"I have reviewed the foregoing contents and affirm the results contained herein to be true and correct according

to my knowledge." LAKISHA MORRIS, J.D., ESQ.. WSBA# 41365 Lead Investigator FEDERAL TRUSTEE SERVICES PO BOX 11098 TACOMA, WA 98411 1-800-552-9313

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REAL ESTATE SECURITIZATION AUDIT
Prepared for:

Rachel L. Hemric 4836 Collins Road Hamptonville NC 27020-8121
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Disclosure: You have engaged Federal Trustee Services to examine your real estate documents. This information is not to be construed as legal advice or the practice of law. It is the intent of Federal Trustee Services, its members, auditors, and independent contractors not to engage in activities that could be considered to be the practice of law by conduct exhibiting any of the following practices: “. . .the doing and/or performing of services in a court of justice on any matter depending therein throughout the various stages and in conformity with the adopted rules of procedure. This includes legal advice and counsel and the preparation of legal instruments and contracts by which the legal rights are secured although such matters may or may not be depending on the court.”

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Table of Contents

SECTION 1: TRANSACTION DETAILS AND PARTIES • Transaction parties • Loan transaction Summary SECTION 2: THE SECURITIZATION PROCESS • The Securitization Process • How Lenders changed the Securitization Process • The Securitization Parties of this loan • What Happened to The Deed and Note • Servicing Criteria SECTION 3: FORECLOSURE PROCESS • The Foreclosure Summary SECTION 4: TITLE DEFECTS AND SECURITIZATION DEFECTS

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SECTION: 1 TRANSACTION DETAILS AND PARTIES
BORROWER & CO-BORROWER:

BORROWER

CO-BORROWER

Rachel L. Hemric

NA

PRESENT ADDRESS

SUBJECT ADDRESS

4836 Collins Road Hamptonville NC 27020-8121

4836 Collins Road Hamptonville NC 27020-8121

Transaction Parties
MORTGAGE BROKER: Regions Bank dba Regions Mortgage ORIGINAL MORTGAGE LENDER/TABLE FUNDER: Regions Bank dba Regions Mortgage MORTGAGE SERVICER: Regions Bank dba Regions Mortgage MORTGAGE NOMINEE/ BENEFICIARY Regions Bank dba Regions Mortgage

MORTGAGE TRUSTEE:

TITLE COMPANY:

David A. Simpson, PC

Unknown

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Loan Transaction Summary
FIRST MORTGAGE DETAILS
Type of Note Adjustable Rate Note With Adjustable Rate Rider

Loan Closing Date

December 29, 2005

Loan Number

0-896438959

Loan Amount

$194,480

Initial Interest Rate

7.125% p.a.

Loan Term

30 years

Loan Maturity Date

February 1, 2036

Current Loan Servicer Regions Bank dba Regions Mortgage

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SECTION 2: THE SECURITIZATION PROCESS
The Securitization Process
1. What is a Securitization? A securitization is the term used to describe the process of issuing securities backed by the cash flows from a pool of underlying assets. Securitization has also been defined as "the sale of equity or debt instruments, representing ownership interests in, or secured by, segregated, income-producing asset or pool of assets, in a transaction structured to reduce or reallocate certain risks inherent in owning or lending against the underlying assets and to ensure that such interests are more readily marketable and, thus, more liquid than ownership interests in and loans against the underlying assets." 1 2. What are some features in a Securitization? A securitization transaction typically has the following characteristics. An originator of homogenous income-producing assets sells the assets to a newlyformed special purpose entity, also known as a securitization trust, which can be any legal entity that is designed to make the chances of it filing for bankruptcy remote. The trust will then issue, directly or through a trustee, securities in the form of certificates to investors. The securities represent an undivided interest in the assets of the trust. An underwriter will typically find the investors to purchase the securities. Such investors will pay cash for the securities and the proceeds are used by the trust to purchase the assets from the originator. The term of a securitization transaction can range between 5 years to 30 years, depending on the nature and term of the assets backing the securities. The cash flows generated by the assets are used to repay the amounts due under the securities issued by the trust.2 3. Parties in a Securitization Transaction The parties to a securitization transaction who are considered relevant to this Property Securitization Audit are the following:

1

Milton A. Vescovacci. “A Primer on Securitization.” HG Org Worldwide Legal Directories. Oct 1 2006. Jan 7 2011. http://www.hg.org/articles/article_1723.html Ibid.

