Millions of Americans are facing foreclosure and many have already suffered their foreclosure fates without ever even exploring options to save their homes. Most all homeowners just accept the fact that they have no other options but to leave and become a “renter” again.
What if you didn’t have to leave and all you had to do was “defend” your property rights by asking a simple question to who you may “think” is your lender. The question, “Mr. Lender, would you be so kind to produce the mortgage note that I signed when I bought the home with my original signature?”
Think of it like when you buy and sell a vehicle.
The darn DMV is NEVER going to let the transfer of ownership occur between buyer and seller without the pink slip, “proper” signatures showing proper proof of ownership. Yet, every day in this country, the foreclosing and transfer of real estate is happening without anyone ever proving in a court of law that they actually own the property they are taking back.
Crazy, isn’t it?
Jacksonville Area Legal Aid Lawyer April Charney has had over 300 foreclosure proceedings dismissed or postponed in the past year, with about 80 percent of them involving lost mortgage notes. How come more homeowners and attorneys like Ms. Charney are not using this very effective foreclosure defense tool to effectively defend a foreclosure proceeding?
Each time the mortgages change hands, the sellers are required to sign over the mortgage notes to the buyers. In the rush to originate more loans during the U.S. mortgage boom from 2003 to 2006, that assignment of ownership wasn’t always properly completed.
Decades ago when you wanted to apply for a loan, the process was relatively straightforward: you went to your local bank, filled out an application and most likely got a direct long-term mortgage. Today, the landscape has shifted entirely, and the very notion of a local bank is starting to disappear. Instead, loan originators today are more likely brokers for other lending institutions and your mortgage could actually be owned a company that you’ve never heard of before.
This entire process of “securitization” developed since the 1980s into a practice that has come to define modern finance. In an effort to hedge against the risk of directly holding loans and to make a profit as a “reseller”, the bank will often package the loan along with several thousands of others, and sell the rights to investors across the world.
As the boom tech economy of the late 1990s gave way, investors were seeking the next “big” thing, and home mortgages seemed to be an ideal prospect. In many ways, this has been a created crisis, built upon the greed of global investors who sought the best of both worlds: high returns with low risk.
Suppose that you received a home loan from a regional bank, who then packaged your loan along with 100 more 30-year fixed loans into a series of bond securities, selling them to overseas investors. Commonly, the regional bank would then give the investors a premium – so if the interest rate were 7% on the loans, then the originating bank might value the bonds at 6% and pocket the difference as profit, while leaving the right with the bond investors.
Or can they?
Your home loan, in fact, might be owned by a foreign government, or it could be owned by a state pension fund – virtually any investment institution could own your mortgage if you could directly trace its path. But that has proven to be more of a rocket science, rather than a simple check with the county recorder.
Enter The Mortgage Servicing Shell Game:
To top off the loan shell game being played with mortgage notes, we have the incredibly deceptive act of selling and transferring of mortgage servicing rights from one firm to another. It’s as if when the mortgage was originated they “knew” that they were going to immediately package and sell these “deceptive, predatory and toxic” rights into a chain of “almost undetectable acts” of deception and profits. AKA, mortgage never, never land.
The chief argument against allowing lenders to sell mortgage servicing contracts is that some lenders would go broke without the servicing fees. If this is true, the mortgage banking industry should go out of its way to inform borrowers they could be dealing with an unfamiliar and most likely out of state lender when they sign for a loan. But that has NEVER been the case.
What is the servicing of a mortgage worth to a lender?
Mortgage servicing contracts can be worth approximately $450 of a typical $2,000 loan-origination fee. When pools of these contracts are sold, obscene amounts of money can and will change hands.
However, not all lenders sell the mortgage loans they originate. Commercial banks, savings and loans, credit unions and other institutions that keep home loans are called “portfolio” lenders. Some of the larger lenders keep many of their adjustable-rate mortgages.
More than $2.1 trillion, or 19 percent, of outstanding mortgages have been bundled into these incredible complicated and deceptive securities by the shadow banking system and private banks
LoanWorkout.org first wrote about the missing note theories with Richard Davet in Ohio and also Mr. Joseph Lentz in November of 2007, a homeowner in Florida who hasn’t made a payment on his $1.5 million mortgage since 2002.
That’s when Washington Mutual Inc. (WAMU) first tried to foreclose on his home in Boca Raton.
“If you’re going to take my house away from me, you better own the note,” said Lents, 63, the former chief executive officer of a now-defunct voice recognition software company.
The since failed lender failed to prove that it owned Lents’ mortgage note and dropped attempts to take his house. Subsequent efforts to foreclose have stalled because no one has produced the paperwork.
While there are a variety of avenues to resolve missing assignments for lenders, all take time, lots of time.
In the past mortgage servicers had the discretion to take the time to solve the problem. But unfortunately, foreclosure times have changed and a new animal known as “real foreclosure time frames” has entered the picture. Under those time frames, imposed by investors who own the notes, servicers are required to complete certain tasks within certain times, regardless of missing assignment problems.
