The Massachusetts Supreme Judicial Court ruling concerning improper foreclosures on two homes leaves open a solution to the chain-of-ownership cloud that is hanging over securitization, market analysts said.
In a report, Bank of American Merrill Lynch analysts stated that the court review creates a solution to the chain-of-ownership issues affecting securitization trusts.
The decision by the courts clearly determined that the proper assignment must be in place before foreclosure proceedings can take place.
The ruling reiterates some of the lessons the securitization market learned from the robo-signing debacle late last year. On the one hand, mortgage servicers already expected banks would need be extra diligent on documenting title before proceeding with a foreclosure.
"There will be instances where the necessary documents are not readily available and must be replaced, a time-consuming process," Amherst Securities Group (ASG) analysts wrote in a report. "Again, this is a lesson we have already learned from the robo-signing/foreclosure-gate experience. And, realistically, while these costs should be borne by the servicer, it is possible (likely) that some of the costs are passed on to the trusts. Given the total lack of transparency in deal reporting, it will be difficult for investors to detect."
ASG analysts predicted that it's likely that the market will be inundated with many lawsuits in the months and years to come that question the validity of a foreclosure action, including those on foreclosures that have already occurred.
"It is clear there was enough sloppiness in the foreclosure process to encourage these lawsuits. (And, while these suits will produce inevitable delays, it is not clear how successful these lawsuits will ultimately be," Amherst analysts said.
Interestingly, ASG analysts said that if the loans in the Massachusetts foreclosure case would have been filed within the Mortgage Electronic Registration Systems (MERS) system, the chain of ownership would have been easier to prove. Once a loan is in the MERS system, MERS becomes the mortgagee of record as the nominee of the holder with the beneficial interest in the mortgage, Amherst analysts said.
Once a loan is originated with MERS as the nominal mortgagee (or is assigned to MERS post-origination), it tracks all further mortgage loan and servicing transfers as well as other assignments until ownership or servicing is transferred to an entity that is not a MERS member. According to ASG analysts, about 60% of the residential mortgages in the U.S. go through MERS.