Practice Areas

Blog

News

Library

Testimonials

• "I sent this letter certified after receiving the free guide [from] Phillips & Garcia P.C. Saved Foreclosure. Thanks a million!" A.D. from Colorado
• After seeing first hand what you are up against concerning the big banking companies, we are even more amazed that you are willing to fight the fight. The little guy needs your help and your fearless attitude. You are good people and true Americans. We are honored to be called your friends. R.R. - Mich., Lockout & Trashout Victim
• The attorneys were very professional and I felt as though they always had my best interest in mind. Without them I would have been pushed around and just another number to the bank. N.L., Wrongful Lockout Victim
• Thank you Mr. Phillips. If we hadn't found you the [Bank] would have foreclosed on our property and I can't imagine the misery that they would have caused. S.N. - Arizona

View All

Who Owns My Mortgage? Understanding Mortgage Securitization is Key

My father emigrated from the Azores to Southeastern Massachusetts when he was seven years old. In fact, there is a large population of people of Portuguese descent in this area. And, like many immigrants who came here at that time, his family worked very hard every day to scrape out an existence.

I've always thought of my father as a traditional, somewhat conservative thinker when it comes to money. And, this is probably due to his heritage and upbringing. Still to this day he likes to deal with local, small banks where he can keep his money and from where he can get his mortgages. I believe that he likes the idea of being able to deal with a local banker and he likes knowing that his local bank is the holder of his mortgage.

Quite frankly, as a second generation Portuguese-American "kid," I've sometimes thought his traditional thinking was a little old fashioned. And, I never bought into his idea of having to deal with a local bank, especially for a mortgage.

Well, my opinion has been changing thanks to this recent foreclosure debacle that centers around the problems with foreclosure documentation known as "robosigning." In a nutshell, it has been discovered that large banks have had employees signing off on foreclosure affidavits and documents without verifying the information in them and without following basic notary laws (like actually signing the documents in the presence of the actual notary); apparently, some employees have even been forging signatures and changing dates.

Anyway, this robosigning foreclosure scandal has really brought to the forefront Wall Street's practice of using mortgages as investment products. And the nature and complexity of these mortgage-based investment products has really left some serious questions about the legitimacy of title and ownership in a mortgage for the banking industry.

The term "securitization of mortgages" is constantly in the media these days, but the phrase does not easily explain what securitization of a mortgage is. The process of securitization works like this: a home owner gets a mortgage to buy a house or refinances an existing mortgage with a new mortgage. The lender then pools that mortgage loan with hundreds of other mortgage loans to create a "security" that can actually be traded like a stock.

Wall Street firms then set up various partnerships that are called "trusts" and would raise money from different sources like pension funds, university endowments, hedge funds and other investors so that they could buy these mortgage securities. Investors in these trusts would then would share the "cash flow" from the mortgage payments made by homeowners each month.

What's interesting about this whole set-up is that a homeowner's mortgage payments are now handled and collected by "servicers" and not the bank that actually loaned them the money. But, most homeowners don't even realize that their day-to-day dealings are with a mortgage servicer and not the actual bank that loaned them the money.

For example, every week I must hear someone who says that his mortgage is with Bank of America and that's who he makes his payments to. The reality is that he's probably making his payments to BAC, which is a mortgage servicing company created by Bank of America to service mortgages that are part of a pool of securitized loans. Most likely, his loan was sold off by Bank of America to a trust of investors within days of him getting his mortgage.

For the last decade or so, big lenders have sold off millions of mortgages around the globe in this securitization process. One of the problems being exposed now is that when these lenders sold off the mortgages, they didn't properly transfer the physical documents that prove who legally owns or holds a particular mortgage. So, this lack of proof of ownership can actually be a defense to a foreclosure for a homeowner facing the loss of his home and foreclosure judges in some states are beginning to dismiss foreclosure lawsuits until the bank can show that they properly own or hold a loan.

As it turns out, some analysts believe that the investors in these mortgage pools (i.e., those pension funds, university endowments and hedge funds) are going to be looking to those banks that sold them the loans without the properly transferred documents for their losses. Given that an estimated 2/3 of the $11 trillion in U.S. mortgages were turned into securities and transferred around the globe, this could blast another huge hole in the financial system.

So, I guess my father, like so many other traditional Portuguese-American locals, is right. Maybe dealing with a small, local bank that holds onto your mortgage and collects the payments month after month rather than selling it off in a large pool of risky securities is the best way to go.

If only Wall Street had listened to him...

Videos

Contact Information

Free Book

FAQs