You are on page 1of 4

11/16/2010

Securitization Industry Set to Defend Pr…

Dow Jones Reprints: This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers, use the Order Reprints tool at the bottom of any article or visit w w w .djreprints.com See a sample reprint in PDF format. Order a reprint of this article now

MARKETS

NOVEMBER 15, 2010

Securitization Sector Set to Defend Practices
By NICK TIMIRAOS

Mortgage-bond issuers and investors moved to quell questions about whether banks properly assigned loans made during the securitization boom, arguing that such transfers are valid even if the loan's owner isn't identified in certain records.
EXPERIENCE WSJ PROFESSIONAL

Editors' Deep Dive: Financial Regulation Watch
DOW JONES CAPITAL MARKETS REPORT

Credit Unions Seek Help With Breaches
LOS ANGELES TIMES

Finance Law a Lobby Target
DOW JONES BUSINESS NEWS

Tarullo Warns Banks Against Dividends Access thousands of business sources not available on the free web. Learn More

The American Securitization Forum, a trade group for the securitization industry, is set to release on Tuesday a 28-page defense of widely used practices for bundling mortgages into securities. The securitization process and foreclosuredocumentation practices are likely to face criticism from lawmakers at a Senate Banking Committee hearing Tuesday.

A separate report from the Congressional Oversight Panel, also being released Tuesday, raises questions about whether improper document transfers could create additional liabilities for the biggest U.S. banks. The consequences could be "severe," the report said, "if documentation problems prove to be pervasive and, more importantly, throw into doubt the ownership of not only foreclosed properties but also pooled mortgages." The securitization-industry defense doesn't address the problem of "robosigning," in which employees falsely asserted that they had personally reviewed the details of foreclosure cases. Still, the report is aimed at countering claims made by critics that the rush to feed demand for securities led banks to cut corners in assigning and tracking ownership of mortgages, just as they did, critics claim, when buying and making mortgage loans. Tom Deutsch, the executive director of the American Securitization Forum, said the group decided to issue the report after "novel theories" challenged whether mortgages were properly sold as securities.
…wsj.com/…/SB10001424052748703670… 1/4

Also at the hearing. and we are committed to making needed changes.com/…/SB10001424052748703670… 2/4 . That could have consequences for the authority of mortgage trusts to foreclose and for the tax-free status of certain investments." At worse. lawyers in several states have challenged the electronic lien-registry system known as the Mortgage Electronic Registration System. The American Securitization Forum cited case law in dozens of states to press its case that a third party such as MERS can foreclose on behalf of the servicer." She reiterated that the bank …wsj. under real-estate law known as the Uniform Commercial Code. simply through the transfer of the loan itself. Deutsch said he is unaware of any legal challenges of loan transfers. banks designated MERS as either the lien-holder or its nominee. banks often endorsed those loans in blank. We need more direction from courts and legislatures on this subject. According to the American Securitization Forum. Desoer said in written testimony submitted to the committee. Bank of America Corp.11/16/2010 Securitization Industry Set to Defend Pr… Some critics contend that loans weren't properly transferred at each stage in the securitization process. Adam Levitin. but that there may be pervasive defects throughout the foreclosure and securitization processes.C. Separately." Katherine Porter. "We have not found a perfect process. executive Barbara Desoer is expected to acknowledge some weaknesses were found in the Charlotte. bank's internal review of foreclosure practices. One particular practice called into question recently is the use of "blank assignments." he said. a law professor at the University of Iowa. while others contend that companies that relied on MERS became sloppy in tracking their paperwork. which was devised by banks in 1997 to facilitate the securitization of loans. such "highly technical" but "extremely serious" problems represent a "systemic risk of liabilities in the trillions of dollars. Mr. "There are areas where we clearly must improve. will warn that "evidence is mounting" that such flaws are "not limited to one-off cases. To avoid legal challenges. loans are assigned to the owner. In testimony prepared for Tuesday's hearing. "What constitutes a correct transfer is a gray area. a professor of law at Georgetown University. Lawyers have challenged MERS's standing to foreclose because it doesn't actually own the loans." he said. Some analysts argue that logic isn't necessarily relevant because individual pooling-and-servicing agreements that govern respective securitizations supersede real-estate law and might have set down more specific steps that needed to be followed. told a congressional panel last month. To avoid rerecording a loan in county records every time a loan changes hands. without specifying the owner. N..S.'s greatest financial institutions." Ms. greatly exceeding the capital of the U." Because notes were transferred at several steps throughout the securitization process. or MERS. some investors and servicers have begun moving loans loan out of MERS's name before foreclosing. even if the endorsement is blank. "Nearly all of the [pooling-and-servicing agreements] that we have reviewed do allow for transfers in blank.

" Also testifying at Tuesday's hearing is Iowa Attorney General Tom Miller. —Dan Fitzpatrick. Inc. according to a person familiar with his testimony. Miller said he had no immediate comment. All Rights Reserved This copy is for your personal. Miller also is expected to say that. who leads the nationwide investigation into the foreclosure problems that erupted in September.com/…/SB10001424052748703670… 3/4 . David Lowman. while state attorneys general are investigating the paperwork.. Mr. please contact Dow Jones Reprints at 1-800-843-0008 or visit www. Desoer also wrote that "many investors limit Bank of America's discretion to take certain actions. Ms. the top home-loan executive at J. For non-personal use or to order multiple copies. said in written testimony that the bank is "committed to addressing" any foreclosure problems "as thoroughly and quickly as possible.timiraos@wsj." a reference to the different agendas by investors who own loans serviced by the bank.com Copyright 2010 Dow Jones & Company. non-commercial use only. A spokesman for Mr. Some investors want Bank of America to modify loans.. Mr.djreprints. Alan Zibel and Vanessa O'Connell contributed to this article.11/16/2010 Securitization Industry Set to Defend Pr… has found no evidence of wrongful foreclosures.P. Miller is expected to tell lawmakers that many loan servicers lacked adequate systems to deal with the simultaneous crush of foreclosures and loan modifications. their bigger concern is the loan-modification system.com …wsj. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. Morgan Chase & Co. The attorneys general are scrutinizing whether home-loan servicers violated state laws against deceptive practices by submitting affidavits and foreclosure documents without confirming the paperwork's accuracy. while others push for foreclosure. Write to Nick Timiraos at nick.

com Securitization Industry Set to Defend Pr… …wsj.11/16/2010 www.djreprints.com/…/SB10001424052748703670… 4/4 .