The Borrower as Bait: How Wall Street Weaponized Securitization Through Legal Fictions and Securities Fraud

Follow-up to “How Your Mortgage Became a Wall Street Security Without Your Knowledge” – May 20, 2025
By William J. Paatalo – Private Investigator | ORPSID #49411 | bill.bpia@gmail.com

Disclaimer: The following article is for informational and educational purposes only. It is not intended to be construed as legal advice. Please consult with a competent, licensed attorney in your jurisdiction to analyze the specific legal and factual issues related to your situation.

In my original abstract, I exposed how borrower-signed promissory notes, once believed to represent simple mortgage transactions, were never loans in the legal or financial sense. Instead, they were engineered as securities contracts, stripped of enforceability and then hidden behind complex layers of post-closing forgery and legal theater. What follows is a deeper dive into the securities law violations at the heart of this deception—and a stunning confirmation from within the U.S. Treasury itself that the game was rigged.

Legal Isolation: The Myth of the Creditor Chain

Most analysts narrowly interpreted FDIC Safe Harbor (12 C.F.R. § 360.6) as a rule protecting JPMorgan’s acquisition of WaMu assets. But Safe Harbor is broader and more devastating: it is a universal “bright line” legal principle stating that once a note is transferred into a securitization trust and meets REMIC, IRS, and New York trust law requirements, it becomes legally isolated—forever severed from the originator’s estate.

That means:

• Any post-closing assignment (from originator to trust, or FDIC to JPMorgan) is void ab initio.
• Any foreclosure carried out by a party other than the trust, acting through a lawful custodian, is legally and constitutionally suspect.
• The debt is unsecured, and foreclosure proceedings based on these flawed chains are built on forged instruments and broken logic.

Securities Law Violations: The Hidden Investment Contract

Applying two foundational Supreme Court tests—SEC v. Howey and Reves v. Ernst & Young—reveals that what was presented to the borrower as a mortgage was in fact a misclassified, undisclosed security:

The Howey Test

All four prongs are satisfied:

1. Investment of money – The borrower signed a note.
2. Common enterprise – The note was pooled into a REMIC trust.
3. Expectation of profits – Investors expected returns from mortgage payments.
4. Efforts of others – Servicers and trust managers performed the work.

Yet none of this was disclosed to the borrower. No prospectus. No risk notice. No registration. Just a bait-and-switch.

The Reves Test

The “family resemblance” test presumes notes are securities unless they resemble traditional loans. Here, the motivation was profit resale, the distribution was wide and public, borrower expectations were subverted, and the regulatory structure excluded borrower protections. This was not a mortgage—it was an unregistered security offering using the borrower’s identity as raw material.

Treasury’s Silent Admission: Notes Were Digitized and Traded as Repo Collateral

In my abstract, I referenced evidence from within the U.S. Treasury Department acknowledging that mortgage notes were scanned into MERS and traded in the repurchase (repo) markets.

Let’s be clear:

• Original notes were bifurcated from the security instrument (violating Carpenter v. Longan),
• Digitized and uploaded, not preserved in enforceable physical form,
• And repeatedly traded as collateral in global shadow banking networks.

If the original note is long gone, scanned into a clearinghouse, and monetized without borrower consent, what exactly is being enforced in foreclosure?

The answer: nothing but fraud in costume.

The Administrative Process: Precision Weaponry Against a Fraudulent System

For years, homeowners and advocates struggled with how to fight a faceless system—filing QWRs, affidavits, and disputes into a void.

But now, with a clear understanding of:

• The true nature of the transaction (a securities offering, not a mortgage),
• The legal isolation rules that sequester ownership,
• And the true impostors acting without lawful agency,

the administrative process transforms into a precision-targeted evidentiary strike.

Naming the Roles

You can now call out:

• “Unlawful transferee acting outside Safe Harbor,”
• “Servicer asserting enforcement rights without legal title,”
• “Trustee of a REMIC that never lawfully acquired the asset.”

With this specificity, the administrative notice becomes:

• Evidence of fraud,
• A formal demand to cease collection,
• And an unrebutted record of truth if left unanswered.

This isn’t just process. It’s pre-litigation constitutional confrontation.

When you know what happened, you can name what happened. And when you name it, you strip it of its power.

Remedy Requires Confrontation, Not Concession

The administrative process, properly constructed, is not a plea for help but a formal assertion of fact and law. It becomes:

• A demand for validation that can never be met,
• A defense against foreclosure abuse,
• And a record for any future forum that the fraud was known, identified, and unrebutted.

In other words, it puts the machine on trial—not the homeowner.

Constitutional Crisis in Real Time

Foreclosures based on these constructs violate:

• Article III – No standing, no injury, no case or controversy.
• Separation of Powers – Private actors adjudicate title without judicial review.
• Due Process – Homeowners are evicted without lawful notice, remedy, or adversarial hearing.

These are not foreclosure cases. They are civil seizures masquerading as debt enforcement.

Conclusion

These notes are not loans.
These assignments are not transfers.
These foreclosures are not lawful.

They are financial extractions disguised as remedies—and it’s time we call them what they are.

Contact: William J. Paatalo – Private Investigator – OR PSID #49411