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(CMO). The company bundled different "assets" (such as limited
partnership interests and subordinated deeds of trust) and placed
them in a trust account to secure the CMO. Pioneer Mortgage
administered the CMO investment. The investor received a CMO
certificate, which represented his proportionate ownership interest
in the bundled assets, as well as a note from Pioneer Mortgage.
For his investment, the investor received purported monthly
interest payments drawn on Pioneer Mortgage's bank account.
Pioneer Mortgage paid interest at a rate higher than that
obtainable from conventional savings accounts, Treasury bills, or
money market accounts. Pioneer Mortgage forwarded monthly payments
to the investors regardless of whether the borrower had at the time
remitted its payment to the company.
The investors and Pioneer Mortgage typically entered into a
loan service agreement pursuant to which the investor authorized
Pioneer Mortgage to collect payments on, and otherwise service, the
borrower's note. The loan service agreement provided that Pioneer
Mortgage could grant the borrower an extension of time to remit the
required monthly payments. If the borrower failed to make timely
the interest payment, Pioneer Mortgage could and normally did
advance the borrower an amount equal to that which was due. The
loan service agreement further provided that if Pioneer Mortgage
made a payment to the investor to cover the payment due from the
borrower, such payment would constitute an advance and would be
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Last modified: May 25, 2011