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Securitization: Mortgage banks hit by putback time bomb

That banks and mortgage servicers may have foreclosed on US homes without adequate documentation further blackens their already tarnished reputations. But the foreclosure scandal has increased the prospect of a far greater attack on mortgage securitization – one that even if it does not destroy the market altogether could cost the banks as much as $180 billion. Helen Avery, Louise Bowman and Peter Lee report.

DUSTIN ZACKS, AN attorney at law firm Ice Legal in Florida, is snowed under. His firm is examining some 500 cases where homeowners feel they are being, or have already been, incorrectly foreclosed upon. This is a burning issue in Florida – the state has the third-highest foreclosure rate in the US, with more than half a million homes now in foreclosure proceedings. But Zacks is far from being the only busy foreclosure lawyer in the US. Foreclosures on residential mortgages have boomed from 532,000 to 2.4 million over the past five years. And as the volume of cases has grown the extent to which banks have been sloppy in ensuring that they have the correct documents in place to bring about a foreclosure has become readily apparent. Many have also shown only token adherence to due process, cutting corners – playing the cheapskate on a procedure that is traumatic for homeowners even if it is only a bulk-processing requirement for the banks. That the largest mortgage servicers in the country have admitted to employing "robo-signers" to stamp up to 10,000 foreclosures a month (with, in some cases, no experience and, in most cases, no checking of documentation) has caused revulsion.

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