Thursday, October 07, 2010

MERS: Little Time for Quality

Not enough time or money for quality work,  it's a common story.  Poor practices in mortgage securitizing enabled bad loans to be written.  Even soundly underwritten mortgages, failing in the economic downturn, carry documentation problems from poor quality work.  WaPo reported:

Janet Tavakoli, founder and president of Tavakoli Structured Finance, a Chicago-based consulting firm, said that for much of the past decade, when banks were creating mortgage-backed securities as fast as possible, there was little time to check all the documents and make sure the paperwork was in order.

But now, when judges, lawyers and elected officials are demanding proper paperwork before foreclosures can proceed, the banks' paperwork problems have been laid bare, she said.

The result: "Banks are vulnerable to lawsuits from investors in the [securitization] trusts," Tavakoli said.

Mortgage companies formed MERS to streamline the mortgage process, which enabled securitization/trading. MERS reached the 3 million milestone in 2001, hit 20 million in 2003 and passed 50 million mortgages in 2007.  Due diligence broke down as the mortgage security mountain grew.

Companies continue to be surprised by inadequate internal processes and supplier failures.  More are forced to pay attention, slapped by consequences of past failures.  Ask J & J's William Weldon.

(Thanks to Economic Policy Journal)

Update 10-9-10:  WaPo's Ezra Klein talked with Janet Tavakoli on this issue.

Update 10-26-10EPJ's Robert Wenzel has an insightful, but disturbing piece on Ameriquest's Mortgage operations.

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