How Can I find the Real Lender? Securitization in a Nutshell

Feb 5, 2020

The point of securitization — as practiced by Wall Street is that there is no risk in lending to consumer borrowers. Under existing law that means there is no lender and there usually isn’t — except where a conventional loan get paid off in a securitization scheme.

Sound crazy? it gets worse. Not only is the lending without risk but the higher the probability of failure of the loan the more the profit. That’s because in foreclosure the investment bank takes all the money, distributes it as revenue and gives the investors nothing.

The point is not finding the lender. The point is revealing that the party making the claims to collect, process, administer or enforce your loan is not the owner of the debt.

Under all existing law nobody can own a debt unless they paid for it. And nobody can own a debt unless they also have title to the debt. In real estate transactions that means that the note conveys title to the debt if the Payee has paid value for the debt. In conventional loans that means despite common beliefs about the construct of a loan, the “lender” is purchasing a debt from you and getting title to the debt by delivery of the note. That is where all those provisions of the UCC (Uniform Commercial Code) come from, adopted in all U.S. jurisdictions.

In principle, securitization should have no effect and the debt would be owned and enforceable either by a group of investors or some business entity into which they had deposited their money and which purchased the loans from “borrowers” like you. Those investors would collectively have paid value for your loan and received title to the debt in the form of a note which is required by the statute of frauds.

But in practice the investors deposit their money with an investment bank. They are not buying your promise to pay or your promissory note or your security agreement (mortgage). They are buying a certificate in which an investment bank, acting under the name of a trust which may or may not exist issues the certificates to memorialize a promise from the investment bank to make payments to the investors. And that is where the law has no provision for what the banks did next.

The investors expressly waived and disclaimed any right, title or interest to any debt, note or mortgage. which means they paid for it but they received no direct ownership of it. Instead they got a promise from the investment bank that was actually unsecured and mostly discretionary on the part of the investment bank with vague references to indexes based upon the performance of a portfolio of loans that probably did not exist as a portfolio owned by any business or other legal entity except as a fictional construct created by the investment bank on the desk of a CDO manager.

CDO=Collateralized Debt obligations — which are obligations but not collateralized in any legal sense. The investment banks use labels to create the fictional constructs and then hope it is complicated enough that any explanation they give will be accepted by a court.

So the question is not YOU find the actual lender. Under the law it is the burden of the claimant to find the actual lender and show that it is the party who paid for the debt and who therefore has a financial injury arising from non performance under the loan or else there is no jurisdiction by which the court can consider any claims based upon the existence of the loan.

And the only way you can do that is through discovery and/or cross examination where you reveal gaps in the case being presented against the homeowner.