Page 437 - untitled
P. 437
FINANCIAL CRISIS INQUIRY COMMISSION REPORT
foreclosure proceedings; gaps in the chain of title, including printouts of the title that
have differed substantially from information provided previously; retroactive assign-
ments of notes and mortgages in an effort to clean up the paperwork problems from
earlier years; questionable signatures on assignments and affidavits attesting
to the ownership of the note and mortgage; and questionable notary stamps on
assignments.
On November , , a bankruptcy court ruled that the Bank of New York
could not foreclose on a loan it had purchased from Countrywide, because MERS
had failed to endorse or deliver the note to the Bank of New York as required by the
pooling and servicing agreement. This ruling could have further implications, be-
cause it was customary for Countrywide to maintain possession of the note and re-
lated loan documents when loans were securitized.
Across the market, some mortgage securities holders have sued the issuers of
those securities, demanding that the issuers rescind their purchases. If the legal
challenges succeed, investors that own mortgage-backed securities could force the is-
suers to buy them back at the original price—possibly with interest. The issuers
would then be the owners of the securities and would bear the risk of loss.
The Congressional Oversight Panel, in a report issued in November , said it
is on the lookout for such risks: “If documentation problems prove to be pervasive
and, more importantly, throw into doubt the ownership of not only foreclosed prop-
erties but also pooled mortgages, the consequences could be severe.” This sentiment
was echoed by University of Iowa law professor Katherine Porter who has studied
foreclosures and the law: “It is lack of knowledge of how widespread the problems
may be that is turning the allegations into a crisis. Lack of knowledge feeds specula-
tion and worst-case scenarios.” Adam Levitin, a Georgetown University associate
professor of law, has estimated that the claims could be in the trillions of dollars, ren-
dering major U.S. banks insolvent.
NEIGHBORHOOD EFFECTS: “I’M NOT LEAVING”
For the millions of Americans who paid their bills, never flipped a house, and had
never heard of a CDO, the financial crisis has been long, bewildering, and painful. A
crisis that started with a housing boom that became a bubble has come back full cir-
cle to forests of “for sale” signs—but this time attracting few buyers. Stores have shut-
tered; employers have cut jobs; hopes have fled. Too many Americans today find
themselves in suburban ghost towns or urban wastelands, where properties are va-
cant and construction cranes do not lift a thing for months.
Renters, who never bought into the madness, are also among the victims as
lenders seize property after landlords default on loans. Renters can lose the roof over
their heads as well as their security deposits. In Minneapolis, as many as of
buildings with foreclosures in and were renter-occupied, according to sta-
tistics cited in testimony by Deputy Assistant Secretary Erika Poethig from the U.S.
Department of Housing and Urban Development to the House of Representatives
Subcommittee on Housing and Community Opportunity. 
