COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary
It could get even worse, and probably will. The current status of title and the current status of these obligations is such that a moral hazard exists that is sure to be exploited by a new group of third parties who perceive the opportunity. Because the title question is not resolved and the status of the obligation is not revealed, ANYONE can make the claim that they are the creditor and ANYONE can pretend to be an “institution.” They will take your money in a scam, give you a satisfaction of mortgage that meets the statutory standards as to form and you will record it only to find out that nobody ever heard of the people who took the payoff on your mortgage. By the way, this group is no different from the current group of pretender lenders who are doing the exact same thing.
EDITOR’S COMMENT: If you don’t know the identity of the creditor, how do you pay off your loan? The answer is that any of the securitization players including “servicers” will be more than happy to take your money and they might even give you a satisfaction of mortgage. If it is a credit card, they will be happy to give you a statement that says you don’t owe any more money. That ought to feel good, right? A growing number of people who still have some money are using it to reduce their debt a process called “deleveraging” in the world of finance. The net result for the economy is that instead of buying stuff they don’t need, people are taking the advice of people like Dave Ramsey on Fox and going for a new brass ring — NO DEBT.
The problem again is the attempted securitization of the receivables and the obfuscation of the identity of the owner of the loan. A satisfaction of mortgage from someone who that doesn’t own the loan is the same as a deed from someone who doesn’t own the house. Don’t be too surprised if down the road you start getting dunning letters from collection bureaus claiming you still owe the money.
It doesn’t matter how you are paying off a loan — sale of property, securities or refinancing — if you don’t have the right party in the room as the “lender”, you have a title and a credit problem. The satisfaction of mortgage from a party with no financial interest in the loan is a wild deed — void. A statement that reciting the payoff of the loan is worthless if it comes from someone to whom you do not owe the money.
All roads lead back to the same question — who is the creditor and what exactly is the current status of the obligation after the receivable has been sliced, diced, paid off from collateral sources without subrogation and otherwise closed out long before you proposed to pay it off. In fact you might be proposing to pay off something that no longer exists.
Lawyers who ask me about this, because it is coming up more and more, get two pieces of advice from me — either get a release letter from the client that says they acknowledge that this transaction might not be what it seems and that title is clouded, defective or unmarketable OR get a court order declaring the status of title to be as set forth in the new deal where the mortgage is being paid off — a quiet title action in which the parties cooperate. Otherwise, I tell them, you are a walking target for malpractice or discipline when the client finds out that the the transaction is a legal nullity.
It could get even worse, and probably will. The current status of title and the current status of these obligations is such that a moral hazard exists that is sure to be exploited by a new group of third parties who perceive the opportunity. Because the title question is not resolved and the status of the obligation is not revealed, ANYONE can make the claim that they are the creditor and ANYONE can pretend to be an “institution.” They will take your money in a scam, give you a satisfaction of mortgage that meets the statutory standards as to form and you will record it only to find out that nobody ever heard of the people who took the payoff on your mortgage.
Then there is the possibility, some say probability, that anyone signing a deed that guarantees they have title (called a Warranty Deed) could and probably will get sued for breach of that warranty when it is discovered that the signor either had no interest in title, even though they thought they did, or that they conveyed title with an encumbrance which was represented as satisfied but in fact still is in the title chain.
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US borrowers pay off home loans
By Suzanne Kapner in New York, Financial Times
Published: December 13 2010 18:58 | Last updated: December 13 2010 18:58
A growing number of US borrowers are paying off their mortgage balance ahead of schedule, reversing a trend that saw them extract record amounts of cash from their homes by taking out ever larger loans during the housing bubble.
The reduction in mortgage balances is part of a larger move by consumers to pare back their debt in the wake of the financial crisis. Consumers are also using disposable income to reduce credit card debt.
EDITOR’S CHOICE
Lex: US mortgage whiplash – Dec-08
Analysis: America: Room to improve – Nov-01
Foreclosure pressure on banks grows – Oct-21
The shift is having an impact on the shape of the US recovery. Such deleveraging “will be good for economic growth over the long term, but not in the short term”, said Frank Nothaft, chief economist of Freddie Mac, the government-owned mortgage finance company.
It also speaks to the weakness of the housing market. Borrowers can no longer count on rising home prices to inflate their spending power. In fact, with home prices falling, some borrowers will find themselves owing more on their mortgage than their homes are worth unless they pay off their principal, making it difficult to sell their home or refinance.
Lenders said that more borrowers are choosing to make mortgage payments every other week, as opposed to once a month, which works out to an extra payment a year and can save thousands of dollars in interest.
Other borrowers are opting for shorter-term mortgages, which will leave them debt-free sooner, but also require higher upfront payments than do standard 30-year fixed-rate loans.
A record number of borrowers are also paying off principal when they refinance, a process known as “cashing-in” that is the opposite of the “cash outs” popularised during the housing boom, when rising home prices allowed borrowers to refinance into larger loans and pocket the difference.
With home prices falling, such “cash outs” dropped in the third quarter to their lowest level in 25 years. Meanwhile, mortgage debt outstanding has been shrinking since the second quarter of 2008, after growing steadily during the previous three decades.
Brad Blackwell, a national sales manager for Wells Fargo Home Mortgage, said he is seeing more borrowers pay off their mortgages faster. Wells Fargo has seen a 10 per cent increase since January in the number of customers enrolled in its bi-weekly mortgage plan.
The savings can be significant. A borrower with a $200,000 mortgage that carries a 5 per cent interest rate could save $33,000 and repay the loan five years early simply by making one extra payment a year, according to Victoria Clement, a senior vice president of Loan Depot.
CMG Mortgage, based in San Ramon, California, encourages borrowers to deposit their entire paycheck into what it calls a “home ownership accelerator account,” which acts like a checking account, but automatically funnels any money not used for living expenses to mortgage payments, thereby reducing the loan balance faster.
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