MAKING SEN$E -- January 4, 2011 at 10:01 AM ET
A Mortgage-Backed Security Map: The Fantastic Fate of One Man's Loan
The complexities of getting or refinancing a mortgage are many: the broker you can or can't trust, the screening of your income and credit, the appraisal, the fear that rates will rise before approval, the title search, the paperwork at closing...
That's what the homeowner sees. But out of sight and mind have been complexities greater still -- until now. Banks have moved massively to foreclose. Homeowners have struggled desperately to resist. And finally, they've found a weapon: robo-signers who paid even less attention to the paperwork, it seems, than the homeowners themselves, throwing the legality of the foreclosure process itself into doubt. The deeper you look into the intricate details of securitization, however, the more sympathy you may have for homeowners and robo-signers both.
Consider the case of homeowner Daniel Edstrom, who happens to perform securitization audits for a company called DTC-Systems. With a background in computer technology, Edstrom figured he'd look into the history of his own mortgage.
A larger version of the chart is available here.
"Securitization" is, in theory, quite simple: the pooling of mortgages like Edstrom's with others, and then selling shares in the pool to investors. It's trumpeted as an easy way to get more investors to provide money for home purchases by creating, in essence, diversified mutual funds of mortgages in which they can invest.
But digging into the documents on his own mortgage, Edstrom discovered a legal labyrinth.
"I went over and over how the pieces fit together. It's obviously a complicated puzzle," Edstrom said in an interview. What he found out was, in his opinion, an approach similar to that of car theft these days.
"If someone steals a car, they can make much more money if they break the car up into pieces and sell the pieces individually. That's exactly what happened here [to my mortgage]."
Edstrom spent a year mapping his mortgage.
"The whole problem is that it's too difficult to understand because they've broken it into pieces. You're no longer just dealing with the bank; your mortgage is spread out over 30 to 40 companies," Edstrom said. "You walk in front of a judge trying to explain what's going on and you look like an idiot because it's incomprehensible."
But increasingly, those who engineered these deals are looking suspect, as Brooklyn Supreme Court Judge Arthur Schack recently explained to us. If a judge were to study Daniel Edstrom's chart of his own wayward mortgage, might his or her honor have even more reason to slow the foreclosure process? Take a close look yourself and see how you might rule.