The unfolding foreclosure fraud crisis isn’t easy to understand, but here it is boiled down. Banks need proper documentation to repossess a home from a family.
The unfolding foreclosure fraud crisis isn’t easy to understand, but here it is boiled down. Banks need proper documentation to repossess a home from a family. They need documents about everything from the family’s financial situation to its history of missed payments to its assets. And they need to verify that the information in those documents is correct. But they didn’t. They hired individuals to sign thousands of mortgage papers — legal affidavits, swearing to a judge that they had personal knowledge of the information within — without checking a thing.
Only 23 states require a judge to sign off on a foreclosure, but some banks are now stopping foreclosures in all 50 states. Moreover, they are halting the sale of foreclosed properties to new homeowners.
So who stands to gain? And who stands to lose? Let’s go through the possible impacts on major players and markets, one by one.
There is massive potential liability for the securitizers, which are mostly the biggest banks. The contract was that if mortgages didn’t meet certain requirements, then the securitizer would buy them back. The mortgage servicers and trustees have exclusive control over the paperwork. Both the investors, the people who own the mortgage-backed securities, and the homeowners, really depend on them. There’s been lots of litigation where investors try to get securitizers to buy back the bad mortgages because they were flawed, but that litigation has been stymied by procedural objections. If the private investors can break through that defense and require the mortgages that don’t meet the requirements to be bought back, the liabilities for the biggest banks will be enormous.
A little of each:
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