2

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Debtor The Debtor is the person who borrows money from the Lender.

Lender The Lender is the Originator of the loan for the Debtor. In some instances the Lender and the Originator are the same entities, in others, the role of the Originator is to buy and accumulate loans from different lenders. In the latter, the Originator is also called a Wholesale Lender. Issuing Entity The Issuing Entity is a statutory trust and the intermediary owner of the loan documents. The issuing entity also issues securities that represent undivided interests in the cash flows from a particular pool of loans. Sponsor The Sponsor is the entity who buys the loans from different Originators, combines them into a pool, and sells them to the Depositor. Depositor The Depositor is the entity who buys the loans from the Sponsor and deposits them with the Issuing Entity. Trustee The Trustee acts on behalf of the Trust and the investors. It is essentially an administrative function, to represent the Trust, to monitor the effectiveness of the servicing, to manage and oversee the payments to the certificate holders, and to administer any reserve accounts. 3

3

“Parties in a Securitization Transaction.” Atlanta’s John Marshall Law School. Jan 7 2011. http:// www.johnmarshall.edu/images/documents/fa08/SKMBT_60008072910141.pdf

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Servicer The Servicer is the entity who collects monthly payments from borrowers and passes the cash flows to the Trustee. The Servicer must advance to the Trust payments due from delinquent borrowers before collection.4 Underwriter The Underwriter is the Wall Street investment firm who provides initial capital to purchase the securities. As the initial purchaser, the Underwriter plays a key role in structuring the entire transaction, including a role in determining the characteristics of the underlying loans. Custodian The Custodian is often the same entity as the Trustee, and is typically engaged to hold onto the funds in cash reserves serving as internal credit enhancements of the securitization and collateral security documents related to the transferred assets.5

4 5

Ibid.

Milton A. Vescovacci. “A Primer on Securitization.” HG Org Worldwide Legal Directories. Oct 1 2006. Jan 7 2011. http://www.hg.org/articles/article_1723.html

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4. What a Securitization Should Be The following diagram illustrates, in simple theoretical terms, a securitization contains all of the following transaction elements involving a loan or mortgage: Lender
Collection on Mortgage Loan

Originator

Custodian

Servicer

Collection on Mortgage Loan

Sponsor

Trustee

Report to Master Servicer

Depositor

Issuing Entity

Master Servicer

Underwriter

Certificate-holder Legend
Mortgage Loan Mortgage Loan

Payment to Certificate-holder Report to Certificate-holder

Certificate Custodial Receipt

Fiduciary Duties

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5. Note Converted to a Bond Securitization is a complex series of financial transactions designed to maximize cash flow and reduce risk for debt originators. This is achieved when assets or receivables are acquired, classified into pools, and offered as collateral for thirdparty investment. Then financial instruments are sold which are backed by the cash flow of the underlying assets.6

Borrower

Issuer/Maker/Seller

Promissory Note Loan: $500,000 Interest Rate: 10% p.a.

Asset in Sub-Prime High-Risk

This diagram traces the process in which a long-term receivable (a note; an asset) is immediately converted into cash by selling a security instrument (a payable or a bond; a liability) through a specialpurpose vehicle (a securitization trust).

