Foreclosures and Missing Mortgages

       During this recession, there is not only a problem with homes being foreclosed upon, but also with documents surrounding the mortgage and who really owns them. The recovery from the foreclosure crisis is slowed by these missing promissory notes-- the original document that is legal proof of who the loan holder is and that the loan holder is entitled either to be repaid or to take back the house. Many cases of the million homes that have gone into foreclosure this year are challenged because of insufficient or lack of proper documentation.
         Many corporations, such as JP Morgan Chase and Bank of America, have acknowledged that their systems were very flawed and have actually suspended their foreclosures while they review them. But their attempts to fix the problem now do not help with the millions of foreclosures that already occurred. This problem would not have occurred had the financial institutions not failed to process loans properly. Many of the documents are missing because of the process of securization, in which mortgage bond are made and then sold to investors. As is the case with many foreclosures, the mortgage changed hands so many times and so quickly that the promissory note could not make it to all destinations or was filed away in a warehouse instead of being sent to the next place. More problems occurred when the banks themselves were trying to stay afloat and save money, or were being dissolved or taken over by a different corporation. "In early 2007, Washington Mutual shipped 1 million loan files from a document warehouse in Houston that it was shutting down to save money. The documents were supposed to go to Juarez, but according to a local news report at the time, WaMu lost track of 100,000 files during the move to Mexico" (Stepen Gandel). This situation was made yet worse by the fact that the files backed-up and saved in the Mortgage Electronic Registry cannot be used in foreclosure cases because its replacement of paper documents was deemed illegal under the Constitution.  This is good news for the homeowners of foreclosed homes but bad for the financial institutions and the economy because many of the foreclosure cases cannot make it through court. Now the banks may have to buy back billions of dollars worth of faulty mortgages which would just further halt the recovery from the recession.

Foreclosures in 2007 (above). Foreclosures in late 2008 (below).