Saturday, February 23, 2008

Bloomberg: Banks Lose to Deadbeat Homeowners as Loans Sold in Bonds Vanish

I found this Bloomberg story quite amusing on many levels... I just love when bankers outsmart themselves.
  • Joe Lents hasn't made a payment on his $1.5 million mortgage since 2002. That's when Washington Mutual Inc. first tried to foreclose on his home in Boca Raton, Florida. The Seattle-based lender failed to prove that it owned Lents's mortgage note and dropped attempts to take his house. Subsequent efforts to foreclose have stalled because no one has produced the paperwork.
  • ``If you're going to take my house away from me, you better own the note,'' said Lents, 63, the former chief executive officer of a now-defunct voice recognition software company.
  • Judges in at least five states have stopped foreclosure proceedings because the banks that pool mortgages into securities and the companies that collect monthly payments haven't been able to prove they own the mortgages. The confusion is another headache for U.S. Treasury Secretary Henry Paulson as he revises rules for packaging mortgages into securities.
  • ``I think it's going to become pretty hairy,'' said Josh Rosner, managing director at the New York-based investment research firm Graham Fisher & Co. ``Regulators appear to have ignored this, given the size and scope of the problem.'' (remember, regulation is evil. Banks left to their own devices, as any large corporations do, are always in the best interest of consumers and will police themselves out of goodness of their heart, far better than those darn regulators who only add costs to the system and kill consumers with their overbearing ways. In fact we should remove regulation from our food supply, kill the FDA off, and take police off the street... just anotehr set of burdensome expenses and another tax on the poor consumer - I see the light now!)
  • More than $2.1 trillion, or 19 percent, of outstanding mortgages have been bundled into securities by private banks, according to Inside Mortgage Finance, a Bethesda, Maryland-based industry newsletter. Those loans may be sold several times before they land in a security. Mortgage servicers, who collect monthly payments and distribute them to securities investors, can buy and sell the home loans many times.
  • ``All these loan documents are being sent to the inside of a mountain in the middle of America and not being checked very carefully,'' Saft said. ``The lenders can't find the paper. We're dealing with a lot of paper produced in a mortgage closing.''
  • U.S. District Judge David D. Dowd Jr. in Ohio's northern district chastised Deutsche Bank National Trust Co. and Argent Mortgage Securities Inc. in October for what he called their ``cavalier approach'' and ``take my word for it'' attitude toward proving ownership of the mortgage note in a foreclosure case.
  • ``Something is wrong if you start from what I think is the reasonable assumption that these banks are not losing all of these notes,'' Raskin said. ``As an officer of the court, I find it troubling that they've been going in and saying we lost the note, and because nobody is challenging it, the foreclosures are pushed through the system.''

Well maybe not all is lost ... could see a nice dip in foreclosures due to this ;) My dip I just mean a slower growth trajectory. Sweet justice I say. Somehow, I am afraid the people who probably need this info most won't get it... but at least the millionaire homeowners have gotten it figured out ;)

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