Surprises in the Foreclosure Crisis
By Admin
Banks have not anticipated the effects of the current legal challenges to foreclosure documentation that have roiled the real estate markets the past several days. At first it appeared the administrative problems could soon be corrected to allow resumption of the current unwinding of non performing debts. However, some accounts now say that it may take much longer to correct the documentation of who owns the loans before foreclosures may continue.
Here is a link to a CNBC article by Diana Olick. In it she quotes Georgetown Law Professor Adam Levitin.
The mortgage is still owed, but there’s going to be a problem figuring out who actually holds the mortgage, and they would be the ones bringing the foreclosure. You have a trust that has been getting payments from borrowers for years that it has no right to receive. So you might see borrowers suing the trusts saying give me my money back, you’re stealing my money. You’re going to then have trusts that don’t have any assets that have been issuing securities that say they’re backed by a whole bunch of assets, and you’re going to have investors suing the trustees for failing to inspect the collateral files, which the trustees say they’re going to do, and you’re going to have trustees suing the securitization sponsors for violating their representations and warrantees about what they were transferring.
The article also cites problems with pooling and servicing agreements that may be much more difficult to fix.
This article from Reuters blogger Felix Salmon provides a description of problems with how the investment banks packaged and sold collateralized debt obligations to investors.
Update to the story:
http://tinyurl.com/27mo9fq
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