The condition of title is something that few complaints, that I have read, ever mention. Title is disturbed in every non agency mortgage loan originated. The conflict with the state laws and Lenders understanding for the construction of a self contained secondary market is beyond burdensome. The point is they, (whom they may be) are close to turning the page and creating a status quo and under the most egregious, deceptive lending practices.
Someone on Wall Street was convinced to come over to the private sector and create something to rid the government of Fannie Mae and Freddie Mac. The risk was that large pools of well underwritten loans by GSE’s were subject to escalating rates and prepayment fallout. This appeared to be a consequential killer for long term bonds issuers booked as government guarantees. But the alternative was near sighted and near sighted by design.
Originating a non GSE mortgage at 80 percent was impossible without PMI down to 70 percent. There the mortgage product offered a rate that was totally unmarketable. Originating a mortgage at 100 percent could bring out the speculative homeowners who would bite at a chance to tap into equity. But how 100 percent loan combos became AAa rated securities is another story. It’s the brilliance of Wall Street – like giving the shopper at malls the ability to supervise themselves using an honor box in place of cash registers, or pump your own gas unmonitored with 30 days to pay, or building schools where kids teach themselves and cost of educators are eliminated. Get a $ 400,000 1st mortgage and 200,000 2nd mortgage on a stated income application with a promises to pay back the proceeds. All at a one stop shop cost of six percent on a weighted average yield.
If I were counsel pleading this case I would look closer at how the combo loans were portrayed to investors and the following:
- Why the 1099 controversy lingers on as debt forgiveness
- Why Secretary Paulson repeatedly talked about how borrowers did the unthinkable – stop paying
- Why no loan is sold over 80 percent, and
- Why senior sub deal structures created the Zero Coupon Bonds
It’s fascinating, just beyond mind boggling ….knowing what they panned on doing as far back as 2000 and seeing them get away with it.