Staff Writer
Associated Press

Salt Lake City, UT / April 20, 2010 / --  As financial institutions continue to face a barrage of lawsuits from investors of pooled mortgage-backed securities another wave of lawsuits by way of distressed homeowners with claims of predatory lending, violations of Fair Credit Reporting Act and Equal Credit Opportunity Act to mention a few continue to flood the legal system. 

In a move to shift heavy legal woes financial institutions caught in the cross-fire of civil litigation are hoping to share some of their legal expense by returning toxic real estate loans to their originating source via claw-back agreements.  Yet many institutions are learning that the paper trail ensuring proper assignment of titles or the allonges used in the recording of ownership never took place.   

"Our trainings to financial institutions have revealed that weak link-chain accountability when it came to assignments may very well prove to be the Achilles Heal for financial institutions," says Sheri Fitzpatrick, Executive Director for Perfect Home Living, a non-profit based in Salt Lake City, Utah.  "The basis or the challenges of emerging litigation against financial institutions remains to be proof that the foreclosing lender has the authority i.e. paperwork to support its position to foreclose," Fitzpatrick continued. 

Quality assurance and partial release teams for loan transfers and document management have remained silent but without question it is their silence that will have courts of law asking how much banks knew, when they knew and if claims of not knowing are made - how was it possible that the financial institution didn't know proper assignment had not been made. 

The race for investment houses to create business models that netted fast pay outs, reduced span and increased profits worried little about whether or not the foreclosing entity had the authority or proper assignment.   In fact speed for profit was the name of the game as evidenced by a system introduced in early 2005, by Deutsche Bank.

It was called the "Pay as You Go," system that meant that the insurance for those betting against defaulting mortgages would pay out more quickly.  Circumventing congressional oversight traders lobbied the International Swaps and Derivatives Association, the governing body for trading derivatives like CDOs.  The new system was presented as fait accompli or "an accomplished fact; a thing already done."

As more and more of mortgage-backed securities tied to CDOs became fast-tracked through the "Pay as You Go" system little to no paperwork to include assignments or transfers of mortgage-backed security portfolios existed.  Thus leading to an emerging problem for lenders claiming to have the right to foreclose on delinquent homeowners when no such documents supported the lender's claim when challenged. 

Still the lack of paperwork has not deterred lenders from continuing to foreclose on delinquent borrowers.  "I think that the stress test between banking, business, consumers our current Administration right now is quite harmful," says Ms. Fitzpatrick. "The compensation practices of Wall Street are flawed and have in turn created a chaotic life cycle for business and consumer retention that remains fundamentally flawed.  Our banking system has remained antiquated and without the proper administration of securitized mortgages terms like recession and depression will become the reality," Fitzpatrick added.

So is it possible for financial institutions to get back on track and hold accountable those parties that engineered toxic loans in the first place?  Only time will tell but certainly without the proper paperwork financial institutions will continue to face an uphill legal battle.   

About Perfect Home Living 

Perfect Home Living is a nationally recognized non-profit leader that assists in implementing programs and providing training and education to financial lenders, government entities, banking regulators, consumers and licensed professionals to red flags within today's  real estate market.   For more information or to request assistance please visit us online at:  http://www.PerfectHomeLiving.com or email sheri@perfecthomeliving.com