Trust (Special Purpose Vehicle)

Bond Out Investment Grade High-Yield Junk Bonds

Investor

Bondholder/Creditor/ Buyer

Certificate Face Value: $1,000,000 Interest Rate: 5% p.a. Annual Interest Income: $50,000

6

Tara E. Gaschler. “Understanding the Securitization Process and the Impact on Consumer Bankruptcy Cases.” (The American Bankruptcy Institute) www.scribd.com. http://www.scribd.com/doc/24632086/Understanding-theSecuritization-Process-and-the-Impact-on-Consumer-Bankruptcy-Cases#

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6. The Reality In reality the securitization process was much different than what it should have been. The money that was used to fund the loans generally came from Wall Street firms who were orchestrating the conduct of the transactions. The firms provided money in the form of Warehouse Lines of Credit for the lenders to use.
A Warehouse Line of Credit is a revolving facility granted to a borrower to acquire and warehouse a mortgage portfolio for future securitization. Such portfolio is pledged to the lender as collateral and is placed into a special purpose vehicle in the meantime for the purpose of securitization. The proceeds from the future securitization will be funneled back to the lender, thus replenishing the ultimate Warehouse Line of Credit for subsequent use.7

The funds for the Warehouse Lines of Credit came mostly from these two sources:
·

A Wall Street establishment large enough to provide the money from its own accounts, or A Wall Street establishment who pre-sold the trust, selling the idea to other establishments who put up the money and who ended up being involved in different phases of the securitization transaction, such as selling the certificates to private investors.

·

7. Prelude to a Scam Pre-selling the trust resulted in a huge availability of funds and lenders were now tasked with finding borrowers. This, in turn, resulted in the lowering of credit standards (correspondingly increasing the lending risks). In effect, almost anyone who was 18 years old or above could qualify for some type of loan.

7

Definition of a Warehouse Line of Credit. ifc.org. Jan 8 2011. http://www.ifc.org/ifcext/gfm.nsf/attachmentsbytitle/ hf-whl/$file/hf-whl.pdf

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The foregoing scenario unfolded during the time when the prices of residential properties were rising fast as a result of housing boom. Early reports estimate that 23% of U.S. homes were worth less than the mortgage loan their owners borrowed in order to acquire them. In 2010 reports say some loans need to be restructured to as low as 33% of their book value in order for their owners to resume paying for them. There is no question that residential properties during the period 2000 to 2007 were grossly over-appraised, the economy was awash with cash, lenders overextended credit and relaxed credit policies, and borrowers, already saddled with personal debt, caved in to the idea that the end of the American Dream was owning a home.

In the years leading up to the crisis, significant amounts of foreign money flowed into the U.S. from fast-growing economies in Asia and oil-producing countries. This inflow of funds combined with low U.S. interest rates from 2002-2004 contributed to easy credit conditions, which fueled both housing the housing bubbles. Loans of various types were easy to obtain and consumers assumed an unprecedented debt load. As part of the housing boom, the amount of financial agreements called mortgage-backed securities, which derive their value from mortgage payments and housing prices, greatly increased. Such financial innovation enabled institutions and investors around the world to invest in the U.S. housing market.8

8

“Subprime mortgage crisis.” Wikipedia. Jan 6 2011. Jan 8 2011. http://en.wikipedia.org/wiki/Mortgage_crisis

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How Lenders Changed the Securitization Process

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8. The Issues No Assignment When a mortgage loan was sold from one party to another there was no corresponding assignment of the Deed of Trust. A true sale could not occur with such an omission, and most Pooling and Servicing Agreements require a true sale in order to perfect a chain of title, although some such agreements make allowances in the case of Mortgage Electronic Registrations, Inc., who becomes a party in the transaction as nominee of the lender. Lack of Endorsement The same omission also applies to the promissory note wherein a proper endorsement is required in the Pooling and Servicing Agreement in a true sale, also for the purpose of perfecting the title.
State real estate laws generally require specific steps in the conveyance of mortgage notes from one party to another at the time of closing, to make the transaction legal. Rather than comply with those steps, the mortgage players chose to create their own system of electronic recording of conveyances. This systematic flaunting of the chain of title requirements was ignored as the securitization scam expanded.9

The Role of Mortgage Electronic Registration Systems, Inc. The inclusion of Mortgage Electronic Registration Systems, Inc. (MERS) into the transaction, as “Nominee of the Beneficiary,” is for the purpose of getting around the legal requirement of assigning the Deed of Trust. Many courts of law are ruling that MERS has no ability to foreclose or make assignments. More recently, there is a May 1, 2010 ruling that MERS cannot be named plaintiff in any foreclosure on a mortgage loan owned or securitized by Fannie Mae.

