Are Mortgage Backed Securities worse than we all thought?

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Fromhttp://loanworkout.org/2007/11/13/d...-of-ohio-federal-court--they-own-nothing.aspx





<p>Jacksonville Area Legal Aid Attorney, April Charney, broke this news to us via email and made these comments in regards to the Ohio Federal Court ruling (emphasis ours): </p>

<p>This court order is what I have been saying in my cases. This is rampant fraud on every court in America or nonjudicial <strong>foreclosure fraud where the securitized trusts are filing foreclosures when they never own/hold the mortgage loan at the commencement of the foreclosure. </strong></p>

<p>That means that the loans are clearly <strong>in default at the time of any eventual transfer of the ownership of the mortgage loans to the trusts</strong>. This means that the loans are being held by the originating lenders after the alleged "sale" to the trust <strong>despite what it says per the pooling and servicing agreements and despite what the securities laws require.</strong> </p>

<p><strong>This also means that many securitized trusts don't really, legally own these bad loans.</strong></p>

<p>In my cases, many of the trusts try to argue equitable assignment that predates the filing of the foreclosure, but <strong>a securitized trust cannot take an equitable assignment of a mortgage loan. It also means that the securitized trusts own nothing.</strong></p>

<p>So with this decision, it appears confirmed that investors in the mortgage debacle may in fact own nothing---not even the bad loans they funded! It seems their right to the cash flow from the underlying properties does not extend to ownership of the properties themselves; thus clouding the recovery picture considerably. </p>

<p>Charney further remarked to us: </p>

<p>This opinion, once circulated and adopted by state and Federal courts across the country, <strong>will stop the progress of foreclosures</strong>, at first in judicial foreclosure states, across America, dead in their tracks. </p>
 
What makes you think this will be adopted by state and Federal courts across the country? Because Jacksonville Area Legal Aid Attorney, April Charney says so?
 
<p>What it will stop dead in it's tracks in investor funding of mortgages. Welcome back to the days when your neighborhood banker loaned you your mortgage based on his impression of you as a person that he knows personally from dealings wiht his bank. Where the money has come from other people her personally knows and likely attends social fundraisers with and will have to explain why he is loaning more to someone they may have they're own opinions on.</p>

<p>It means one thing. You will only get the money if you have a big chunk of it already, the wherewithal to repay it and a role in the societal contract they are comfortable being associated with.</p>
 
From Tanta - <i>"Further, this suit was dismissed "without prejudice," meaning that DB can refile if and when it gets its ducks in a row. So right off the bat, we are not dealing with a case in which there is no hope of this foreclosure ever getting completed."</i><p>

nsr - That was my first thought. The lenders will eventually foreclose, but anyone who was thinking of investing in MBSs will think three times, and probably say no.
 
<p>I agree they'll get foreclosed. However, the damage is done. You'regoing to see a 10x increase in the number of people filing to try an trip a technicality. More importantly, as an investor, I never want to eventually get my money. I want my money or my legal alternative right when I'm supposed to get it. In fact, the legal alternative already means I've been screwed for six months. </p>

<p>Maybe we'll get lucky. Maybe big D will do a little negative PR post foreclosure. I gut tells me when they finally get to foreclosure, if they're down to a legal fight to stop it, the eviction won't be pretty. I wonder what kind of farm animals are in the area?</p>
 
Awgee, all of the comments in the first post are from the article I linked to. Not surprisingly, the attorney representing the FBers is optimistic about the prospects of precedence being set.





That having been said, if DB has bundled mortgages before slicing, dicing, and distributing them, it seems to this layman that the people who need to file suit are the holders of that asset backed paper. But with the lack of transparency in the CDO world, do those people/organizations even know who they are? I'm not a lawyer, and I don't play one on the internet either, but I think that the ability of DB to file suit in the event of an attempted foreclosure would require some kind of reassignment of rights at the time the asset backed securities were sold. Whether or not that kind of thing is standard in a purchase agreement is a mystery to me.





But as speculated in subsequent posts, I agree that mortgages are about to return to a period radically different than anything we have come to know over the past few years. When you combine this judgment with draconian anti-capitalist laws in various state legislatures that are attempting to "fix" the subprime problem, the secondary markets for this kind of paper will die.
 
If this becomes precedent, you will see a credit crunch bordering on Armageddon. Nobody will be willing to loan money until this all sorts out. If structured finance cannot function as a conduit for capital to reach borrowers, the entire home mortgage industry will see a contraction of epic proportions. As NSR pointed out, we will go back to the 60s where local banks originated and held local loans. The secondary market will cease to exist.
 
And while the courts are taking their time sorting it out, you can expect the secondary market to become even less functional...
 
How long does it take the banks to tighten up this loophole?



How many prosepctive homeowners will lose the oppourtunity to be homeowners because NOBODY is going to write mortgages in Ohio anymore under these circumstances?
 
I doubt if this will affect agency paper, as Fannie and Freddie probably have their ducks. I think this will mostly affect the secondary market for paper that includes jumbo and other non-conforming loans. And I doubt if it is just the time to recompense which will be a factor, but also the cost associated with foreclosing correctly. It will add cost to the MBS.
 
