Thousands of Investors May Own Your Mortgage
By: Nick Adama
In the foreclosure crisis, it bears mentioning that it takes "two to tango." Homeowners and lenders worked together to take advantage of the low mortgage rates and easy money conditions, and now they are forced to work together to prevent rising defaults from decimating the real estate market. But in this case there may be dozens or hundreds of other parties involved in the dance, as well, as ownership of delinquent mortgages have been called into question.
So homeowners took out a mortgage they did not understand and are now in default of? It seems that few people analyzing the situation have much sympathy for homeowners using the strategy of forcing the lender to show it owns the promissory note and has legal standing to foreclose on the underlying collateral and take the house back. In any such case where borrowers have missed numerous payments, though, it is only the owner of the mortgage that should be able to take the house through foreclosure.
But just who owns the mortgage?
Is it the original subprime lender that is now probably out of business? No, the original lender sold the loan to Wall Street in packages. Loans were originated and at the end of the month, potentially hundreds of similar loans were sold in bulk to Wall Street Investment firms, which may have provided the initial lines of credit to the mortgage originators anyway. In fact, lenders were really just front companies and conduits for Wall Street: money was loaned by Wall Street to homeowners through these lenders, and then Wall Street bought back the loans in order to take further steps to increase their profits on these mortgage collateralized debt obligations (CDOs).
Is it the Wall Street bank? No, investment firms sliced up rights to the packaged loans and sold them to other parties. Once the packages of loans were received by the investment banks, they were put into any number of different accounting vehicles or trust, typically a Structured Investment Vehicle (SIV) based in the Cayman Islands. Rights to payments were categorized by risk and the SIVs issued bonds based which were sold to investors, while rights to collect monthly payments from homeowners were sold to mortgage servicing companies.
Is it the SIV in the Cayman Islands that was assigned the mortgages? No, this was just the bank's financial sleight of hand to get the loans off its balance sheet. In any event, the investment firms sold off the legal ownership of the mortgages once they were securitized. Of course, now that many of these mortgages are going bad at incredible rates, the SIVs may have to be taken back by the banks and claimed on their balance sheets and written down to their current market values. The hundreds of billions of dollars in writedowns already taken may be just the beginning if these SIVs fail to meet the accounting rules for separate treatment. But they are still not the end owners of the mortgages.
Is it the mortgage servicer? No, they only bought the rights to collect the payments and take a portion before sending the rest onto the investors. Homeowners who are forced to negotiate with such a company for a mortgage modification or other solution to foreclosure are often turned down by the servicer because "the investors denied the request" for assistance. The servicing companies have always admitted that the final decision to foreclose or work out a plan is not in their hands; thus, they can not be the owner of the mortgage with full rights to make decisions about the loan.
Is it the investors? No investor was assigned as the owner of any specific mortgage, as the entire point of these mortgage CDOs was to spread the risk around. If hundreds of hedge funds, mutual funds, pension funds, and individual investors own small percentages of a single mortgage, then all of them would have to agree to move ahead with a foreclosure. But even then, if this ownership scheme were the case, then an assignment of the mortgage deed of trust should be somewhere in the names of all of these owners. Of course, this is almost impossible, and no mortgage that was sliced up and sold off in bonds has been assigned to the final investors.
Granted, homeowners who have fallen behind on their mortgage should eventually bite the bullet and try to find a way to stop foreclosure once ownership of their loan has been established in the courts. But if a hedge fund in the Cayman Islands, a pension fund in Australia, and a mutual fund in Chicago are all part owners of this same mortgage, then who could blame the borrowers for fighting this unnecessary complexity any way they can? It may be impossible to negotiate any solution besides foreclosure to such a tangled financial web of lies designed to spread the risk of foreclosure to hundreds of investors but leave all the harm of foreclosure squarely with the borrowers.
After all, it would be a little ridiculous for a bank to issue a mortgage and then the homeowners transfer their rights to the house to thousands of other people to "spread the risk." In fact, banks have clauses in loans to prevent just such a plan from happening with Due on Sale Clauses standard in mortgage contracts.. Homeowners, though, are simply expected to allow their mortgage to be assigned to hundreds of parties counting on their payments who have no real ownership interest in their loan and then quietly, with no fight, watch these same banks and investors foreclose on their house and render them homeless.
Article Source: http://www.ezarticles.info
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