Do you really think that you owe the original bank the money that you used to purchase your home? Sure bet, you don't! Today's mortgage world is far different from when your parents bought their house from borrowed money at their local Savings & Loan. Today, mortgage loans are what we call securitized assets or mortgage backed securities (MBS). As my prior blog explains, the mortgages that caused the recession, specifically the sub prime stuff (bad loans with unrealistic payment terms or options), were all pooled into groups of assets which were then packaged and resold as investments on Wall Street. Most of the MBS's were mixed mostly with sub prime mortgages, sprinkled in with a little A paper (good loans that you know have a low risk of defaulting) to give it some spice appeal. Rating agencies would then provide their mark of approval on these MBS's and rate these pools as Grade A investment material. These repackaged loans were then sold to investors looking to make a return on their investment, contingent upon the expectation that those borrowers of the original sub prime mortgages would continue to make good on their mortgage payments. When those loans defaulted, big banks and Wall Street firms like Lehman Brothers lost a lot of money, insurance companies like AIG had to spend a lot of money, and private investors like you and me saw their 401K's and IRA's lose 50% of their value. As a result of the Lehman Collapse, The money markets for big business froze so much so, that the Government had to step in to bail out basically the entire Country from the mess Government Regulators, like the Office of Thrift Supervision. (OTC) & the Securities and Exchange Commission (SEC), let happen on their watch.
Now here comes the technical stuff about these MBS's. When a mortgage is transferred to one of these MBS pools or Mortgage Trusts, an assignment or transfer of the original mortgage note you purchased must occur. When you bought your home at settlement, you were given a stack of papers requiring your signature. In that stack of papers was a document called the Note. This Note was basically a promise that you would pay back the money you were being loaned to buy your house over some period of time, at some interest rate (fixed or adjustable), within a certain number of years, but if you defaulted and failed to make payment, the note holder has the right to repossess or foreclose on your home. The Note required your signature and represented your obligation to pay your mortgage. Now here is the really good part: When lending banks eventually transferred these Notes to other intermediary institutions, then finally the Mortgage Trusts, many of these transfers never actually followed the legal procedures of the local land records office where the home was situated and they never actually filed proper Assignment Documents in those land records offices to legally legitimize the assignments, ever! Instead they recorded these transfers to an electronic servicing company such as Mortgage Electronic Registration Service (MERS) that keeps track of what trust has what mortgage, and what bank actually holds the note now. This was being done Nationwide and the practice still continues today!! You might say, why does this matter? Well for starters, most States' laws dictate that in order for an assignment of a mortgage to be valid, their must be an Assignment Document filed in the land records office of where the real property is situated with a filing fee paid, so that anyone can walk in and see who holds the debt against that piece of property. As a result, these MBS Trusts were able to avoid paying millions in filing fees, however, the unintended legal consequence is that now they may not be the legal owner of the Note under State law! Wait it gets better!! Stay tuned for Part II.