Sunday, April 3, 2011

The foreclosure crisis: PSA has nothing to do with the prostate!

Foreclosure signs, Mortgage crisis, The foreclosure crisis and "Pooling and Servicing Agreement" (PSA) violations

On March 31st The Hallmark Abstract Sentinel published an article that discussed the upcoming 60 Minutes story (airing tonight) on the foreclosure crisis, and the potential for it to have far reaching implications and ramifications. The following paragraph comes from the Sentinel article that can be read in its entirety here.

"... There are additional problems that surround the investments that pooled thousands of mortgages and then sold them around the world. These were known as collateralized mortgage obligations or CMO's. They also went by a variety of other names as well such as mortgage backed securities. Many of these were rated AAA although they should not have been based on the mortgages inside. Due to this some holders of the investments are fighting to have the originators "buy-back" the investments, opening the originating firms up to potentially billions of dollars of exposure and losses.

Questions also exist over whether the structure and use of MERS with these REMICS (Real Estate Investment Conduits) was in some way was a violation of the Pooling and Servicing Agreements or PSA. This could have multiple ramifications including bringing the tax structure into question..."

Summary Judgment filed in an Alabama case on March 30, 2011 regarding PSA violations

The court filing for the Alabama case in question can be read in its entirety at the blog Naked Capitalism here, but this is the gist. As it was described at the Sentinel, some parts of the structure and use of tools such as MERS in the creation of mortgage trusts appeared to be to be a blatant violation of most if not all Pooling and Servicing Agreements (PSA).

These rules require that all documents from a transaction to be transferred to the Trustee of a securitization within a specific period of time among other very specific items. This decision in Alabama found in favor of the borrower saying that notes transferred throughout the securitization process had not been properly endorsed.

With this decision in Alabama, the problem now becomes one of consistency. As documented before in foreclosure crisis issues there is typically nothing clear-cut between the decisions that come out of the courts in different states and even from the courts within the same state.

Fasten your seatbelts as this has the potential to be a very bumpy ride!


If you have any questions or current issues concerning the foreclosure crisis and the potential impact on obtaining title insurance, please feel free to give Hallmark Abstract a call at 516.741.4723 or send us an email at orders@hallmarkabstractllc.com.


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