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How We Got Here

Here we will examine just how we got into the situation that we're in right now.

What's Changed

The basic way Mortgages have operated for over a hundred years has changed in the last decade.

A bombshell has dropped in mortgage land.
We've said for some time that document fabrication is widespread in foreclosures The reason is that the note, which is the borrower IOU, is the critical instrument to establishing the right to foreclose in 45 states (In those states, the mortgage, which Is the lien on the property, is a mere ‘accessory to the note).

The pooling and servicing agreement, which governs the creation of mortgage backed securities, called for the note to be endorsed (wet ink signatures) through the full chain of title.

That means that the originator had to sign the note over to an intermediary party (there were usually at least two), who'd then have to endorse it over to the next intermediary party, and the final intermediary would have to endorse It over to the trustee on behalf of a specified trust (the entity that holds all the notes).

This had to be done by closing, there were limited exceptions up to 90 days out: after that, no tickee, no laundry.

Evidence is mounting that for cost reasons, starting in the 2004-2005 time frame, originators like Countrywide simply quit conveying the note.  We are not finding out that this practice was widespread, and probably endemic.

The notes are apparently are still in originator warehouses That means the trust does not have them (in legalese that means "It is not the real party in interest").  Therefore, it is not in a position to foreclose on behalf of the RMBs investors. So various ruses have been used to finesse this rather large problem.

The foreclosing party often obtains the note from the originator at the time of foreclosure, but that isn't kosher under the rules governing the mortgage backed security.  First, it’s too late to assign the mortgage to the trust, second IRS rules forbid a REMIC (real estate mortgage investment trust) from accepting a non-performing asset, meaning a dud loan.  And it’s also problematic to assign a note from the originator if it's bankrupt.  The bankruptcy trustee must approve, and from what we can discern, these notes are being conveyed without approval from those bankruptcy trustees.  Plus, MERS is no employee of the bankrupt entity authorized to endorse the note properly, another wee problem.

We finally have concrete proof of how widespread document fabrication was.

Lets look at Lender Processing Services and see just what they do.