Judges in at least five states have stopped foreclosure proceedings because the banks that pool mortgages into securities and the companies that collect monthly payments haven’t been able to prove they own the mortgages. The confusion is another headache for U.S. Treasury Secretary Henry Paulson as he revises rules for packaging mortgages into securities.
LoanWorkout.org wrote about the interesting cases took place in Ohio, where District Judge Boyko had ruled that Deutsche Bank could not foreclose on home owners since they only held them as securities, but did not actually own the mortgages (see Deutsche Bank Foreclosures Tossed Out of Ohio Federal Court: They Own Nothing!” and a concurring court agreement ”The Judicial Integrity of the United States Court is Priceless: 27 More Foreclosures Dismissed.)
This continues to raises a series of interesting questions, including: if mortgages are divided into securities, then who can legally bring forth foreclosure proceedings? Based on the Ohio court decision, this question “may be” resolved for thousands if not millions of homeowners.
If the courts cannot determine who exactly owns a given mortgage, then it’s likely that homeowners may be able to defend their homes with this very same line of argument.
MSFraud a mortgage servicing watchdog website has painstakingly compliled a list of foreclosure dismissed due to missing notes. Here are dozens of cases which follow exactly this same pattern, and may provide “real hope” for homeowners facing foreclosure:
AmericanBrokersConduitvZAMALLOAJudgeSCHACK11Sep2007
AmericanBrokersConduitvZAMALLOAJudgeSCHACK28Jan2008
AuroraLoanServicesvMACPHERSONJudgeFARNETI11Mar2008
BankofNYNAvSINGHJudgeKURTZ14Dec2007
BankofNYNAvTORRESJudgeCOSTELLO11Mar2008
BankofNYNAvOROSCOJudgeSCHACK19Nov2007
CitiMortgageInc.vBROWNJudgeFARNETI13Mar2008
CountrywideMortgagevBERLIUKJudgeCOSTELLO13Mar2008
DeutscheBankv.Barnes-JudgmentEntry
DeutscheBankv.Barnes-WithdrawalofObjectionsandMTD
DeutscheBankvALEMANYJudgeCOSTELLO07Jan2008
DeutscheBankvBenjaminCRUZJudgeKURTZ21May2008
DeutscheBankvYobannaCRUZJudgeKURTZ21May2008
DeutscheBankvCABAROYJudgeCOSTELLO02Apr2008
heBankvCASTELLANOS2007NYSlipOp50978UJudgeSCHACK11May2007
heBankvCASTELLANOS2008NYSlipOp50033UJudgeSCHACK14Jan2008
DeutscheBankvCLOUDEN2007NYSlipOp51767UJudgeSCHACK18Sep2007
DeutscheBankvEZAGUIJudgeSCHACK21Dec2007
DeutscheBankvGRANTJudgeSCHACK25Apr2008
DeutscheBankvHARRISJudgeSCHACK05Feb2008
DeutscheBankv.LaCrosse,Cede,DTCComplaint
DeutscheBankvNICHOLLSJudgeKURTZ21May2008
DeutscheBankvRYANJudgeKURTZ29Jan2008
DeutscheBankvSAMPSONJudgeKURTZ16Jan2008
GMACMortgageLLCvMATTHEWSJudgeKURTZ10Jan2008
GMACMortgageLLCvSERAFINEJudgeCOSTELLO08Jan2008
HSBCBankUSANAvCIPRIANIJudgeCOSTELLO08Jan2008
The recent court decisions we cited suggest the banks may not be able to truly pass on this risk as they might want to. Today, a majority of mortgages have been transformed into securities, with values well into the trillions – this question, more than any other, remains a huge, outstanding issue for banks and homeowners alike.
The major question that we addressed earlier is who exactly owns your mortgage?
While there is no simple answer, part of the difficulty today is that international investors, including foreign governments, hold a large percentage of mortgage debt as a result of the sales practices of banks, along with Fannie Mae and Freddie Mac, who wanted to limit their direct holdings in the very same market they had built up.
While these institutions still often insured the mortgages (see Bloomberg ), they were eager to pass along the buck – until it finally stopped.
The banks dominated both Washington and New York with the influence of big money – both political parties benefited from different segments of the market – Democrats tended to favor offering low income home loans through government sponsored entities, while Republicans generally were happy to appease the deregulatory instincts of Wall Street. Rather than playing a blame game, however, what’s most important is how we get out of this crisis.
Now that these issues are entering the courts, the real question of the legality of securitized mortgage practices is coming to light. With government receivership of many lending institutions, somebody (likely the tax payers) will have to pay for the risk that everyone tried to pass on.
If there is an important lesson to learn here, it is that you cannot escape risk, you can only anticipate it.
Today, the courts are confronting this question head on, and their answer seems to be that the chain had broken long ago. As a result, while everyone wants to continue to pass along the risk to the next party, it’s going to stop somewhere, and it’s likely that investors will have to learn a lesson that they sought to avoid throughout this entire process: risk is real, and it is costly.