Why “Blank Name” Matters and Trustee Obligations

From the Big Picture, by Joshua Rosner.

Before anyone can offer a reasonable estimate of the number of mortgages or trusts at risk, there needs to be a broad assessment of operational controls that oversaw the moving of pools of mortgages from originators to trusts for the benefit of MBS investors. We believe that the assignment of notes in “blank” name, which was a standard practice, materially increased the risks of shoddy assignments.

We are not suggesting a Lehman style crisis will necessarily occur. We are suggesting that if the investigation of front-end documentation practices uncovers assignment failures in any scale resembling the back-end foreclosure processing failures, the scale of uncertainty could create a market response reminiscent of that Lehman period. …

There have been a large numbers of foreclosure proceedings where, because of improper assignments, the trust has been unable to demonstrate the right to foreclose. It is thus that we raised concern about the transfer “in blank name”. We do believe it likely the rush to move large volumes of loans may well have resulted in operational failures in the “true sale” process by some selling firms and trustees. Were this “missing assignment” problem, which we are witnessing in individual foreclosure proceedings, to be found to have resulted from widespread failure of issuers and trusts to properly transfer rights there would be appear to be a strong legal basis for the calling into question securitizations. …