9

Ibid.

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The foreclosure crisis has set its sights on MERS, the Mortgage Electronic Registration Systems, which files almost all of the foreclosure actions in behalf of lenders. The problem never anticipated by lenders is that the company has no legal standing to do such things. In addition they broke the law by not requiring a notarized document of transfer of title signed by the seller and buyer. That is because they did not own the loans.10

Bogus Assignments In spite of, or because of, the foregoing three premises, there are now reported instances of “fabricated assignments” of mortgages on a massive scale. It is not the purpose of this report to make such a conclusion for this particular loan, but it strongly recommends that the related documents should be examined for the possible introduction of such fraudulent acts upon them.
To get around this legal dilemma, many of the derivatives-holders and their agents have resorted to outright fraud, by creating and filing phony documents. This is fraud upon the courts, a serious crime. As the Attorney General of Florida noted in a recent release, “numerous documents. . . to even the untrained eye, appear to be forged or fabricated.” Corporations “seem to be creating and manufacturing ‘bogus assignments’ of mortgages. . . These documents appear to be forged, incorrectly and illegally executed, false and misleading. . . 11

10

Bob Chapman. “The Mortgage Securitization Scam.” The Market Oracle. Oct 23 2010. Jan 8 2011. http:// www.marketoracle.co.uk/Article23715.html
11 Helga Zepp-Larouche. “Systemic Fraud Dominates Mortgage-Securitization and Foreclosure Scam.” Larouchepac: Economic Collapse. Oct 6 2010. Jan 8 2011. http://www.larouchepac.com/node/16009

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The Securitization Parties of this Loan
Summary: The Examiners reviewed the process of Securitization. They note:
·

Wells Fargo Bank, NA is the current servicer in this securitization trust, while Merrill Lynch Mortgage Lending, Inc. is the sponsor and Merrill Lynch Mortgage Investors, Inc., an affiliate, is the depositor. The mortgage loans in this trust were pooled by several originators, and among those who were named were Countrywide Homes Loans, Inc., Washington Mutual Mortgage Securities, Corp., MortgageIT, Inc., and GreenPoint Mortgage Funding, Inc. The examiners deduce, based on their professional experience and examination of the documents provided, that Merrill Lynch Mortgage Lending, Inc. securitized this loan after acquiring it from the originating lender through the securitization trust’s several originators. A search of SEC filings by Merrill Lynch indicates that the most likely pool that the subject loan would have been sold into would be the Merrill Lynch Mortgage Investors Trust, Series 2006-A1.

·

·

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What Happened with the Deed and the Note Deed
Loan Granting Regions Bank, Lender Emmett James House or Bill R. McLaughlin, Trustees Substitution of Trustee David A. Simpson, PC, Substitute Trustee

Date
December 29, 2005

Note
Loan Granting Regions Bank, Lender

Date
December 29, 2005

July 28, 2010

Sale, Securitization Merrill Lynch Mortgage Lending, Inc., Securitization Sponsor Simultaneous Sale, Securitization Merrill Lynch Mortgage Investors, Inc., Securitization Depositor

March 31, 2006

March 31, 2006

Endorsement, Securitization March 31, 2006 HSBC Bank USA, NA as Trustee for Merrill Lynch Mortgage Investors Trust, Series 2006-A1

The Deed and the Note have been separated traveling apart.
·

The Deed of Trust dated December 29, 2005 names Regions Bank as the lender and Emmett James House or Bill. R. McLaughlin as trustees. A Substitution of Trustee dated July 28, 2010 names David A. Simpson as substitute trustee. Based on the available documents and research it appears that the Note was securitized into Merrill Lynch Mortgage Investors Trust, Series 2006-A1. Whether or not this has occurred is ascertainable upon inspection of the original Note for a complete Chain of Endorsements.

