Securitization under question?
The foreclosure abuses furore has led to suggestions that the whole process by which mortgages are transferred to trusts during securitization could now be in doubt. If substantiated, this would have dire consequences: non-agency mortgage finance would immediately screech to a halt.
Dustin Zacks, attorney at Ice Legal, says that as his firm has started delving into cases where foreclosures have been inappropriate, it has become clear that confusion over rightful ownership of the mortgage dates to the moment of securitization. "There are so many documents that have to be completed and checked and passed on, and in tracing back the owners of the mortgages through the chain we are hitting a brick wall around the time the mortgages were securitized. Who owns the mortgages?" If ownership is in doubt, so is the entire securitization structure.
The procedures whereby mortgage loans are transferred to securitization vehicles, known as real estate mortgage investment conduits (Remics), have been in place for decades. They are the same as those whereby mortgages are transferred to Fannie and Freddie. They involve a contract between seller and buyer establishing the intent to sell the mortgage; the delivery of the mortgage note to the buyer, and the assignment of the mortgage. Fannie, Freddie and the Mortgage Bankers Association set up the Mortgage Electronic Registration System (Mers) in the mid-1990s whereby this transfer could be achieved electronically. It is the use of Mers in securitization that has now called into question its validity.