Monday, November 08, 2010

This Time, The Opposition is Right To Question Bank Procedures

I'm no great fan of the anti-business types; too often, they oppose big businesses just to be difficult, if not with the specific intent of undermining capitalism.

This time, they're right to oppose the robo-signing of foreclosure documents.

The slice-and-dice breaking apart of the original mortgages enabled companies to sell what are called "mortgage derivatives".  One big user of the instrument was Countrywide (full disclosure:  I used them twice, in 2 different home sales).  Apparently, they weren't fussy about paperwork, and granted MANY mortgages with shaky financing.

Because the mortgages were re-sold in parts, they were considered "safer" than selling a single mortgage, which would have to be scrutinized to see whether it was a good deal for the purchaser of the mortgage.  As a result, when a bank re-sold a single mortgage, they had to have all the paperwork intact and looking good.

Not so derivatives.  Now that there is a need to foreclose on those mortgages that underly them, the banks are finding that the original paper is lost, missing, or in different places, including in the old files on long-gone banks.

On one hand, banks certainly deserve to be able to foreclose on deadbeats who aren't paying their legal obligations.

On the other hand, state laws are VERY firm on this particular type of transaction.  You have to follow ALL the steps, and definitively prove your claim when it comes to mortgages.  Fail to do so, and the foreclosure can be tossed out of court.

Some of the problems:
There was much evidence, for instance, that mortgage servicers - responsible for collecting payment from borrowers and foreclosing when loans default - were charging improper fees and engaging in other questionable practices.
A 2007 study by Kathleen Porter, a University of Iowa law professor, found that servicers often tried to seize people's homes improperly, adding new fees when borrowers wanted to try saving them. She found that many servicers "lack the required documentation necessary to establish a valid debt."
That's why the temporary hold on foreclosures.  Sure, some of the borrowers will undeservedly get extra time in their homes.  Some will be able to re-negotiate, that would not have been able to.  And, some will get under from the push to get them out, and get back on safe financial ground.

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