There may be some respite for Foreclosure victims. Some attorneys have filed class action law suits against certain Mortgage Originators. Recall from Bondads diary today, how Mortgage Lenders do not hold the paper on the loans they write. Instead that paper is passed on, sold and parcelled out to investors. This frees up the banks balance sheet to make new loans, and the bubble keep getting bigger. In the process corners were cut, and now the investors holding the toxic are trying to trace it back to the problem, and assign responsibility.
I gleaned this from Jim Willies report, and then I did some searching to see if I could find an example.
◄ HOMEOWNERS FIGHT BACK, LEANING ON THE SLOPPY BROKER DEALER CONTRACT LIEN PERFECTION. What irony! The horrendous backfire has been the mortgage delinquencies, defaults, foreclosures, and wipeouts for homeowners. The Hat Trick Letter reports have covered them. Some victorious REVENGE has begun by homeowners in their defense. The Wall Street greed came with sloppy methods. Many mortgage underwriters failed to properly provide original notes in contract documentation, since they did not originate the mortgages. The broker dealers packaged them, and in their haste, were negligent in the vitally important task of perfecting the collateral liens of the underlying mortgages within the CDO bonds. Brokers don’t want to visit town offices when they have big fees to earn. That mundane task was overlooked in the pursuit of fast profit. Now lawsuits have succeeded in blocking foreclosures and final dispossession inflicted upon the homeowners. Once publicity is given to this avenue recourse, lawsuits will flood the system, not only from homeowners to block foreclosure, but from investors on related bonds who suffer losses.
With so many non-bankers serving as mortgagors in the process of CDO bond sale, hedge funds find themselves in the awkward position of being stuck as mortgagors, unable to prove they hold a perfect title. They might increasingly be powerless to gather income OR dispose of the property. Simple legal aid groups and public defenders have managed to stop the foreclosure process in its tracks. However, only those who defend themselves can capitalize on this process. The CDO bond prospectuses claim the collateral within is secured properly. Often they were not. The paperwork failed to dot the i’s and cross the t’s, foreclosure and dispossession is so easy, when homeowners take procedural action to defend themselves. An unknown number of properties are involved in faulty bonds with imperfect titles. The process has gotten to the point that financial parties are no longer submitting requests for replacement documents, since they prefer to avert liability. Let sleeping victims (dogs) lie.
The important point for victims of Foreclosure is to note that last line, Let sleeping victims lie. It's important that victims of this financial meltdown know their rights, and seek some help. I was only able to find one article which describes the process, but if Jim Willie is correct, this will spread. Homeowners having problems with their mortgages need to stay abreast of these developments.
Vulture investors feed on subprime carrion: The lawyers
And don’t forget the lawyers: Suits alleging bad, bad things hit lenders, packagers, raters
By Andrew Osterland
Virtually every party involved in the huge Wall Street securitization machine that financed the late, great housing boom is a potential target—the lenders who originated the loans, the brokers who bought them, the underwriters who pooled them and carved them up into securities, the rating agencies that rated the securities, and the bond insurance companies that guaranteed them.
"The law firms are assembling their subprime litigation teams in anticipation," said Allan Krinsman, a partner at New York law firm Stroock & Stroock & Lavan...
A case being closely followed by the legal community is a claim filed in the middle district court of Florida in April by Bankers Life Insurance against Credit Suisse and a number of other defendants, including Bank of New York, which served as a trustee for bondholders, and companies that insured the bonds and serviced the underlying loans. Bankers Life purchased several investment-grade pieces of a mortgage-backed securitization originally packaged by Credit Suisse in 2001. During the ensuing years, delinquencies and defaults on the loans increased and the securities suffered through multiple credit downgrades. Bankers Life ultimately lost most of its $1.4 million investment.
The complaint, originally filed on April 23 and currently in the process of being amended, alleges that the investment bank misrepresented the quality of the underlying loans and even took actions to disguise the increasing delinquencies in the pool. "This involves a combination of fraudulent collateral and illusory credit enhancements," said Dale Ledbetter, lead attorney for Bankers Life. "The investors were forced to take the losses."
Credit Suisse, Bank of New York and other named players in the suit deny wrongdoing. If the suit isn’t dismissed and Mr. Ledbetter is granted discovery privileges to make his case, the seamy side of Wall Street’s contribution to the subprime crisis could be bared for all. A single e-mail could launch 1,000 suits
http://www.financialweek.com/...
The President has said that he is not interested in helping individuals caught up in the sub-prime mess, does that imply an unqualified support for the rights of the lenders, primary to the rights of the individuals involved. Are we going to hear more from the bully pulpit, tirades against the evils of tort reform, claiming that punishing these companies does nothing to help the individual borrowers, and we should in effect let "sleeping dogs" lie??? and is this in fact the policy of the Federal Reserve?
What is the role of Congress in brokering a bailout? One suspects the administration will try to block these lawsuits, because they threaten the fabric of the investment community. Again the Democrats will probably be bullied into going along, or take responsibility for causing another Depression.
For the time being these class action suits offer the homeowner who is having trouble a ray of hope.