Mortgage File Missteps Extend Past Securitization, Cantor Says

Via Bloomberg.

Banks seeking to clean up their balance sheets by selling U.S. mortgages made during the real- estate lending boom are encountering documentation problems, Cantor Fitzgerald LP said.

In some cases faulty files are lowering loan prices or extending the time it takes to complete sales, said Jason Kopcak, the head of whole-loan trading at the New York-based broker. Residential and commercial mortgages owned by banks looking to sell often lack the papers required by buyers, including documents needed to foreclose, Kopcak said.

Bank acquisitions of other lenders are one reason for incomplete files that may take as long as nine months to resolve before loans can be sold, Kopcak said. About 2 percent of the time, complete packages can’t be created, forcing the sales to be conducted on an “as is” basis at lower prices, he said.

When loans have been securitized, professors and homeowner attorneys including Shelby, North Carolina, bankruptcy litigator O. Max Gardner III have argued that files can’t be augmented after the securities were created.

The market for whole mortgages has been little affected by foreclosure issues so far because loan sellers guarantee complete files. Sales have been steady, with prices down about 1 cent or 2 cents on the dollar, because buyers are anticipating increased document scrutiny will lead to longer liquidation times, Kopcak said.