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Banksters to be forced to repurchase billions of dollars in mortgage-backed securities? What are the implications?

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As Dave Lindorff recently pointed out, for all these years Americans have been fed this myth that our homes are our castles, and that the best investment we could make in life was to invest in the "American Dream" of home ownership. Then Wall Street, having already stripped the industrial base down to the concrete pads, looked around and saw this huge pile of real estate ripe for the picking. They couldn't just steal our property outright, though. After all, we all had these deeds on file with the local county Deeds Office.

But we all had mortgages. And they figured out a way to steal those instead. They created derivatives known as Mortgage Backed Securities (MBSs), and while faux regulators were asleep at the wheel, they bundled our mortgages into tranches, chopped them into pieces, called them bonds, paid rating agencies to stamp these "bonds' triple-A, and started selling and trading these bastardized bonds around the world to gullible investors.

The tranches were designed to have varying risk levels, which they accomplished by combining "good" mortgages -- those that were expected to be repaid regularly -- with "bad" mortgages -- those likely to default. And then, since it's really no more than a guess as to whether any particular mortgage, good or bad, is going to default, and with government regulators still "out to lunch," they took it upon themselves to stick all these mixed-up mortgages into an electronic database called MERS (Mortgage Electronic Registration System) and then shifted them around as needed whenever they wanted to create a good tranche or a bad tranche or a mediocre tranche, to sell as securities. Thus the process of securitization that made them so much money, cheated so many gullible investors, and thereby led to our financial crisis.

But in doing what they did, it meant that they had to sever the chain of ownership of the repayment note formerly attached to those mortgages and please realize that it's that note, which is signed at a closing, that actually entitles its holder (e.g. the bank) to either collect payments on the mortgage or, in the case of a cessation of payments by the mortgagee/homeowner, to foreclose on a property, as the mortgage goes into default.

What I'm saying here is that the banking industry (inadvertently?) broke the chain of ownership on all the mortgages that have been securitized into (mostly junk) bonds for sale and I'm not just referring to those famous subprime mortgages you've heard so much about.

In other words, if you, like most Americans who are not renters, own a home and have been dutifully paying off a mortgage, it's quite likely that your local bank (which issued that document now in your safe deposit box and on file at your county's Deeds Office) no longer holds the note that's associated with that mortgage of yours. That note has likely long since been lost, perhaps even tossed into some shredder, and so nobody, really, has a clue as to who has a legal right to foreclose on your home. Which, for all practical purposes means that nobody does have that right.

And that means that if you were to go to your bank and demand to see your mortgage note before you pay them another goddamned dime, chances are they wouldn't be able to produce it, and wouldn't have any idea how to find out who, if anyone, has it.

And this means (at least in most states in the United States) that nobody could legally take your house away from you if you were to happen to decide to stop making mortgage payments. Fortunately for you, growing numbers of county sheriffs are aware of this and are therefore not enforcing foreclosures. Hence, since as far back as February 2009, Ohio Rep. Marcy Kaptur has been advising homeowners to force lenders to "produce the note." People facing foreclosure were being taken to court while the bank alleging default couldn't even prove it owned the mortgage. The mortgage document often had been lost in the tangled web of financial wheeling and dealing. Kaptur said, "Millions and millions of families are getting foreclosure notices and they don't have proper legal representation. . . Possession is nine-tenths of the law; therefore, stay in your property." Click here for source article.

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Think about it. According to a recent survey by American Core Logic, one quarter of all mortgaged homes in America today are now worth less than the amount owed on the mortgage. This, thanks to the reckless behavior of the banking industry. Which means that the tens of millions of homeowners in that situation, along with the tens of millions more who have seen the value of their property plummet, could just march into their bank, demand to see their mortgage repayment note, and, if it's not produced, quietly go back home, bolt the door, and stop paying off that mortgage.

Wouldn't that provide one hell of an economic stimulus! For me, it would mean about $1400 a month in extra cash to spend every month. What a way to create boom times for the US economy! -- and at the same time get revenge on the banksters who caused the problem in the first place! (What a nightmare scenario this must be for them.)

Could that be why the stock market swooned recently, dropping 1.5% like a rock on news that a group of rather prominent investors who had bought $47 billion in mortgage-backed securities from Bank of America were demanding that the nation's biggest bank buy this junk back? Those junk securities were issued by Countrywide Financial, which went bust and was taken over by Bank of America, and the securities are basically worthless today, so buying them back at face value would be a huge blow to BofA, whose shares slumped 4.4% on news of the bondholders' demand. Here are the details:

Bank of America pressured to buy back Countrywide securities because loans were improperly serviced

Bank of America Corp. has been hounded for months by demands to repurchase billions of dollars in mortgage-backed securities. On Tuesday, the Federal Reserve Bank of New York emerged as one of the sources of this pressure.

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The New York Fed is part of an investor group that owns more than 25% of the voting rights in about $47 billion of residential mortgage-backed securities issued by Countrywide Financial, the home loan giant that Bank of America acquired in 2008.

On Monday, the group wrote to Countrywide Home Loan Servicing and Bank of New York Mellon Corp., the trustee of the mortgage securities, saying they haven't been properly servicing the loans backing the securities.

The investors asked Bank of New York to demand the repurchase of loans that were originated "in violation of underwriting guidelines," according to a statement Monday by Kathy Patrick of law firm Gibbs & Bruns, which is representing the group.

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Several years after receiving my M.A. in social science (interdisciplinary studies) I was an instructor at S.F. State University for a year, but then went back to designing automated machinery, and then tech writing, in Silicon Valley. I've (more...)
 

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