Who really owns your loan?

On Thursday, the stock market reacted negatively to the foreclosure crisis and punished bank stocks.  Why the negative outlook?

According to a story in yesterdays Marketplace program, investors are worried about the validity of documents, but not just the documents between the banks and the homeowner, but the documents between the banks and the scads of people who they sold the loans to, in little bits and pieces.

It may just be that in all the excitement, the banks didn’t do a very good job of tracking all the transactions and the documentation for those transactions, which might make it extremely difficult to actually prove who owns the loan.

So what does this mean?

If it isn’t possible to prove who owns the loan, it would be very difficult to banks or anyone else to prove they have the authority to demand that you pay them your mortgage payments, in a court of law.  This likely means though that, barring some high-level litigation by state’s Attorney’s General or a class-action lawsuit, you would have to challenge the bank in court to prove it has the authority to accept your payments or foreclose on you.  This is not without precedent; people have successfully gotten their loans dismissed because the bank couldn’t prove it owned the loan.

Another scenario is that banks might be forced to take back the loans they can’t properly document, and this is perhaps the main reason the banks stocks got hammered yesterday.  If the securitazation transaction is reversed, the bank would still have to document the original transaction, but I think they are more likely to have this paperwork.

A little bright news for borrowers.

No Comments

No comments yet.

RSS feed for comments on this post. TrackBack URI

Leave a comment

WordPress Themes