Thursday, November 15, 2007

Retribution, Complex Financialization, and the Law

A wonderful Ohio judge seems to have stopped foreclosure in Ohio because the investors in mortgage securities pools lack legal standing to foreclose because they cannot show proof ownership. After all, nobody knows who owns what.



Morgenson, Gretchen. 2007. "Foreclosures Hit a Snag for Lenders." New York Times (15 November).

"A federal judge in Ohio has ruled against a longstanding foreclosure practice, potentially creating an obstacle for lenders trying to reclaim properties from troubled borrowers and raising questions about the legal standing of investors in mortgage securities pools. Judge Christopher A. Boyko of Federal District Court in Cleveland dismissed 14 foreclosure cases brought on behalf of mortgage investors, ruling that they had failed to prove that they owned the properties they were trying to seize."

"The pooling of home loans into securities has been practiced for decades and helped propel real estate prices in recent years as investors sought the higher yields that such mortgage trusts could provide. Some $6.5 trillion of securitized mortgage debt was outstanding at the end of 2006."

"But as foreclosures have surged, the complex structure and disparate ownership of mortgage securities have made it harder for borrowers to work out troubled loans, in part because they cannot identify who holds the mortgage notes, consumer advocates say. Now, the Ohio ruling indicates that the intricacies of the mortgage pools are starting to create problems for lenders as well. Lawyers for troubled homeowners are expected to seize upon the district judge’s opinion as a way to impede foreclosures across the country or force investors to settle with homeowners. And it may encourage judges in other courts to demand more documentation of ownership from lenders trying to foreclose."


4 comments:

Shane Taylor said...

The plaintiff's argument that "'Judge, you just don't understand how things work,'" the judge wrote, "reveals a condescending mindset and quasi-monopolistic system where financial institutions have traditionally controlled, and still control, the foreclosure process."

Might makes the property right.

Myrtle Blackwood said...

Yes, It is a very interesting story. Personally I doubt whether judges will be allowed to repeat the Ohio judge's performance, regardless of its legal validity.

Another interesting story came through today on the 'Naked Capitalism' network describing the ratings agencies culpability in the financial market disasters playing out.

"The rating agencies' role was even more deeply compromised that most commentators recognize. Their practices made it cheaper to issue the very sort of paper that is was most profitable for them to rate. They did it by letting the creators and sellers of structured credit products play on the popular perception and regulatory fiction that all AAAs are created equal, when in fact, the more complicated the paper was (and therefore more costly to rate) the more risk it was allowed to carry in each rating class...

More at:
http://nakedshorts.typepad.com/nakedshorts/files/EinhornOnCredit.pdf

Anonymous said...

I refer back to a comment I left, dated 11/11, on the post from Perelman entitled, "More Economic Imbalances." I'm a bit surprised that no one picked up on the point that it may very well be that many mortgages were originally fraudulent, having been originated by less than reputable mortgage brokers and bankers. I noted a bankruptcy proceding in NJ which details the scam, which was a Ponzi type of fraud, based on defrauding the banks that later bought those mortgages inorder to create those mortgage backed instruments. If it happened in NJ it's a good bet that the same scam was going on across the country as had happened ini the S&L debacle.

Myrtle Blackwood said...

Jack said: "..If it happened in NJ it's a good bet that the same scam was going on across the country ..

Yes, indeed. If you go to:
http://www.abc.net.au/4corners/content/2007/s2035637.htm
You will get the program transcript of the Australian Broadcasting Commission's recent (Sep07) show on the US mortgage meltdown. It doesn't beat about the Bush when it states that the only criterion for eligibility for 'subprime' was that the prospective borrower be breathing.