November 15, 2007
Ohio Court Stops Foreclosures by SIVs
A federal judge in Ohio, Judge Boyko in Cleveland, asked a straightforward question of Deutsche Bank National Trust Company, a trustee for securitization pools of mortgage backed securities. The bank was attempting to foreclose on 14 homes in Ohio. "Prove that you own the loan and the mortgage." he asked. The Bank could not. The legal papers had not kept up with the multiple assignments that created the securitization pools. This is a new and serious wrinkle for the already hammered SIVs who have pooled subprime mortgages and sold securities in the pools to others. The default rates on the mortgages are up and the value of the securities is, corresponding, down, causing major banks, who had purchased the securities to take massive write-downs. Now the potential defaults will be augmented by the possibility that the SIVs cannot execute on the homes. Loans that were worth 40% to 60% of their face value (due to the underlying collateral, the home) are suddenly worth nothing, nadda, zero. The write downs will get bigger unless the lawyers can figure out how to find the appropriate legal documents that demonstrate ownership.
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Judge Boyko's observations are going to reverberate far beyond the northern district of Ohio. His being told by plaintiff's counsel that he just "didn't understand how the markets work" is remarkably similar to an exchange I had last year with a supercilious twit from Simpson Thatcher in the context of a proposed securitization of a leasehold mortgage on a resort hotel. When I quizzed her about the necessity of a written mortgage assignment in recordable form (under Fla. law), she sighed and told me "that's not how it's done." (Stupid me, I was trained that a mortgage assignment actually had to be a written document recorded in the applicable real estate records.) Well, we'll see "how it's done" as this real estate tsunami rolls out. I think some NY forms need to look at their E&O exposure.
Posted by: Windermere Reader | Nov 16, 2007 5:45:41 AM
Banks and mortgage lenders are not really in the Real Estate investing business. In fact they are really in the lending business and they want to collect interest on loans and the fees they get for servicing and so forth. But, they must deal with the large number of defaulting loans. Unfortunately for banks, many are not permitted to keep these non-performing assets on their books. This creates opportunities for investors to buy the banks' problem properties. But, buyer beware; do your homework and make sure that you understand you will be buying "As Is" unless you manage to get the bank to fix the property before you take it over. You may find properties for sale on the banks' own Web sites: Bank of America, Countrywide and U. S. Bank each have some.
Posted by: John | Dec 6, 2007 1:34:56 AM