"Securitization" includes, in basic terms, bundling securities and selling them. Previous posts in this space have addressed one of those "securitization" vehicles, collateralized debt obligations, which are not regulated as "Insurance," and their virtually identical resemblance to regulated Credit Insurance.
Other features of "securitization" besides the avoidance of regulation, include that borrowers and lenders are not likely to know much about the other, even their identity in at least some cases. "[T]oday the holder of the note securing the property is a faceless investor represented by a trustee, like the Bank of New York."
Further, loan servicing companies stand in the middle between lender and borrower. It is the job of a loan servicing company to obtain for the lender all the money from the borrower that can be obtained. "And because the foreclosure process can generate lucrative fees, servicers have an incentive to drag out the process, experts say."
In particular, plaintiffs attempting to foreclose on residential housing are at a loss in many cases to present the actual note given by the borrower as evidence that the plaintiff owns the "securitized" debt or otherwise has the right to foreclose on the security, i.e., the borrower's home, in the event of nonpayment of the loan. This evidentiary disability is a growing disadvantage as more Judges require evidence of authority to foreclose. A "consumer lawyer at Jacksonville Area Legal Aid in Florida" is quoted in this regard in Gretchen Morgenson, "How One Borrower Beat the Foreclosure Machine" p. 1, col. 2 "Sunday Business" Section (New York Times Nat'l Ed., Sunday, July 27, 2008). The consumer lawyer points out that this is an issue of whether the plaintiff has standing to sue, and the answer to that question may well determine whether the same plaintiff has standing to settle.
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