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(snip)If local governments succeed in the fight against how banks have recorded the transfer of mortgage notes through the Mortgage Electronic Registration Systems, home loans could become as expensive as credit cards, K&L Gates Partner Laurence Platt said Wednesday.
At the last panel of the Mortgage Bankers Association summit on the future of mortgage servicing, Platt and Adam Levitin, an associate professor at Georgetown University Law Center, discussed the validity of MERS. The company was created by major lenders to become the single title holder of a mortgage as the owners of the note made transfers back and forth through securitization.
This, Platt said, was a solution to "antiquated filing systems" at the local level. In Chicago's Cook County, for example, it can take up to a year for a lender to receive a recorded mortgage back at the time of foreclosure, prepayments and other actions.
But local jurisdictions such as the states of California and Virginia are fighting to void foreclosures completed where the lender lays claim to the enforceability of the credit – meaning if the lender can use MERS to prove it has the right to foreclose – on two basis, Platt said.
One, MERS replaces the fees lenders used to pay to local governments for recording these notes, and these governments are claiming the banks still have to pay fees for the transfers. Second, Platt said, they are trying to score political points, which will only end up hurting borrowers in the future.
"My biggest concern is that local jurisdictions are enacting laws that change the centuries old law on recorded assignments in their locales, and that would void all mortgages in their jurisdiction," Platt said. "But Virginia didn't require assignments in the past. So, if that law passes, you will not be able to foreclose in the commonwealth in Virginia. It's turning real property law on its head."(snip)
(snip)Platt admitted there were issues with the system, but he warned that scoring short-term political points could be the end of affordable housing.
"They are making secured credit unenforceable," Platt said. "If you think you're going to get 4% mortgages on unsecured loans, you're wrong. You're going to get credit card rates. (snip)
The fairly obvious point being made by the author is that recent court rulings re foreclosures and recent changes in state real estate laws are, from the mortgage lenders' perspective, making it nearly impossible for the lender to 'retake possession' of a delinquent borrower's financed 'property' - as well as making it nearly impossible for the lender to 'liquidate' the underlying financed 'asset' to ( partially ) satisfy the delinquent loan amount. If this will indeed be the case going forward, then future mortgage lenders will have little choice but to reclassify future home mortgage loans as 'unsecured' loans ... since they cannot actually reap any real 'security' from the underlying asset in the event of a borrower going delinquent on mortgage (re)payments.
Essentially, this will amount to a situation analogous to a delinquent credit card loan ... where the lender doesn't actually have legal authority to 'take possession' of any of the merchandise the borrower purchased with the credit card, nor the ability to 'liquidate' said merchandise to ( partially ) satisfy the delinquent credit card loan amount. As such, the lenders face a far greater degree of loss risk ... which must be compensated for by the lenders charging far higher interest rates. Thus, by extrapolation, the author is strongly suggesting that future mortgage lenders will be looking for credit card-esque 8-12-18% interest rates on future mortgage loans ( depending on the credit rating of the would be borrower ).
Obviously, such interest rates would be untenable for the vast majority of would-be American home buyers. Thus the real world result is likely to be an end to traditional 'middle class' mortgage lending from private lenders anyhow - with associated further property value declines.



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