The Solution for Investors in Mortgage-Backed Securities

Posted on June 22nd, 2011 by Mark Stopa

At this point, most people reading this know that the securitization process of mortgages was and is irretrievably flawed, typically because the mortgage was not conveyed into the trust in a manner consistent with the pooling and servicing agreement for that trust, meaning the trust doesn’t own/hold the mortgage.  If that sounds complicated, then think of it this way – when the plaintiff is a trustee of a trust (e.g. U.S. Bank, N.A. as Trustee of the ABCD Mortgage-Backed Securities, Series 2009-112), the plaintiff often lacks standing to sue because it doesn’t lawfully own/hold the mortgage. 

At this point, we all know this.  In fact, I’d argue it’s not reasonably in dispute.  The problem, in my experience, is that the natural consequence of this situation, that the trust cannot foreclose and the homeowner may get a free home, is difficult for many people to swallow.  A typical argument against this result centers around the poor souls who invested in the mortgage-backed securities.  What about them?  Why should they suffer when they, arguably, did nothing wrong (except make a bad investment)? 

Well, here’s the thing.  As this article shows, these investors have a remedy – suing the banks.  Hence, as harsh as it may sound, it’s time that everyone stop disregarding the law out of sympathy for investors.  Yes, it’s not ideal that they have to file suit against banks.  But that’s the proper recourse here, not to give them a foreclosure to which they’re not entitled.

Mark Stopa

www.stayinmyhome.com

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