·

·

·

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The complete list of SEC filings by Merrill Lynch Mortgage Investors Trust, Series 2006-A1 is provided herewith. Merrill Lynch Mortgage Investors Trust, Series 2006-A1 Prospectus Form 424B5, filed on March 30, 2006, refers to Wells Fargo Bank, NA as master servicer, Merrill Lynch Mortgage Lending, Inc. as sponsor, and Merrill Lynch Mortgage Investors, Inc., as depositor. Therefore, these references to Wells Fargo Bank, NA and Merrill Lynch Mortgage Lending, Inc. indicate that the subject loan could have been securitized into Merrill Lynch Mortgage Investors Trust, Series 2006-A1 and that Wells Fargo Bank, NA was the master servicer. The link to the prospectus is provided herein.
http://www.secinfo.com/dsvr4.v3r8.htm#cjh

Merrill Lynch Mortgage Investors Trust, Series 2006-A1 Annual Form 10-K for the year ended December 31, 2006 was filed on March 30, 2007 with the SEC. This document listed Wells Fargo Bank, NA as master servicer compliant with the servicing criteria for the asset-backed securities held by the trust. The link to Form 10-K is provided herein.
http://www.secinfo.com/d1Z7kr.u19v.htm

On January 25, 2007, Form 15-15D or Notice of Suspension of Duty to File Reports terminating registration of the noted investment vehicle was filed on behalf of Merrill Lynch Mortgage Investors Trust, Series 2006-A1. The approximate number of holders on record as of certification or notice date was less than 300. The link to Form 15-15D is provided herein.
http://www.secinfo.com/d1Z7kr.uhv.htm

PSA(Pooling Servicing Agreement):
http://www.secinfo.com/dsvr4.v4Ju.d.htm

Summary of events from the 424B5 Cut-Off Date - March 1, 2006 Closing Date – On or About March 31, 2006 Amount - $656,531,100 Approximate

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Servicing Criteria
Servicing refers to the collection of the Monthly Payments for each mortgage. Once a loan has been funded, servicing of the loan is the key element from that point. Every pooling and Servicing Agreement names a Master Servicer and other Servicers. They are the entities tasked with the collection of payments. Duties include the following:

· · · · · ·

Collect the monthly payments on each loan. Keep accurate payments history records. Track payments and segregate the different Trusts for which the servicer collects. Make monthly payments to the Trusts. To reimburse itself for advances To pay to itself the servicing fee (to the extent not applied to pay compensating interest) To pay to itself investment earnings earned on funds held in the investment account and the certificate account (to the extent not applied to pay compensating interest) Authorize Short Sales or Deed in Lieu of Foreclosure. The Servicer has no beneficial interest in the Note, so there is no urgent demand for anything but foreclosure.

·

· ·

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Below is an example of a Servicing Flow Chart: The following diagram illustrates a generic example of the flow of payments that applies to most securitizations.

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The Servicer has specific duties related to loan management. It appears that there should be significant reason to engage in loan modifications or principal reductions to ensure loan repayment and avoid foreclosures. It seems basically that the Servicer has no incentive to engage in such actions. Obviously, they are capable of offering loan modifications. Here are some important reasons why the Servicers are not engaging in the loan, (These reasons also apply to Fannie Mae and Freddie Mac loans.): 1. Since the Servicer has no beneficial interest in the Note and there is no urgent demand for anything but, they somehow opt to create a scenario leading foreclosure. 2. The Servicer must “advance” the payments from the Trust with its own funds that is parallel to six or twelve months of “advances”. Often times, their only way of recouping these “advances” is through foreclosure. Many PSAs do not allow for recoupment in any other manner. (The Servicer Stops making these advances only when it is determined that the money is not recoverable”.) 3. Services are paid on the total dollar amount of the “Servicing Portfolio” for the Trust. Authorizing a principal reduction would reduce the total dollar amount of the Portfolio would mean less monthly income for the Servicer. Further, a percentage payment on the unpaid principal balance of the pool is the single largest source of income for Servicers. 4. To get around loss, Servicers collect additional fees from late payments, foreclosure actions, and numerous “junk fees” that they add to the homeowner’s account. 5. Stalling foreclosures means that the “Servicing Portfolio” increases monthly, resulting in increased Servicing Fees. 6. Some PSAs do not allow for modification unless the Servicer “buys back” the loan from the Investor at the balance due. Buy backs would result to a loss on the part of the Servicer so do not, as much as possible do buy backs. Technically, the loan is in default and the home is already worth less than the loan. 7. Primary Mortgage Insurance on a loan means no losses occur in the event of foreclosure

