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

By   Follow Me on Twitter     Message Richard Clark       (Page 1 of 5 pages)     Permalink

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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.

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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.

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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.

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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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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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