The Interstate Notarization Act

There's an amusing scandal. Many mortgages have been bought and sold many times. There is no longer any paperwork that proves who is the legal owner of the mortgage!

This is very amusing. The banksters aren't following their own foreclosure rules!

It isn't just amusing incompetence. There also was fraud. Some banks have started foreclosure proceedings, even though they can't prove they legally own the mortgage. When filing the foreclosure legal documents, the bank's lawyers and executives swore that they checked the mortgage paperwork. The bank's executives and lawyers are guilty of perjury, for lying about mortgage paperwork in court documents.

I doubt there will be any serious penalties. It will be, at worst, a slap on the wrist.

The scandal was uncovered by some homeowners trying to stall foreclosure. They demanded that the bank produce the loan paperwork. In some cases, the bank couldn't do it! This led to the current scandal.

Just before recess, Congress passed a law to try and bail out the negligent banksters. It was called "The Interstate Notarization Act". It would have required state courts to accept documents notarized in another state.

How does this bail out negligent banksters? With that bill, they could "forum shop". If state A has lenient notarization laws, then the bankster lawyer could get the mortgage paperwork notarized in state A in order to foreclose in state B.

Fortunately, President Obama used a pocket veto to kill this bailout law. It would be better to force the banksters to clean up their paperwork, rather than give them a favorable law. Congress will probably revisit the issue in the lame duck session after the election.

In the US political system, a "pocket veto" occurs when Congress passes a law just before adjourning. The President can veto the law by refusing to sign in, rather than by formally vetoing it and sending it back to Congress to try to get a 2/3 vote to override the veto.

In the banking fake reform law, there was an interesting clause. When a mortgage is sold, the originating bank is required to keep a 5% interest in the mortgage. That would solve this problem. The originating bank would always have the legal standing to foreclose, even if nobody can figure out who actually owns the remaining 95% of the mortgage.

There's another interesting part about selling mortgages. Suppose you owe a $500k mortgage on a house that's now worth $300k. If the mortgage were not sliced and sold, the lender could reasonable renegotiate for a $300k mortgage, rather than have the legal expense of a default and foreclosure. When the mortgage is sliced and sold in bonds, you can't renegotiate. If there are A-B-C tranches of the mortgage bond, then which tranche loses out when the mortgage is renegotiated? One tranche might prefer to renegotiate, but the other might prefer to foreclose.

What should happen if the banksters can't figure out who actually owns your mortgage? In that case, you shouldn't have to pay your mortgage. It isn't clear what the State legal system will actually say. If nobody produces mortgage paperwork before the statute of limitations expires, then the homeowner should get to keep their house.

This scandal is amusing. The banksters aren't following their own rules! It's really sloppy accounting. Some banksters are guilty of fraud, for filing fraudulent foreclosure paperwork. I doubt there will be any serious penalties.