Who Owns Your Mortgage?

26 Feb Who Owns Your Mortgage?

There are so many unsavory and sometimes surprising details emerging about the mortgage industry, it’s hard to keep up. One of the issues that has emerged in foreclosure litigation in several districts is whether the foreclosing lender actually owns the mortgage it’s trying to foreclose.

Judges in at least five states have stopped foreclosure proceedings because the banks that pool mortgages into securities and the companies that collect monthly payments haven’t been able to prove they own the mortgages. The confusion is another headache for U.S. Treasury Secretary Henry Paulson as he revises rules for packaging mortgages into securities.

“I think it’s going to become pretty hairy,” said Josh Rosner, managing director at the New York-based investment research firm Graham Fisher & Co. “Regulators appear to have ignored this, given the size and scope of the problem.”

Advocates of homeowners have raised these issues, particularly in defending foreclosure proceedings. It seems surprisingly difficult for lenders to produce the paperwork that proves they own the mortgages, and courts have begun to be concerned about the issue. Mortgage industry representatives speak about the issue as if it is simply a technicality–a procedural roadblock thrown up by a desperate homeowner with no real defense, or nitpicking by a judge. But it is important, and goes to the heart of the main issue in a foreclosure: are payments in default?

I have rarely had a client come to me and say “I’ve missed some mortgage payments and I can’t pay them but I want to stay in my house without paying for it.” But I have had many clients whose initial “default” in mortgage payments occurred when their mortgage changed hands, and they weren’t notified in time to redirect payments to the new holder or servicer. And I have clients who believe, often correctly, that they have made all their payments. Many times the only missing payment is one that was sent to a prior servicer or holder, and never caught up with the new owner of the mortgage. So the issue of who owns the mortgage is essential to determination of whether payments were made.

It is often surprisingly difficult to get a mortgage lender or servicer to provide a complete payment history on a mortgage, and when you get one, even harder to find someone who can explain it. I went through one foreclosure proceeding in which the lender produced three different employees to testify about application of payments. None of them could answer basic questions about the entries in the payment history. Given those problems, and other irregularities in their accounting, it is not surprising that homeowners and courts want to ensure that the entity suing to foreclose is the entity who actually owns the mortgage. It’s not a mere technicality, or a ruse to avoid a justified foreclosure. It’s a basic and simple: if you’re going to foreclose, you need to be the owner of the mortgage.

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