In the past decade pools of mortgages were made and sold as securities to investors across the globe. Nearly half of the mortgages were sold and resold a minimum of four times before finally reaching an investor. This has made it extremely difficult to follow the chain of ownership. No records were maintained each time the mortgage changed hands. Nothing was noted on proper court paper; neither was fees paid.
Professor Alan White of Valparaiso University said that to handle the sheer volume of foreclosure cases the lenders had resorted to cutting corners. They found out ingenious ways of moving through shortcuts with the assurance given by some high profile lawyers that this was all above board and legal. But the issue remained in doubt. The time has now come for it to be found out.
White opines that some forensic digging will have to be done before the banks or their servicers can show the mortgage note. It was not likely that some of the papers were resting in some warehouse, or in MERS (Mortgage Electronic Registration System). Cheap Homes in California.
It was not unlikely that some documents had vanished altogether. White said, “And I’ve heard that at certain points they found it too costly to even store all the notes; and a lot of them just got shredded”.
If the note cannot be produced some of the borrowers could avoid foreclosure – but that cannot be said for certainty. The real issue is about its significance to the banking lobby. The investors who had purchased these securities who have suffered heavily because of this crisis could now put pressure on the banks to make up for the losses.
The executive director of Association of Mortgage Investors Chris Katopis said that the investors have been given protection in the agreements. If there is any fault in the contract the banks would be compelled to purchase back the securities. He said, “What we’re hoping for is banks to step up and do what they’re legally accountable to do under these agreements, and be responsible”.
The director of financial services of FBR Capital, Paul Mlles said the in all probability the banks would be held most accountable if and if there are problems. He added that till now there does not seem to be any problems that will stop the foreclosures. But as yet none is sure.
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