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IPFS News Link • Housing

Foreclosure-Gate: Virginia Considering "Transfers In Blank"

I am told that these proposed changes would have the effect of authorizing transfers in blank in Virginia. That in turn would (in theory) allow banks to claim that an blank endorsement by the originator would allow the trust (who is usually the fourth party or later in a chain of transfers) to assert ownership, skipping over the problem that the intermediary transfers appear seldom to have happened. The banks clearly view endorsement in blank plus a claim that the PSA itself effected the transfer to the trust as a “get out of fuckup free” card; the American Securitization Forum has argued that position stridently (we’ve shredded it in numerous posts, see here and here for examples). I’d be curious to get confirmation that these language changes would produce that result. At the same time, I’m not certain that even if it did that it would save the banks’ bacon . Article 1 of the UCC allows parties to contract out of the provisions of the UCC. Pooling and servicing agreements clearly contemplated a far more specific set of steps that set forth in the UCC, and for good reason. The parties wanted the intermediary transfers to take place to establish bankruptcy remoteness. That means if an originator like New Century went bust, the investors did not want creditors of New Century to be able to claw loans back from their securitization. So it was necessary to launder the funds and the notes through at least one, and the state of the art soon became at least two, entities between the originator and the trust to protect investors from the risk of an originator failing. The other more exacting requirements of the PSA were to assure compliance with the Federal tax rules governing real estate mortgage investment conduits, aka REMICs.