Financial Times: "The real danger here for banks is that 'Show me the note' becomes widespread"
An except is printed below. It's worth reading the whole piece.
Just a reminder:
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The MBS mess from the beginning – the deal docs
- By Tracy Alloway at FT Alphaville (free article -- no sub required)
If the mortgage notes weren’t correctly shifted from the originators to the depositors to the trustees, with the corresponding assignments, the foreclosure process could be held up should anyone actually stop to ask where the mortgage note is, or who holds it. Likewise, if MERS’ authority to foreclose is challenged (more on that here).
There are potentially more insidious reasons behind documentation slips. Fixing the chain of title — if a break is discovered — can be a lengthy and expensive exercise. Fudging over a missing mortgage assignment may be be quicker and cheaper. For a ‘real life’ paperwork story, check out mortgage-blogger Tanta’s experience back in 2007 — which leads rather nicely to the next point.
Improper documentation has existed for as long as the originate-to-distribute system. Katherine Porter at the Ohio University estimated back in 2007 that “a majority” of US foreclosures are made without the right paperwork. And you’ll notice the 2006-date on the Florida case cited in the GSAMP prospectus above.
The danger here is that ’show me the note’ becomes widespread. Savvy lawyers start demanding the docs (which of course they are legally entitled to do) — foreclosures freeze, lawsuits fly, the RMBS market stagnates, the big banks get hit, and so on.
As a structured finance footnote (because securitisation has a tendency toward irony) we’ll add that GSAMP Trust 2006-FM1’s sister deal — FM2 — was included as a reference entity in the now-infamous Goldman Sachs offering … the Abacus CDO.
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New details from the latest lawsuit:
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And Felix Salmon has a must-read nightmare scenario:
You thought the foreclosure mess was bad? You’re right about that. But it gets so much worse once you start adding in a whole bunch of parallel messes in the world of mortgage bonds. For instance, as Tracy Alloway says, mortgage-bond documentation generally says that if more than a minuscule proportion of notes in a mortgage pool weren’t properly transferred, then the trustee for the bondholders can force the investment bank who put the deal together to repurchase the mortgages. And it’s looking very much as though none of the notes were properly transferred.
But that’s not even the biggest potential problem facing the investment banks who put these deals together. It also turns out that there’s a pretty strong case that they lied to the investors in many if not most of these deals.
I mentioned this back in September, and I’ve been doing a bit more digging since then. And I’m increasingly convinced that the risk to investment banks isn’t only one of dodgy paperwork; there’s also a serious risk of massive lawsuits from the SEC or other prosecutors, as well as suits from individual mortgage investors.
The key firm here is Clayton Holdings, a company which was hired by various investment banks — Goldman Sachs, Bear Stearns, Citigroup, Merrill Lynch, Lehman Brothers, Morgan Stanley, Deutsche Bank, everyone — to taste-test the mortgage pools they were buying from originators.
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And John Carney has good background here:
Our recent coverage:
Jan 9, 2011 at 3:53 PM
Reader Comments (15)
http://www.cnbc.com/id/39670564/
JPMorgan Chase & Co. and Bank of America Corp., along with some smaller lenders, have announced that they were holding off on court-based foreclosures until they could sort out issues with them, such as whether attorneys actually read all the paperwork.
http://www.news-press.com/article/20101013/RE/101012064/1075/Lee-County-foreclosures-continue
A 95% rate of fraud sounds preposterous, but the number was repeated by a paralegal familiar with the case, Lisa Beasely, as well as Michael Redman, who was prompted to create a website called 4closurefraud.org after enduring personal experiences with the matter. There’s a reason for them to say so—they take and report on a lot of foreclosure fraud cases—but there’s also a reason they devote so much of their time to these cases, just like there’s a reason that multiple states are suing major banks for the same type of fraud
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http://dailycaller.com/2010/10/14/thedc-op-ed-one-nation-under-fraud/#ixzz12MiilkCL
Read this one...
http://market-ticker.org/akcs-www?post=169189
http://www.reuters.com/article/idUSTRE69C5KO20101013
http://www.reuters.com/article/idUSWALELE6OU20101014
brand new comments...
If logic matters, in a simple supply/demand mindset; it would seem to me that fewer foreclosures on the market would stimulate the housing market. It also would help stabilize property values resulting in less loss of homeowner's equity.
Foreclosure Fraud: 6 Things You Need To Know About The Crisis That Could Potentially Rip The U.S. Economy To Shreds
http://theeconomiccollapseblog.com/archives/foreclosure-fraud-6-things-you-need-to-know-about-the-crisis-that-could-potentially-rip-the-u-s-economy-to-shreds
The "Holly-Shit" is about to hit the fan !
Just ignore the homeless camps on your way to the store, and hold onto your wallet, for it will be under constant attack by a government that will know how to take care of you better than you, "for a nominal fee"..
And expect the first thing they do is give themselves a raise again.