Beating Lenders at Their Own Shell Game

Lance Wiggs has hit up on yet another twist in the debt crisis:

It turns out that because of the mortgages being sold and sliced and sold, the ownership of the original mortgage is often in doubt. It took Mamie Ruth Palmer in Atlanta, Georgia to bust this one open, in a court case that has just ended a six year saga.

Her bank tried to foreclose on her, but couldn’t prove that they actually owned the mortgage. The bank ended up in the humiliating situation of losing on pretty much all fronts:

Last month she received a settlement from the Bank of New York, the trustee for a vast pool of mortgages that included hers. Under the terms of the deal, the bank reduced Ms. Palmer’s loan balance to $59,000 from about $100,000 and has agreed to accept the proceeds of a reverse mortgage in full satisfaction of her obligation.

The practice of reselling mortgages is perhaps the most insidious part of this debt crisis, because, when the dominoes started to fall, no one knew where they would end up because of the byzantine resale of debt.  But few anticipated that injury would be added to insult for the lenders when the ownership of the debt came into question.

2 Replies to “Beating Lenders at Their Own Shell Game”

  1. The practice of selling notes? I think you mean the practice of selling stocks. In the situation you refer, the note is converted into a stock, therefore, no longer a note and can never be converted back.

    The problem is what’s not disclosed. Borrowers think the deal is for a loan, not a securities transactions. Furthermore, the note is funding the loan, there is no lender. The Borrower IS the lender. They are the only ones that provide anything of value. The Bank is actually the one receiving money, not lending it. A Bank cannot loan it’s money or it’s credit.

    The borrower thinks the Promissory note is just a promise to pay, but it’s not. It’s no different than writing the Bank a check, which is exactly how it’s treated.


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