The collapse of the real estate market in 2006 has led to the ongoing flood of mortgage foreclosures. In 2010, there were 2.5 million foreclosures filed, and the number is not expected to decrease this year.
The real estate bubble was, in part, created by the lending standards that banks used to book loans. The NINA (no income, no asset) loan was one example of the type that virtually anyone could obtain. Lending entities gladly gave away money, because mortgage loans had become a commodity. The loans were bundled together to form "mortgage backed securities" that could then be sold to investors.
After the market for conventional 30-year mortgages was exhausted, banks and other lending institutions went on a desperate search for more "product" to sell to investors. In many cases the paperwork was not prepared to the highest standards, by the time the loan went into default, it may have been sold half a dozen times. The documents were often processed by robo-signers, who would sign hundreds or thousands of documents, sometimes using electronic stamps.
While the use of robo-signing was seen as a symptom of the poor banking practices, the investigation by Reuters showed that robo-signing was still being used by some institutions in 2011.
Defective Paperwork And Banking
As the millions of mortgages being booked and were then repackaged and sold in pooled trusts. These trusts were created and controlled by pooling agreements.
These agreements are subject to laws that govern how they are created. According to a recent Reuter's investigation, thousands of these agreements appear to have violated the laws that regulate their use. Banks were moving so much "product" that the normal careful attention to detail was often skipped.
The Rules Are What We Want Them To Be
And now that banks want their money back, they are attempting to dismiss the processing as "mere technicalities" and are asking the courts to give them a pass for their documentation practices.
Because the system is so badly stressed, by both the sheer volume of foreclosure actions and the questionable or simply hard-to-follow nature of much of the documentation, borrowers can be left dealing with difficult legal and financial problems with no easy solutions.
