Last fall, we got hints of the expected-yet-still-shocking revelation via a Countrywide/BoA employee, Linda DeMartini (testimony here), exposed the securities fraud practices in a depo taken during a NJ bankruptcy case, Kemp v Countrywide. A direct quotation from the judge's opinion in the bankruptcy case:
"She [DeMartini] testified further that it was customary for Countrywide to maintain possession of the original note and related loan documents."
That assertion certainly seems to suggest that the failure to transfer a promissory note from Countrywide Financial to the security trust in this case was not an isolated error—but a matter of policy at Countrywide Financial. If mortgage-backed securities aren't in fact "mortgage-backed," investors who bought these securities from Countrywide could hold Bank of America accountable. "If Countrywide's practice was to hold onto the note, then investors in this pool and others may question whether the security was constructed properly and legally and may be able to require Bank of America to buy back their securities" Gretchen Morgenson of the New York Times explained.
FROM PAGE 3 OF THE INTERAGENCY REPORT:
The reviews also showed that servicers possessed original notes and mortgages.
(NOTE THAT THE SERVICERS, NOT THE TRUSTEES ARE IN POSSESSION OF THE ORIGINAL NOTES & MORTGAGES)
FROM PAGE 4 (oddly it appears third party vendors where tasked with negotiable instrument document custodian duties)
Third-party vendor management. Examiners generally found adequate evidence of physical control and possession of original notes and mortgages.
FROM PAGE 6
Furthermore, concerns about the prevalence of irregularities in the documentation of ownership may cause uncertainty for investors of securitized mortgages.
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