2 States Probe Paperwork in Mortgage Bundling - http://nyti.ms/jPBgkf
Underwater Mortgages is Keeping America's Recovery Drowning http://dlvr.it/W7CMf
Fed number 2: No quick or easy solutions’ for housing woes http://t.co/0DtfLlo
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Lisa Epstein
ForeclosureHamlet.org
Two States Ask if Paperwork in Mortgage Bundling Was Complete
By GRETCHEN MORGENSON
Published: June 12, 2011
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Opening a new line of inquiry into the problems that have beset the mortgage loan process, two state attorneys general are investigating Wall Street’s bundling of these loans into securities to determine whether they were properly documented and valid.
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Eric T. Schneiderman, the New York attorney general, is leading the investigation into Wall Street’s bundling of mortgage loans.
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Joseph R. Biden III, the attorney general of Delaware, has teamed up with Mr. Schneiderman for the investigation.
The investigation is being led by Eric T. Schneiderman, the attorney general of New York, who has teamed with Joseph R. Biden III, his counterpart from Delaware. Their effort centers on the back end of the mortgage assembly lines — where big banks serve as trustees overseeing the securities for investors — according to two people briefed on the inquiry but who were not authorized to speak publicly about it.
The attorneys general have requested information from Bank of New York Mellon and Deutsche Bank, the two largest firms acting as trustees. Trustee banks have not been a focus of other investigations because they are administrators of the securities and did not originate the loans or service them. But as administrators they were required to ensure that the documentation was proper and complete.
Both attorneys general are investigating other practices that fueled the mortgage boom and subsequent bust. The latest inquiry represents another avenue of scrutiny of the inner workings of Wall Street’s mortgage securitization machine, which transformed individual home loans into bundles of loans that were then sold to investors.
It follows months of sharp criticism of the mortgage foreclosure process, which produced an uproar last year over shoddy paperwork and possible forgeries of legal documents by banks, other lenders or their representatives.
The slipshod practices in foreclosures led to further questions about whether all the necessary documents were delivered to the trusts and properly administered by them.
Some of the nation’s biggest mortgage servicers are currently in negotiations with a group of state attorneys general to settle an investigation into foreclosure abuses. The new inquiry by New York and Delaware indicates the big banks’ troubles may not end even if a settlement is reached in the foreclosure matter.
The stakes are potentially high. If the trustees did not follow the rules set out in the prospectus, they may be liable for breaching their duties to investors who bought the securities. That could expose the banks to costly civil litigation.
Spokesmen from Bank of New York and Deutsche Bank declined to comment about the investigation, as did representatives from the offices of both attorneys general.
A complex process that produced hundreds of billions of dollars in securities during the lending boom, the issuance of mortgage securities began with home loans, which were then bundled into investments and sold to pension funds, mutual funds, big banks and other investors. The bundles were created as trusts overseen by institutions such as Bank of New York and Deutsche Bank; they were supposed to make sure the complete mortgage files for each loan were delivered within a specified time and with the proper documentation.
After the securities were sold, the trustees disbursed interest and principal payments to investors over the life of the trusts.
The trusts were governed by the laws of the states in which they were set up. Roughly 80 percent of the trusts are governed by New York law with the rest by Delaware law.
The rules governing the securitization process are labyrinthine, and there are steps required if the investment is to comply with tax laws and promises made by the issuer in its offering document. If the trusts did not comply with tax laws, for example, the beneficial treatment given to investors could be rescinded, causing taxes to be levied on the transactions.
The terms of these mortgage deals varied, but many of them required that the trustee examine each of the loan files as soon as they came in from the Wall Street firm or bank issuing the security. For a file to be complete, it would typically have to include all of the information necessary to establish a chain of ownership through the various steps of the bundling process, as when the originator transferred it to the issuer of the security who then moved it to the trustee.
Complete loan files were supposed to be delivered to the trusts within 90 days in most cases. If the trustee found any missing or defective documents, it was supposed to notify the loan originator so that it could either cure the deficiency or replace the loan. Such substitutions are typically allowed only in the early years of the trust.
By asking for documents relating to this process, investigators are trying to determine if the trustees fulfilled their obligations to the investors who bought the mortgage deals, according to the people briefed on the inquiry.
A version of this article appeared in print on June 13, 2011, on page B1 of the New York edition with the headline: Two States Ask if Paperwork in Mortgage Bundling Was Complete.
Underwater Mortgages is Keeping America's Recovery Drowning
Mon, 2011-06-13 05:47 — Mortgage News Ticker
The latest CoreLogic data shows that 27.7% of mortgages are underwater. And no matter how low interest rates go, many U.S. mortgage holders with underwater mortgages are no longer eligible for refinancing, according to Societe Generale. This, along with a rise in uncertainty and reduction in mobility, is damaging the U.S. recovery.
From Societe Generale:
Negative equity by itself does not create a cash flow problem. In fact, any auto loan is “underwater” the minute the new car owner drives off the dealer’s lot. However, the problem with underwater mortgages is threefold:
First, homeowners with negative equity are more adversely impacted by income shocks, putting them at risk of foreclosure or a short sale. ...
... Second, homeowners with negative equity are less likely to successfully complete a consumer credit card, auto loan, small business loan or any other credit application process. ...
... Third, mobility is greatly reduced when the option to sell one’s house is no longer available. ...
Please read the full article on Business Insider, Inc.
Fed number 2: ‘No quick or easy solutions’ for housing woes
By Zachary Roth
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By Zachary Roth zachary Roth – Thu Jun 9, 3:17 pm ET
The deeply troubled housing market isn't likely to get better any time soon, the Federal Reserve's number 2 official has warned.
"Looking forward, I unfortunately can envision no quick or easy solutions for the problems still afflicting the housing market," Fed vice chair Janet Yellen (pictured) said in a speech today in Cleveland. "Even once it begins to take hold, recovery in the housing market likely will be a long, drawn-out process."
The Fed is working with other government agencies to avert foreclosures and clear the stock of vacant properties that's holding the sector back, Yellen said. Almost 2 million homes were vacant in the first quarter of the year.
The S&P/Case-Schiller index fell to its lowest level since 2003 in a survey released last week. And Fed chair Ben Bernanke warned in a Tuesday speech that the housing sector's ongoing woes are exerting a major drag on the rest of the economy.
Robert Schiller, who co-founded the index, said today that a further decline in home values of 10 percent to 25 percent over the next five years "wouldn't surprise me at all."
(AP Photo/Mark Lennihan)
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