It is difficult for investors to make a monetary recovery from a fraudulent mortgage loan, according to an attorney at an American Securitization Forum seminar titled "Mortgage Fraud Prevention -- Tools and Resources for Secondary Market Participants."Karen Gelernt of Cadwalader, Wickersham & Taft LLP said unless there is a party with deep pockets (which originators generally don't have), investors will not be made whole if they purchase a fraudulent loan. Usually the secondary market is able to resell the loan in "scratch-and-dent" packages to firms with expertise to resolve the situation, but at a deep discount. A problem with using the judicial system as a remedy, Ms. Gelernt told attendees at the July 18 session in New York, is that the investor has to prove intent, which is difficult. "After-the-fact" legal enforcement provides some satisfaction, she said, but the money is not there to make the investor whole. Another issue, Ms. Gelernt said, is that the secondary market has been willing to accept fewer pieces of paper to document the loan file. This makes it easier to perpetrate fraud, because it makes it tougher to verify that the loan actually exists.

Subscribe Now

Authoritative analysis and perspective for every segment of the mortgage industry

30-Day Free Trial

Authoritative analysis and perspective for every segment of the mortgage industry