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Foreclosure Fraud: It's Worse Than You Think   Diana Olick  CNBC Real Estate Reporter  (H/T Business Insider)

A source of mine pointed me to a recent conference call Citigroup had with investors/clients.  It featured Adam Levitin, a Georgetown University Law professor who specializes in, among many other financial regulatory issues, mortgage finance. Levitin says the documentation problems involved in the mortgage mess have the potential "to cloud title on not just foreclosed mortgages but on performing mortgages."

The issues are securitization, modernization and a whole lot of cut corners. Real estate law requires real paper transfer of documents and titles, and a lot of the system went electronic without much regard to that persnickety rule. Mortgages and property titles are transferred several times in the process of a home purchase from originators to securitization sponsors to depositors to trusts. Trustees hold the note (which is the IOU on the mortgage), the mortgage (the security that says the house is collateral) and the assignment of the note and security instrument.

The issue is in that final stage getting to the trust. The law demands that when the papers get moved around they are "wet ink," that is, real signatures on real paper. But Prof. Levin tells me that's not the worst of it. Affidavits assigned to the notes and security instruments are supposed to be endorsed over to the trust at the time of sale, but in many foreclosure scenarios the affidavits have been backdated illegally.

So with the chain of documentation now in question, and trustee ownership in question, here is one legal scenario, according to Prof. Levitin:

The mortgage is still owed, but there's going to be a problem figuring out who actually holds the mortgage, and they would be the ones bringing the foreclosure. You have a trust that has been getting payments from borrowers for years that it has no right to receive. So you might see borrowers suing the trusts saying give me my money back, you're stealing my money. You're going to then have trusts that don't have any assets that have been issuing securities that say they're backed by a whole bunch of assets, and you're going to have investors suing the trustees for failing to inspect the collateral files, which the trustees say they're going to do, and you're going to have trustees suing the securitization sponsors for violating their representations and warrantees about what they were transferring.

Josh Rosner, of Graham-Fisher, put the following out in a note today, claiming violations of pooling and servicing agreements on mortgages could dwarf the Lehman weekend:

   Nearly all Pooling and Servicing Agreements require that... (See quote in Yves article above. It is more complete.)




As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Oct 13th, 2010 at 12:37:40 AM EST
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And there is an interesting comment thread at the Business Insider article.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Oct 13th, 2010 at 12:47:19 AM EST
[ Parent ]
My fave so far:
Wall Street Begins To Fear Nightmare Foreclosure-Gate Scenario Where All Of Housing Finance Is Wrecked
You can't possibly believe that the Constitution has any legal standing anymore. Are you freaking retarded? If you were to read the US Constiution to a Congressman they'd laugh in your face. We're a banana republic now where the rule of law is whatever the guy with the money and the guns says it is, and that guy ain't you, sucker.

Twank, is that you?
by Bernard on Wed Oct 13th, 2010 at 09:45:08 AM EST
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I still believe that the problem is so serious that pointy heads in Chicago, DC & NYC are gonna be pushed into a room and ordered to find a way out that reconciles this and protects the banking system.

And I believe that all of those people who have issues with their mortgages, even if they can demonstrate that the paper is worthless, will lose out. Because they'd rather protect the uberclass of financiers than the American middle class.

and if the level of dispossession is sufficiently large, America is heading to a bad place.

keep to the Fen Causeway

by Helen (lareinagal at yahoo dot co dot uk) on Wed Oct 13th, 2010 at 05:37:51 AM EST
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Citigroup Call On Implications On Foreclosure Crisis: "Just The Tip Of The Iceberg" | zero hedge
"Our speaker predicted that more and more lenders are likely to stop their foreclosure processes in both judicial and non-judicial states. He also expects more states' attorney generals to get involved. At the federal level, it is possible than banking regulators might step in as there is legal and reputational risk for the banks involved. Ultimately, if these issues do in fact escalate, the Administration may try to broker some sort of settlement. If such deal brokering does take place, Levitin believes that "some payment" will be exacted from the lenders and servicers. The Administration could bargain for more mortgage principal write downs." In other words, the endgame will likely end up being the extraction of material concession from the banking syndicate, in the form of systemic mortgage writedowns, with Obama's blessing, which will likely put the 25% of homeowners who are underwater on equal footing with the other 75%. It may turn out that this was the plan all along. And people naively wonder why banks have hundreds of billions in cash stashed on the sidelines...


"Ce qui vient au monde pour ne rien troubler ne mérite ni égards ni patience." René Char
by Melanchthon on Wed Oct 13th, 2010 at 06:47:06 AM EST
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