Did BoA drop the ball in Countrywide case?

News out this week that Bank of America is attempting to distance itself (very quickly) from the recent testimony of two of its own in a case involving a foreclosure litigation.  Kemp v. Countrywide has drawn the attention of the securitization industry, primarily due to the testimony of a BoA manager and their outside counsel about how Countrywide went about transferring (or not transferring) important mortgage documents, including the mortgage note, to the bond trustee and the trust.

We won’t comment about whether these two witnesses had enough “knowledge” to be informed (as BoA has suggested) as to the general practices of Countrywide and the bond trustee (The Bank of New York Mellon) but, based on what we know of industry practices, it is almost certain that, if there was a problem with the processing and handling of the Kemp loan or even the entire process that BoA was utilizing to process new RMBS programs, there certainly wasn’t a conspiracy theory to be hatched, as some of the histrionics detailed in such places as Naked Capitalism would have you believe.

Foreclosure happens for lots of reasons; most legitimate and some not.  The Courts are there to be sure that disputes are settled fairly.  You have to split the baby here.  If the mortgage was not properly conveyed to the trust, then it is the bondholder that suffers.  If the homeowner defaults on his loan, he may face foreclosure.  If BoA in the middle got it wrong, even on both sides, they will be the one that suffers.  Let’s not make this discussion into more than it is.

Certainly, the bond trustees are reviewing and tracking tens of thousands of mortgages and thousands of other mortgages change hands between banks and finance companies all the time.  Is the paperwork spot-on all the time.  Of course not.  That is one of the primary reasons that the mortgage industry initiated MERS, to help alleviate the problems associated with arcane and outdated UCC requirements and other unwieldy laws and regulations.

The mortgage industry and the selling and trading of mortgage portfolios was not invented in 2005.  It has been a thriving industry for more than 25 years.  Securitization did not invent this secondary market.  It did help it to grow and it did open the market to new investors.

Courts will decide what they will decide on individual cases, but let’s not lose sight of the fact that everyone clearly understands what the intent of these transactions was; starting with the borrower who was happy to get the loan, all the way through to the bond investor who believes he has the right to enforce his ownership of the asset for which he paid.

About markferraris
Managing Principal Orchard Street Partners LLC

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