I have been studying this problem for a long time, and predicted the present difficulties years ago. Many are now calling for regulations and new regulatory powers and institutions, but most seem to be missing the key points of appropriate intervention.
The problem started, in a critical way, in the courts: First, it stems from judges started accepting affidavits of ownership as proof, instead of requiring the original signed mortgage note, as they have done in past ages. It is this that enabled securitizers to bundle notes and lose track of the individual merits of the notes. Second, it stems from courts allowing foreclosures to be made too easily, often without notice to the borrower, who first learns about it when he gets an eviction notice, finds he has no defense against eviction, and winds up having to find a new place to live while conducting an expensive fight to challenge the foreclosure, often unable to find who to sue, or perhaps discovering his payments were not forwarded to the new owner of the note, that the servicing agent has gone bankrupt, and he is only an unsecured creditor for the payments he made. The mortgage problem arose because lenders, expecting continuing rise in housing prices, made loans they expected to foreclose on, because they planned to make their profits on the resale. Courts enabled them to do that by making foreclosures too easy and inexpensive. The main solution to this problem is to return to judicial supervision of foreclosures, with a requirement of presentation of the original signed note and not an affidavit of ownership, and a defense of having made all payments on time to the last known servicing agent. These reforms would require lenders to rate each and every note individually, and maintain those ratings in any bundling, so that the bundles can't be traded without the purchaser being able to examine the disaggregated component notes. -- ------------------------------------------------------------------- Constitution Society 2900 W Anderson Ln C-200-322, Austin, TX 78757 512/299-5001 www.constitution.org [EMAIL PROTECTED] -------------------------------------------------------------------
