Mortgage Backed Securities & Credit Default Swaps
There are three (3) main types of MBS that exist in the marketplace today:
Mortgage Pass Through’s
Stripped Mortgage Backed Securities
Collateralized Mortgage Obligations
The Process...if you can call it that.
Most people just view a mortgage as a basic credit transaction, but nothing could be further from the truth. If your mortgage has been securitized, you are an issuer of an unregulated security in a highly complex financial transaction.
During the time between 2002 - 2007, originating lenders and everyone else in the chain of the securitization process bet against YOU to be able to fulfill your mortgage obligation. The strategy can be compared to a situation whereby the lender gave thier customer (borrower) a five dollar bill which would be gone forever, but then they were guarunteed a seperate return of 2, 3 or even 5 times the original amount loaned via a form of mortgage insurance. The mechanism for this process is known as credit default swaps.
Credit default swaps are still a way for entities to bet against or for borrowers who took out mortgages. The bet is if that borrower will be able to continue making payments on loans that were essentially rigged to fail. This type of “mortgage backed security insurance” “CMO insurance” or “credit default swap” most likely results in your loan already being paid off.
We also know that investors in securitized trusts that are mortgage backed securities, or collateral debt obligations, were also covered by monoline, multiline, or other forms of "pool insurance" or mortgage guarantee insurance. This insurance practice already indeminfied the securitized trust for the borrower's default as well.
Moreover, a significant amount of securitized trusts overcollateralized and/or cross collateralized certain tranches within these securitized trusts that subrogated losses from borrower defaults to other tranches - therefore also indemnifying investors for any loss from default on your loan.
Even in light of the above, the servicer, and other parties that engineered the securitization that includes your mortgage are collecting yet again via foreclosure. Mitigation Resolve, LLC has heard rumors from inside banking sources that suggests mortgage servicers may be auctioning homes and not turning the proceeds over to the securitized trust and its investors. Thus the mortgage servicer is keeping the proceeds of these foreclosure auction sales as a financial windfall! Is this yet another reason why your servicer has absolutely no incentive to work with you on a loan modification?
Some applicants are being told that, while technically their loan meets the qualifying criteria of the program, they are being denied because their loan is covered by "pool insurance" or "mortgage insurance" - go figure.
Call 239-601-8445 to speak with a private banking consultant