Subprime fun

Posted by William M. Connolley on November 19, 2007
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Reading the torygraph business section I came across Deutsche Bank in ownership court row: “An American judge has prevented Deutsche Bank from repossessing 14 homes because the bank could not prove it owned the defaulting mortgages involved… Pooling involves taking hundreds if not thousands of mortgages, putting them in one unit, and then selling parts of that unit to others. As a result, it can often be unclear which bank actually owns the individual mortgages. Judge Boyko had ordered lawyers acting for Deutsche Bank National Trust Company to prove the lender was the ultimate owner of the mortgages. When it could not do so, he dismissed the cases.”

Oops, someone has been careless.

[Update: thanks to C for Tanta -W]

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Comments

  1. #1 Moopheus
    2007/11/19

    Someone has indeed been careless, and the judge basically bitch-slapped them for being careless and assuming they could get away with it in court. There’s a good detailed summary at http://calculatedrisk.blogspot.com/

  2. #2 JesusChristHimself
    2007/11/19

    Somehow I doubt the judge would have done the same thing to the Bank of Greater Cincinnati Suburbia.

  3. #3 Alexander Ač
    2007/11/19

    Sorry for being off-topic, but I have to…

    Vaclav Klaus on BBC – http://news.bbc.co.uk/2/hi/programmes/hardtalk/7091092.stm
    now, it is funny at all…

  4. #4 Bruno
    2007/11/20

    As a practical matter, it appears to me that it was the lawyer for DB who messed up by filing a foreclosure complaint and lis pendens on behalf of DB where that bank is not the record owner of the mortgage. Either DB is pretending to own mortgages it has no interest in (which is unlikely) or when an assignment of mortgage was made from Bank A to DB it was not recorded in the land records, and the lawyer for DB failed to pick this up in his title search. This type of oversight is a common occurrence and easily correctable.

    If the judge truly is requiring DB to prove it is the “ultimate owner,” they might be in court for a long time, because in a financial sense there may be thousands of “owners,” given how mortgages (all mortgages, not just subprimes) are divvied up, pooled, guaranteed (often by Fannie Mae or Freddie Mac) and used to generate mortgage-backed bonds and derivatives.

    What matters, in the context of a foreclosure action, is which bank is the “record owner” of the mortgage (i.e. the original mortgagee or most recent assignee). The identity of the record owner can be determined easily from the land records.

    [Yes, this is where I'm unsure. If its just a slip in the paperwork, its not very interesting. If the slicing up of the mortgages has resulted in the ownership being spread around, then its rather more fun. I don't quite see how the ownership can't be spread, but them I'm no expert in resold mortgages -W]