABR-WM3 Trust and the SABR LLC Trust 2006-WM4 with Deutsche Bank paid to claim the role of trustee and Barclays CRE Servicing d/b/a HomEq Servicing as alleged servicer.

For some of these trusts, Barclays employed an additional asset custodian distinct from the trustee, namely Wells Fargo or Deutsche Bank, who would allegedly act as the company responsible for the physical holding and safeguarding of the mortgage notes and other contents of the mortgage files allegedly on behalf of the trust (i.e. the trustee’s job).

Barclays expressly utilized such a custodian for at least seven trusts,[3] including Barclays’s SABR-WM3 Trust, employing Wells Fargo as the alleged physical asset custodian, thereby supplanting or eliminating the role of Deutsche Bank as trustee and destroying the existence of any trust (as such a trust would hold no assets).

Even if Barclays’s non-trustee custodial arrangement could somehow properly create a trust despite the lack of a trust res in the trust, which it probably could not under pertinent law, Barclays’s SABR-WM3 Trust agreement required numerous transfers before an asset ever reached the custodian, specifically (1) from WMC to Sutton, (2) from Sutton to SABR, and (3) from SABR to Wells Fargo. See November 20, 2006 SABR-WM3 Trust Free Writing Prospectus at p. 8.

According to Section 2.01(b) of Barclays’s SABR-WM3 Trust’s Pooling and Servicing Agreement, no later than 30 business days after a December 1, 2006 closing date, SABR had to deliver to Wells Fargo, not Deutsche Bank the original mortgage note bearing all intervening endorsements showing a complete chain of endorsement from the originator to the last endorsee, endorsed and signed by an authorized officer, along with the original assignment of mortgage for each mortgage loan, and the originals of all intervening assignments of mortgage evidencing a complete chain of assignment from the applicable originator to the last endorsee with evidence of recording thereon; and if any of these documents were executed by a person holding a power of attorney, an original of such power certified by WMC to be a true and correct copy of the original; and all of these documents were to be held by Wells Fargo in the physical custodian file.
Also under Section 2.01, if any such original documents were not delivered by WMC through SABR to Wells Fargo within 180 days after the December 1, 2006 closing date (i.e. by June 1, 2006), WMC repurchased that mortgage loan.
Under Section 2.02 of the Pooling and Servicing Agreement, Wells Fargo, if it received any such mortgage notes, would hold those assets in Minnesota, California, or Utah.
Whether WMC properly made any of these transfers to Wells Fargo is questionable.

 

The WMC sell-off and implosion on January 1, 2007

By January 1, 2007, WMC assigned all of its mortgages, notes, employees, and servicing duties to GE Money Bank and WMC-GEMB, and by March 2007 GE Money Bank began to implode and thereafter cease to exist.

 

[1] There is good cause to question whether any assets were actually put in these trusts, given that many of the trust agreements expressly designated an asset custodian distinct from the trustee and given that the asset originators simply never produced any documentation of physical transfer, timely or otherwise, of these mortgage note assets.

[2] Barclays registered four pools totaling over $3 billion in more than 20,000 mortgage loans from WMC alone, providing significant per-mortgage trustee fees to any bank willing to simply declare possession and holding of these assets.

[3] The seven are SABR LLC Trust 2006-FR4 with Wells Fargo acting as custodian for Deutsche Bank; the SABR LLC Trust 2006-NC1 with Wells Fargo acting as custodian for U.S. Bank; SABR LLC Trust 2006-WM1 with Wells Fargo acting as custodian for U.S. Bank; SABR LLC Trust 2006-WM3 with Wells Fargo acting as custodian for Deutsche Bank; SABR LLC Trust 2006-WM4 with Wells Fargo acting as custodian for Deutsche Bank; SABR LLC Trust 2006-NC2 with Deutsche Bank as custodian for U.S. Bank, SABR LLC Trust 2006-NC3 with Deutsche Bank as custodian for Wells Fargo.

If you have questions about your mortgage as it relates to Barclays, Securitized Asset Backed Receivables LLC, or any other bank, please contact the Bernhard Law Firm PLLC at 786-871-3349, abernhard@bernhardlawfirm.com, or www.bernhardlawfirm.com.

Bernhard Law Firm