<em>>>How long does it take the banks to tighten up this loophole?</em>





It's not really a loophole. Whether it's a writ of possession for a car, a writ of attachment for a loan, or a foreclosure on the house, the first thing the Court looks for is whether the person seeking the car, money, or house is the owner of the loan/lease, loan, or mortgage. This gives some protection to the borrower in the event that, say McFly, tries to institute proceedings to take your house, but he has no legal or contractual basis to do so.





What it really was, was banks and buyers being very, very sloppy in the rush to make fees. Read the post at Calculated Risk. Chickens are coming home to roost.
 
<p>See my post on the mtg foreclosure thread.</p>

<p>I have been arguing this successfully for years. To me successfully means until the borrower get the money he knows is coming in, into his hot little hands.</p>

<p>As I said on my other post. This is not an earthshaking decision. This is a plain vanilla decision reflecting what was ALWAYS the law.</p>

<p>I am not a legal aid lawyer. I did this in the past ONLY when I was convinced that money was coming in or the house really was on the verge of sale, and the bank would have no patience. In all but one occasion, the money came in and everybody was happy. In that one occasion, the money came in, but wasn't enough to bring the loan current & they moved out when that became apparent.</p>

<p>I have never filed just for delay. I am rethinking my position. Should I have a moral compass? Should my position be I'm filing because the borrowers never should have gotten the loan AND the losses to lenders will be less in the long run. Tho I guess that depends on what tranche you're in.</p>
 
I thought it would be good to post Liz's and EvaL's comments from the foreclosure thread here.





<em>lawyerliz:





In Florida, and I guess everywhere there is judicial foreclosure, you aver in your complaint that you are the owner and holder of the note and mtg, and you attach a copy of the note and mtg, with any assignments showing the present plaintiff is the owner of the mtg.





Something called MERS was invented to get around to keep having to file assignments, which has its own problems and is not involved here.





The primary instrument is the note. So you also have to show a chain of endorsements on the note. I have not paid that much attention to the note in the defense of foreclosures, but be assured I will from now on. The mtg is security for the note. The mtg "follows" the note.





Therefore, you need both endorsements on the note and assignments of the mtg, and the latter are supposed to be recorded in the public records.





Since foreclosees seldom defend, the mtgee Plaintiffs have been extraordinarily careless.





If the notes are around somewhere it shouldn't be that hard to find them, and


stamp the endorsements on the back. It might be more of an issue, if some of the lenders have imploded and closed their doors. And it might be a future mission if


they are in bankruptcy and you have to convince the trustee in bankrupcy to endorse the backs.





If the notes truly can't be found you can reestablish the note by court proceeding, but you have to allege and prove various things, because it is a really serious thing to lose a note. This can be done as part of the foreclosure in Florida.





I suppose if a lender who should have endorsed the note didn't and is truly missing in action, you should be able to aver and prove that they bought & sold the note, but this is going to be quite time consuming.





The borrowers are going to lose sooner or later, but it's beginning to look like later might be much, much later.





And if they can never prove their case? Gosh, I don't know. They bargain with the borrowers and get them to sign something the borrowers can live with. Which is,


I suspect the thing they wanted in this lawsuit.





A couple of times, in private lendings, where there was an honest dispute over the terms of the note & mtg, I have had the borrower escrow with me what they think their monthly payment should be. Impresses the hell out of the judge. I think that if these borrowers really want to settle, rather than squat, they should be doing that.





I have a copy of the judge's decision, if anyone wants to look at it. whisper me your fax and I'll send it. I am so computer illiterate that I don't know how to post it.





The decision is totally unsurprising to me. It is really plain vanilla law.





And finally, with a the carelessness, indifference and fraud, I wouldn't be surprised to find that some have these mtges have been assigned multiple times.





The NYTs article said that one mtg had been assigned to 3 pools. I assume he meant something in the nature of one-third to each. But maybe not.





EvaLSeraphim:





Hey Liz,





I have a (probably stupid) question: What if they foreclose on the deed of trust rather than the note. In other words, if entity holding the note (i.e., beneficiary) has changed, but the trustee has not, then sloppy assignments shouldn't matter so long as the trustee remains the same and the trustee is seeking the foreclosure, yes?





lawyerliz:









<p>EvaL--I don't understand your question. I've never practiced in a title theory (posting) state.</p>

<p>You "foreclose" on a mtg/deed of trust. Actually title theory says that the lender actually owns the property and it is "reconveyed" when the deed of trust is paid off.</p>

<p>Strictly speaking, it's a DEED of Trust. </p>

<p>In Florida, when a mtg is paid off, they are "Satisfied".</p>

<p>If you want to ignore the property, in Florida, anyhow, you can just sue on the note. It's almost never done. As I posted once before, the only situation I can think of where you wouldn't want to take the property back, if where Big Bad Rich Pollution Company mtges the property, and later it appears that there is pollution and remediating it would be cost mucho dinero. You sue on the note and collect against the other assets of Big Bad.</p>

