Banks Lose to Deadbeat Homeowners as Loans Sold in Bonds Vanish

[David Farber <dave () farber net>]

Begin forwarded message:

From: dewayne () warpspeed com (Dewayne Hendricks)
Date: February 25, 2008 4:14:22 PM EST
To: Dewayne-Net Technology List <xyzzy () warpspeed com>
Subject: [Dewayne-Net] Banks Lose to Deadbeat Homeowners as Loans Sold  
in Bonds Vanish

[Note:  This item comes from friend Ken DiPietro.  DLH]

Banks Lose to Deadbeat Homeowners as Loans Sold in Bonds Vanish

By Bob Ivry
<http://www.bloomberg.com/apps/news?pid=20601103&sid=aejJZdqodTCM#>

Feb. 22 (Bloomberg) -- Joe Lents hasn't made a payment on his $1.5  
million mortgage since 2002.

That's when Washington Mutual Inc. first tried to foreclose on his  
home in Boca Raton, Florida. The Seattle-based lender failed to prove  
that it owned Lents's mortgage note and dropped attempts to take his  
house. Subsequent efforts to foreclose have stalled because no one has  
produced the paperwork.

``If you're going to take my house away from me, you better own the  
note,'' said Lents, 63, the former chief executive officer of a now- 
defunct voice recognition software company.

Judges in at least five states have stopped foreclosure proceedings  
because the banks that pool mortgages into securities and the  
companies that collect monthly payments haven't been able to prove  
they own the mortgages. The confusion is another headache for U.S.  
Treasury Secretary Henry Paulson as he revises rules for packaging  
mortgages into securities.

``I think it's going to become pretty hairy,'' said Josh Rosner,  
managing director at the New York-based investment research firm  
Graham Fisher & Co. ``Regulators appear to have ignored this, given  
the size and scope of the problem.''

More than $2.1 trillion, or 19 percent, of outstanding mortgages have  
been bundled into securities by private banks, according to Inside  
Mortgage Finance, a Bethesda, Maryland-based industry newsletter.  
Those loans may be sold several times before they land in a security.  
Mortgage servicers, who collect monthly payments and distribute them  
to securities investors, can buy and sell the home loans many times.

Housing Boom

Each time the mortgages change hands, the sellers are required to sign  
over the mortgage notes to the buyers. In the rush to originate more  
loans during the U.S. mortgage boom, from 2003 to 2006, that  
assignment of ownership wasn't always properly completed, said Alan  
White, assistant professor at Valparaiso University School of Law in  
Valparaiso, Indiana.

``Loans were mass produced and short cuts were taken,'' White said.  
``A lot of the paperwork is done in the name of the original lender  
and a lot of the original lenders aren't around anymore.''

More than 100 mortgage companies stopped making loans, closed or were  
sold last year, according to Bloomberg data.

[snip]


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