Saturday, February 28, 2009
6 scary words
If you are trying to foreclose a mortgage these days, the words "where’s the note" and "who’s the holder" can be enough to give you heartburn.
WE are all learning, to our deep distress, how the perpetual pursuit of profits drove so many of the bad decisions that financial institutions made during the mortgage mania.There is a reason for all that paperwork and the law can be really cranky when it is missing.
But while investors tally the losses that were generated by loose lending so far, the impact of another lax practice is only beginning to be seen. That is the big banks’ minimalist approach to meeting legal requirements — bookkeeping matters, really — when pooling thousands of loans into securitization trusts.
Stated simply, the notes that underlie mortgages placed in securitization trusts must be assigned to those trusts soon after the firms create them. And any transfers of these notes must also be recorded.
But this seems not to have been a priority with many big banks. The result is that bankruptcy judges are finding that institutions claiming to hold the notes that back specific mortgages often cannot prove it.
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