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SECTION 3: FORECLOSURE PROCESS
Chain of Title and Chain of Note Recorded Events on the Loan Including Foreclosure Issues and Securitization
Recorded Chain of the Deed Date Trustee/Beneficiary December 29, 2005 Loan Granting Regions Bank, Lender Emmett James House or Bill R. McLaughlin, Trustees Chain of Note from Trust Date Note Holder December 29, 2005 Loan Granting Regions Bank, Lender

September 8, March 31, 2006 Notice of Default 2008 Kellam and Pettit, PA, Trustee

Sale, Securitization Merrill Lynch Mortgage Lending, Inc., Securitization Sponsor

December 8, 2008

Notice of Default March 31, 2006 Richard P. McNeeley, Trustee

Simultaneous Sale, Securitization Merrill Lynch Mortgage Investors, Inc., Securitization Depositor

April 1, 2010

Notice of Default David A. Simpson, PC, Substitute Trustee

Endorsement, Securitization HSBC Bank USA, NA as March 31, 2006 Trustee for Merrill Lynch Mortgage Investors Trust, Series 2006-A1

July 28, 2010

Substitution of Trustee David A. Simpson, PC, Substitute Trustee

July 28, 2010 Notice of Default Regions Bank, Lender David A. Simpson, PC, Substitute Trustee
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The Foreclosure Summary
The following uncovers problems in the foreclosure process. Deed of Trust • The original Deed of Trust was executed on December 29, 2005. The lender is Regions Bank and the trustees are Emmett James House or Bill. R. McLaughlin. Substitution of Trustee • The Substitution of Trustee dated July 28, 2010 was executed by Regions Bank as holder of the note secured by the Deed of Trust. The substitute trustee is David A. Simpson, PC.

Notice of Default • A Notice of Default dated September 8, 2008 shows Kellam and Pettit, Pa as trustee, while another, dated December 8, 2008, shows Richard P. McNeely as trustee. Still another Notice of Default dated April 1, 2010 shows Regions Bank as lender and David A. Simpson, PC, as trustee. However, the actual Substitution of Trustee appointing David A. Simpson, PC, was executed only on July 28, 2010 by Regions Bank.

Note and Deed traveled apart • As noted previously this loan appears to have been securitized by Merrill Lynch Mortgage Investors Trust, Series 2006-A1. As a result, the Note and the Deed have been separated. Therefore, there is no ability to foreclose on the property until the Note and Deed of Trust are re-united.

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SECTION 4: TITLE DEFECTS AND SECURITIZATION DEFECTS
Loan Process
• For a variety of reasons some of which include the fact that the lender is described as Regions Bank which was nothing more than a mortgage broker masquerading as the lender in a table funded loan, we conclude as stated elsewhere herein that there was an intention to securitize this loan. It does mean that the actual money that was used to fund the mortgage transaction was funneled through a long series of intermediaries acting in their roles as “securitization parties.”

Securitization Process
• This loan appears to have been securitized, with the Note being transferred to the Trust most likely on March 31, 2006, pursuant to the PSA. • There is no complete Chain of Title for the Deed. • There was no Note for review showing a complete Chain of Endorsements from Regions Bank, to Merrill Lynch Mortgage Lending, Inc., to Merrill Lynch Mortgage Investors, Inc., to the trust. It is likely that the actual note does not have the full Chain of Endorsements as required by the PSA.

Foreclosure Process • The Deed and the Note are separated from each other as the result of the Securitization of the loan. • It should be noted that Examiners, in researching hundreds of securitized mortgages in foreclosure proceedings, have yet to find one Note that has been produced that complies with the requirement of the Pooling and Servicing Agreement (PSA) that all intervening endorsements must be reflected on the Note. A Note endorsed in blank does not comply with those requirements.

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