Deregulation Without Oversight — How Derecognition Bypassed the Law and Why the Administrative Challenge Works

When Congress repealed the Glass-Steagall Act in 1999 through the Gramm-Leach-Bliley Act, it removed a foundational barrier between commercial banks and investment houses. This shift didn’t just change the structure of Wall Street — it opened the floodgates for an unregulated transformation of mortgage finance.

What most Americans don’t know is this:

No law was ever passed authorizing the derecognition of mortgage loans or the securitization practices that followed.

Instead, these practices were implemented internally by financial institutions, aided by compliant accounting firms and regulatory boards. Through accounting interpretations like FAS 140 (and later ASC 860), banks began to deregister mortgage loans from their balance sheets once they were sold into mortgage-backed securities trusts. This “derecognition” was treated as a final sale — even though in many cases, no consideration was paid and no real party retained ownership in the traditional legal sense.

In fact, the primary instrument used to facilitate and disguise this deregistration was the Mortgage Electronic Registration Systems (MERS). According to the MERS Quality Assurance Procedures Manual, loans could be marked as “Deactivated” in their internal database — a process which functionally operates as a proxy for derecognition. When a loan is deactivated within the MERS system, it signals that the asset is no longer actively traded or controlled within MERS, often preceding the creation of backdated assignments for foreclosure purposes. This stands in direct contradiction to the fundamental requirement of REMIC trusts to maintain static, bankruptcy-remote pools of loans that are neither transferred nor actively traded post-cutoff. In other words, deactivation in MERS simultaneously undermines the REMIC structure and highlights the phantom nature of the claimed enforcement rights in their clearinghouse database — an internal designation that, functionally, meant the same thing as derecognition. Once a loan was deactivated, it ceased to exist as an active asset in the MERS network, even though no legal notice or assignment may have been executed or recorded. This system allowed for seamless off-book transfers without public scrutiny.

Meanwhile, the financial sector:

• Kept collecting on loans they no longer owned,
• Hid the true accounting through nominee systems like MERS,
• And bypassed the consumer protections enshrined in laws like TILA, RESPA, and the FDCPA.

Here’s the truth:

• Congress never debated whether a derecognized asset could still be enforced against a homeowner.
• There was no act of law giving REMIC trusts or debt collectors the power to foreclose on loans they don’t carry on their books.
• And no amendment was passed to bring traditional consumer protection laws into alignment with this new securitization regime.

This was a private-sector accounting innovation, not a legislated transformation of property law. Worse yet, politicians in their haste to repeal Glass-Steagall failed to account for the direct clash with consumer statutes already on the books. Laws like the Truth in Lending Act (TILA), the Real Estate Settlement Procedures Act (RESPA), and the Fair Debt Collection Practices Act (FDCPA) were left standing without adjustment — incompatible with this new financial engineering.

That’s where the administrative challenge comes in. Because when you send a formal notice or demand asking a servicer:

• Who is the lawful creditor?
• Was the loan ever derecognized?
• Can you provide full accounting and prove value was paid?

…you’re not just raising procedural concerns — you’re attacking the foundation of their claim. Most times, there’s no creditor, no accounting, and no response. That silence is an administrative default.

In short:

You are confronting a system that was never approved by the people — and forcing it to admit it has no clothes.

The administrative process is not a loophole. It is a tool of truth in a system that has hidden its core processes from courts, consumers, and Congress alike.

That is why it works. And that is why it matters.

It is not too late.

Strategic administrative inquiries and evidentiary rebuttals can be initiated even in the late stages of litigation. These are not legal services, nor do they constitute legal advice. Rather, they are private investigative efforts designed to uncover, verify, and document accounting irregularities, title chain defects, and the absence of lawful creditor authority. As a consumer, you have the right to seek answers and accountability — and the right to ask questions of those who claim to enforce your mortgage.

This is exactly why my services exist — to investigate and help identify these types of defects, deficiencies, and potential fraud, and to assist you in reclaiming your rights, restoring rightful title, exposing the fraud, and preventing unlawful foreclosure.

Whether you’re just starting, in the heat of trial, days away from auction — or even not yet in default — the administrative process can still be implemented. It may be your last line of defense or your first step toward protection.

With proactive use of the administrative process, you can protect yourself, your title, and your property rights.

Don’t wait. Contact me today to begin your administrative strategy and forensic analysis.

— William J. Paatalo
Foreclosure Fraud Investigator | Securitization Analyst – bill.bpia@gmail.com (406) 309-1812

 

Related Reads:

• TILA Rescission Meets Derecognition: Why Homeowners Have No Way Out
• The Borrower as Bait: How Wall Street Weaponized Securitization Through Legal Fictions and Securities Fraud
• Are the Courts Sanctioning the World’s Largest Ponzi Scheme?
• Government Contracts and Congressional Hearings Confirm the Fraud