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Commentary

COP report on mortgage irregularities

16 Nov 2010 by Jim Fickett.

The latest report from the Congressional Oversight Panel is a very thorough overview of problems in mortgage documentation.

Today the Congressional Oversight Panel released a report entitled Examining the Consequences of Mortgage Irregularities for Financial Stability and Foreclosure Mitigation.

I was hoping there might be some new data on the pervasiveness of the mortgage ownership issues, but there was not. The report is mainly a very thorough review of what has already been published in various places. It goes into far more detail than anything else I've seen, for example carefully reviewing the various court cases and possible implications for MBS holders, banks, and homeowners. If you have a few hours and want to really understand the issue, this report would be an excellent source.

It is still very unclear where all of this is heading:

In the best-case scenario, concerns about mortgage documentation irregularities may prove overblown. In this view, which has been embraced by the financial industry, a handful of employees failed to follow procedures in signing foreclosure-related affidavits, but the facts underlying the affidavits are demonstrably accurate. Foreclosures could proceed as soon as the invalid affidavits are replaced with properly executed paperwork.

The worst-case scenario is considerably grimmer. In this view, which has been articulated by academics and homeowner advocates, the “robo-signing” of affidavits served to cover up the fact that loan servicers cannot demonstrate the facts required to conduct a lawful foreclosure. In essence, banks may be unable to prove that they own the mortgage loans they claim to own. …

If documentation problems prove to be pervasive and, more importantly, throw into doubt the ownership of not only foreclosed properties but also pooled mortgages, the consequences could be severe. Clear and uncontested property rights are the foundation of the housing market. If these rights fall into question, that foundation could collapse. Borrowers may be unable to determine whether they are sending their monthly payments to the right people. Judges may block any effort to foreclose, even in cases where borrowers have failed to make regular payments. Multiple banks may attempt to foreclose upon the same property. Borrowers who have already suffered foreclosure may seek to regain title to their homes and force any new owners to move out. Would-be buyers and sellers could find themselves in limbo, unable to know with any certainty whether they can safely buy or sell a home.