Assuming all was valid – which it was not – it was the originator that “underwrote” the loans – who then sold the loans to the Depositor – who sells certificates to “security underwriter. Note – a mortgage originator underwriter is not the same as a security underwriter. (emphasis supplied by editor)
All of this simply means that the security underwriter’s parent corporation purchased the whole loans for the purpose of securitization (removable of their receivables from balance sheet). Mortgage Loan Purchase agreements include a Repurchase Agreement with a laundry list of stipulations in which the originator – who sold the loans – must repurchase the loans. If you examine this laundry list – every loan originated – should have been repurchased – and, of course, the note was then “with recourse” – not “without recourse.”
Repurchases were a major trigger for the mortgage crisis meltdown – and what fundamentally shut down many of the now defunct originators – New Century, Ameriquest, Countrywide, Fremont, etc. etc. As the repurchase demands became fast and furious – the originatosr could not fulfill their obligations – and, therefore, went under.
Today, since the originators are largely gone, “investors” and Fannie/Freddie, and maybe the Federal Reserve Bank of NY – who holds Maiden Lane for government, are demanding repurchase of non-compliant loans from the Depositors – who purchased the loans from the originators – and organized the Trusts that held the loans.
In effect, the Depositors owned the Trust – which was just a vehicle for pass-through of receivables to the loans. But, the whole loans were also converted to securities by the Trust organization. And, securities just meant the pass-through of the mortgage loan receivables was asset-backed – and therefore, (falsely) rated Triple A.. The certificates to Trusts were then sold to security underwriters – to market the tranches – or keep them for themselves for CDOs and other derivatives.
In most securitizations, the Depositor – and the security underwriter – were subsidiaries of the same Wall Street Bank – the ultimate party who actually purchased the loans from originators – and the only party who reported financial statements and balance sheets. Also, the only party to remove receivables from on- to off balance sheets – and the only party to now take those off-balance sheets back onto their balance sheets.
Occasionally, there were securitizations in which Depositor was not a a subsidiary of the Wall Street bank – and appeared to be a subsidiary of the originator. These securitizations were simply fronts – for actual party who purchased the loans – since an originator could not sell loans to “itself.” It is possible that these securitizations were directly related to Fannie/Freddie – but many of the other securitizations were also “Deals” or “Wraps” between Wall Street and Fannie/Freddie..
Now, many of the repurchases were executed – returned to originator – but this will NEVER be disclosed. In this case, the originator would sell the repurchased loans to hedge funds/scratch and dent buyers/distressed debt buyers who would then synthetically market the repurchases as “securities” (not really securities) to investors. But, the foreclosure mills will still claim the loan remained in the original trust – which is false..
If loans now in default were not repurchases – then they have likely been removed and sold by now anyway. – unless they are not salable – in which case they still remain with Wall Street Bank – or Fannie/Freddie.
For those entities/investors that are now demanding repurchases – this demand is, in effect, a demand for compensation related to the “bad” loans that were sold by originators – to depositors – to security underwriters – with receivables passed-through to security investors (never the creditor according to TILA Amendment and Fed Res Opinion (now rule).. It is the security underwriters parent that these entities/investors are now going after. That is, as we all should know by now – Wall Street – the big banks that owned the Depositors, the security underwriters, and who orchestrated the whole fiasco.
I am just amazed that these repurchase demands are occurring – and years later – when repurchases are not even broached in courts of law for foreclosures (nor is the laundry list for repurchase broached). Not one case I have seen deals with this issue. But is huge – and, as I state above – a big cause of the meltdown – and a big issue today.. Investors are way ahead of us in court – and, these investors are only demanding restitution for investments lost – they are not the party who benefit from foreclosure recovery.
The advantage “investors” have over us is BIG law firms on their side – because the law firms will make a hefty commission. No law firm reaps a big profit by single foreclosure defense.
It is all about money – always has been – always will be. We only have advantage – we are large in number. We have to use that advantage to our best ability.
Filed under: foreclosure