This topic is vast and it opens up the world of Wall Street, the mortgage industry, the real estate boom, foreclosures and an investment product that you may or may not have heard of by the name of REMIC’s.
In fact the story is so vast that by the end of this article I may not have gotten to the reason I started writing it in the first place which is mortgage securitization audits.
MERS, Wall Street, the foreclosure crisis and making money
Securitization of mortgages
This story has many twists and turns that I will get to in the near future, but for starters it has to do with money. Specifically Wall Street making a whole lot of money by buying up 1000′s of mortgages of a similar quality from the lenders who made the loans, packaging all of those loans into a security or bond-like product, and then selling that security to investors all over the world.
They would then repeat that process over and over again. Because the original lender making the loan was not holding on to it, the need to make 100% sure that it was a good loan lost some of its importance.
The bottom-line to the lenders that made the loans and the Wall Street banks who bought these loans and resold them was that the quicker the process went the more money they would all make.
A little something known as underwriting standards got pushed to the side of the road because all of the risk was being taken by investors around the world who thought they were buying triple-A paper while all of the reward went to the originating banks.
Did I forget to mention that the rating agencies also had a major role to play in this mess?
Stay tuned for more of the story.