<p>I don't know how assignments work out there. I don't know if the trustee changes when the note is assigned. Maybe Irvine Commuter could tell us? Or Buster?</p>



</em>
 
The trustee could change when the note is assigned, or maybe not. For example: If you got a loan from Countrywide, when you sign the loan docs, Countrywide would be the trustee and on the note. Once CW packages your loan in a MBS pool, and sells that MBS deal, the trustee could stay with CW, or it could get transfered to Bank of NY (CW's main trustee). Most likely it will get a new trustee. These transfers get dumped on the county in bulk, and are at least 6 months behind in recording. This could be used as another stall tactic on the foreclosure, if the trustee transfer has not been recorded. Liz will one day go off on a rant about MERS, and it will make more sense. They are supposed to make things easier, but that hasn't happened yet, and they are a PITA.





From my understanding on notes and trustees, even if the trustee is still the same, and the note has been transfered, the transfers of the note have be to endorsed and accurate. I breezed through the article (if I took the time to read it, I'd be ranting about Gretchen instead), but the point was good. If New Century was the original lender (trustee and note holder), and sold the loan to Deutsche Bank (new trustee and new note transfer), then DB packaged the loan into a MBS deal (same trustee and new note transfer), and now it goes into foreclosure. DB would be the trustee foreclosing on Mr. Homedebtor, but if New Century didn't endorse that note, then they have issues. I'm sure they could fix it, but I don't know how.





The note isn't going to be transfered, unless that MBS pool is bought by another institution, i.e. Morgan Stanley. It won't be transfered, say to a hedge fund who buys into the AAA tranche of the MBS pool, but if the hedgie bought the entire MBS pool, it would transfer. The other reason it could transfer, is if that loan, for some odd reason, is pulled from that pool, and put into another one.





Like I said, this is from my understanding, and my understanding could be wrong. Also, I hope the above makes sense. Three and half hours of sleep makes me wonder if I should even be posting.





Yes, Liz, I have sleep issues, and all the herbal remedies make me groggy the next day.
 
<p><em>"Yes, Liz, I have sleep issues, and all the herbal remedies make me groggy the next day. "</em></p>

<p>What are the herbal remedies? I am almost willing to try anything. I have already tried melotonin which did absolutely nothing, including not even making me groggy the next day or any other time.</p>
 
She recommended valerian root, as well as melatonin. I think I have tried valerian, and it didn't do squat. Melatonin makes me a zombie the next day. It's not that my body isn't tired, it's that my brain refuses to shut off.
 
<p>Awgee, have you done the basics? Regular sleep schedule, removed the TV/computers from the bedroom, no caffiene after noon, regular excersize more than 4 hours before bedtime, enough water.</p>

<p> </p>
 
<p>The only entities buying mortgages right nown are Fannie Mae and Freddie Mac. My bank is going for broke. We have very good jumbo pricing and are originating these loans as held-for-sale. IMO this is smells like death. We are holding these loans on our balance sheet ONLY so we can sell them in the near future. I confirmed with our secondary pricing VP on Tuesday that we are not selling a single solitary jumbo loan. </p>

<p>It looks like the big wigs must be thinking..."Well we might as well go for broke. If the market turns around, we'll be in better shape than ever, but if it doesn't we're screwed." "Well not us personally because we sold tons of stock already, but our general shareholders will be screwed."</p>
 
<p>Sleepwise:</p>

<p>Further remedies: there is a version of trytophan available at health food stores which can make you sleepy. (Plain trytophan is banned, for no particularly good reason; there was a bad batch of it some years ago, so the welfare nannies banned it.) Or, you could try eating a lot of turkey before bedtime. If you are menopausal there are some pills containing a plant form of estrogen which helped me for about 6 months.</p>

<p>Sometimes GABA helps, but I hesitate to recommend it because it is a brain chemical that affects the synapses in a way I don't understand, and I'm not sure anybody understands. GABA slows mental processing, so when my brain begins to spin too much, I take it. It improves mood.</p>

<p>That being said there are those remedies like lunesta etc, which have never worked more than a week for me and have some really bad side effects for some people. There are blogs devoted to the side effects. They work very well for some people.</p>

<p>All that being said, I am sleeping fine now, but only with BOTH a herbal remedy and Temazipan, which is a really heavy duty drug, a narcotic maybe? Certainly a controlled substance. Since I am here and there, I have found that the rules about it are severe, can only move the prescription once etc. My son the psych major was somewhat horrified to learn I was on it, and said I could be addicted. I said yeah, but it was more like I'm addicted to sleep. I switch the herbal stuff around, because your body gets used to it.</p>

<p>Also, you can try yoga and excercise and breathing and relaxation tapes, none of which have worked for me.</p>

<p>Sorry to make this so long, but in my opinion, not sleeping is just about the worst thing in the world, and I wouldn't wish it even on a realtor.</p>

<p>You may need calcium. Take it with magnesium and vitamin D and some fat, since calcium is fat soluable, which is a good reason for not drinking skim milk. Citrate is the best.</p>
 
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