That is bad news?
It is if it is because courts are throwing out cases because mortgage companies holding securitized mortgages don’t have the actual note. I’ll let Luke explain:
The problem has arisen because most of these sorts of trust do not actually possess the physical mortgage note itself. Instead they have a third party hold the document. So, when they attempt to foreclose on a property (or in this case, 14 properties), they are unable to provide actual proof of ownership of the notes.
The decision in this case is an enormous deal. It is unclear at this point whether the majority of these trusts would be able to provide actual proof of ownership if challenged by the borrower to do so. If they cannot, then the foreclosure rate may begin dropping precipitously - not because people aren’t defaulting, but because the note owners aren’t keeping adequate records.
This could be disastrous for the mortgage industry. Throw in the damage to the underlying bonds if investors are unsure of the actual assets backing them. What will that do to the credit markets? I assume panic is not in overdrive yet because nobody believes this will stand, but in the meantime markets hate uncertainty. If this story gets much play disaster in the credit markets could result even if it has no real impact on foreclosures.
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