So sayeth the head of one of the major subprime loan originators - speaking about the legal consequences of his industry not moving the paper - the mortgages and assigned notes - in the way that current law requires.
Hardly breaking news, but the fact is the "we're f*cked" scenario and its implications are a trillion dollar question writ large across the nation's residential mortgage market. What can be done to fix a situation that (on the face of it) appears to invalidate mortgages & their derived securities nationwide? Lenders like Countrywide appear to have held onto loan documents they were legally obligated to deliver to firms purchasing those loans.
The bonus round was banks presenting notes at time of foreclosure that were improperly endorsed - that is, they weren't signed over to the foreclosing party, yet were submitted by that party as evidence in support of a foreclosure proceeding. (emphasis added)
Although law enforcement should be able to answer the delivery question easily -- [Countrywide employee] DeMartini['s testimony] indicated that Bank of America has FedEx tracking records for each note -- it's impossible for the public to check. But the endorsement of notes is easy to test. In every foreclosure, the bank must give the court the note or an accurate copy of it. And those notes are either properly endorsed or they're not.
To check DeMartini's testimony, Fortune examined the foreclosures filed in two New York counties (Westchester and the Bronx) between 2006 and 2010. There were 130 cases where the Bank of New York (BK) was foreclosing on behalf of a Countrywide mortgage-backed security. In 104 of those cases, the loan was originally made by Countrywide; the other 26 were made by other banks and sold to Countrywide for securitization.
None of the 104 Countrywide loans were endorsed by Countrywide – they included only the original borrower's signature. Two-thirds of the loans made by other banks also lacked bank endorsements.
As numerous observers have pointed out, this is not a small thing, since -
- who holds the note determines who can foreclose
- who can (or can't) foreclose impacts whether or not a loan is secured or not; and
- whether a loan is secured or not determines whether or not it has value if the borrower has defaulted.
Add to that the percentage of home borrowers in default (around 9%) and those who owe more than their house is worth (around 23%) and you have the recipe for a very big mess heading toward this nation's bankruptcy courts.
Which is not to say, wow look at this breaking bit of news - but more like. How the F*ck is this time bomb still ticking away?
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