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Welcome to the Civil Justice Blog.  The blog highlights current Maryland and/or federal law dealing with such topics as foreclosures, consumer rights, auto-fraud, and other related public interest issues.

The After Effects of Wall Street’s Investment Scheme

May 9
Written by: SuperUser Account
5/9/2011 8:22 AM

Last month on behalf of a Maryland consumer facing foreclosure, Civil Justice filed an affirmative counterclaim concerning the modification and foreclosure practices of her servicer and purported owner of her loan.  This case, Bolling v. American Home Mortgage Servicing Inc., et al.,  presents an issue of first impression in Maryland (and maybe nationwide) that goes to the heart of the current housing crisis. 
As many people now know, many of the loans subject to foreclosure for the last four years were pooled together into investment trusts by Wall Street professionals as another way to make profits with little or no risks.  These pools of loans are sometimes referred to as mortgage-backed securities (MBS) which the SEC defines as “debt obligations that represent claims to the cash flows from pools of mortgage loans, most commonly on residential property. Mortgage loans are purchased from banks, mortgage companies, and other originators and then assembled into pools by a governmental, quasi-governmental, or private entity. The entity then issues securities that represent claims on the principal and interest payments made by borrowers on the loans in the pool, a process known as securitization.”
In the Bolling case the entity claiming ownership of the loan subject to foreclosure in Harford County, Maryland (a trust named HSBC Bank USA, National Association as Trustee for Deutsche Alt-B Securities Mortgage Loan Trust/Series 2006-AB4 (“Deutsche Alt-B”), is subject to two lawsuits: (i) one by a homeowner, Donna Bolling, who was denied an opportunity to modify her loan to which she should have qualified and instead was wrongfully pushed into foreclosure; and (ii) one by the Massachusetts Bricklayers and Masons Trust Funds who purchased securities from the Deutsche Alt-B  Trust and has lost significantly on its investment. 
Incredibly, as disclosed in a federal case now pending in New York, Massachusetts Bricklayers and Masons Trust Funds v. Detsche Alt-A Securities Inc., et al., U.S. Dist. Ct. of NY, Civ. Case No. 2008-cv-03178, more than 41% of the thousands of loans arranged and deposited into the trust were either delinquent or had been foreclosed upon in less than four years.  It’s hard to imagine any investment vehicle in which the default rate would be so high in such a short period of time.  And when homeowners like Ms. Bolling should be considered for a modification which will make her loan profitable, investors like the Massachusetts Bricklayers will only lose even more. 
As officials and other professionals consider whether or not mortgage backed securities should remain part of our housing system into the future, hopefully they will consider the interests of investors and homeowners now caught trying to clean up the mess that has resulted in our current housing crisis.
Phillip Robinson, Executive Director
Civil Justice Inc.

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