Mortgage Foreclosure Fail
Research for Online Investors

by John Dalt

1/7/11

Sometimes trying to find the pulse of the stock market is like being a nurse looking for a vein.  You know it is there, it just seems to hide from you.  Like a nurse, a trader has to probe for the blood.  The difference is the patient pays for the nurse’s uncertainty, traders pay for their own mistakes.

This morning was a good example of the tug-of-war in the market.  The first hour of trading was up, down, then up again.  The Bureau of Labor Statistics released employment numbers this morning before market open.  Employment didn’t grow as much as the market anticipated, but the unemployment rate went down more than expected.  The economy must have lost people looking for a job!

The market was trying to digest what these employment numbers meant.  Financials were leading the market to what appeared would be a solid day to finish the first full week of the New Year.

News came out of Massachusetts that shook the home mortgage business.  The Massachusetts Supreme Court upheld a lower court ruling against Wells Fargo (WFC) and U.S. Bancorp (USB) on two mortgage foreclosure cases.  WFC was the servicer and USB was the trustee of the mortgage backed security (MBS) that was seeking the foreclosures.

The court said, “We agree with the judge that the plaintiffs, who were not the original mortgagees, failed to make the required showing that they were the holders of the mortgages at the time of foreclosure.  As a result, they did not demonstrate that the foreclosure sales were valid to convey title to the subject properties, and their requests for a declaration of clear title were properly denied.”

From Loansafe.org, “In this particular (Massachusetts) case, Mortgage Inc. had issued Antonio Ibanez a $103,500 home loan and Option One Mortgage issued Mark and Tammy LaRace a $129,000 loan. Both Ibanez and the LaRace defaulted on their adjustable rate sub-prime mortgages and were foreclosed on in 2007. At the foreclosure auctions in 2007, US Bancorp and Wells Fargo had bought the homes…both US Bank and Option One claimed they had control of the loans. The mortgages were both in mortgage-backed security trusts which “supposedly” owned the loans. Keith C Long, who is the Massachusetts Land Court Judge in Boston, requested the banks to show evidence that they did have the right to foreclose on these homes.

It was ruled in March of 2009 that they did not. The two lenders were listed as the foreclosing parties in public records, but were obviously not the mortgage holders at the 2007 auction. Judge Long declared this a violation of state law. Long also voided the foreclosures, since US Bancorp and Wells Fargo hadn’t or could not prove they owned the mortgages.  It was revealed that the Ibanez mortgage was transferred to US Bancorp 14 months after the foreclosure auction. The LaRace mortgage had been transferred to Wells Fargo 10 months after."

We alerted you to the Mortgagegate Mess on October 15 with this:

The 300 lb. gorilla in the paperwork traces its history back to the creation of the Mortgage Electronic Registration System (MERS). MERS was created in 1995 by the nation’s largest home lenders to aid in the securitization of mortgages. When you borrow money on real estate the loan is recorded in your local county and MERS is appointed as the “nominee” on the mortgage. The nominee has the legal right to assign (sell) your mortgage to another lending institution. Once it is assigned it can be bundled with other mortgages. Then it can be securitized by selling the bundle to another bank or investor. Every time the mortgage changes hands, MERS keeps track of the mortgage owner on its books.

In October, GMAC was trying to foreclose on a home in Maine and had been thwarted because they could not ‘prove’ ownership of the mortgage.  Now WFC and USB have the same problem in Massachusetts.  The financial sector has led the market higher since Thanksgiving.  We may have lost our leader.

Earnings season starts Monday with Alcoa (AA) reporting after the close.  The market is looking for good earnings for the fourth quarter to reinforce the belief that the economy is improving.

We went out on a limb with our recommendation for January in the Long-Term portfolio.  We decided to buy a bank that made home loans.  There is one ‘Ace’ in our pocket, they don’t sell their loans.  They keep them all, and pay a nice 4.6% dividend.  With this latest turbulence in the financial sector you might get a chance to buy them under our recommended price, if you hurry.  You can subscribe, and we will help you for the next year for less than the price of a nice meal with your wife.

To the mailbag:
Thank you for your daily advice.  I could not do this without you.---SwingTrader subscriber R.V.

John’s reply:  We will keep our nose to the wind for opportunity!

I need a tip, how about NBA basketball, hockey or a bowl game?---new subscriber L.L.

John's reply:  I think you have the wrong website.

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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