While robo-signing has been the most high-profile foreclosure concern for residential mortgage-backed securities lately, it appears it is a relatively low risk compared to the currently less-prominent one related to missing and defective documents, according to a recent Moody’s Investors Service report.
The report’s author, Moody’s vice president and senior analyst Yehudah Forster, said the latter risk is one that in most cases will cause only delays but in some could also prevent foreclosure.
The robo-signing, in contrast, is likely to only delay foreclosures, not prevent them, according to Moody’s.
Some other risks that have arisen in connection with foreclosure issues also are noted in the report but categorized as lesser concerns than the other two.
Moody’s considers the ability to enforce mortgages registered in the Mortgage Electronic Registration Systems a low risk because it believes that even if MERS doesn’t have the standing to foreclose in its own name, it can assign the mortgage to the RMBS trust, which through the servicer may then foreclose. Challenges questioning the ability to foreclose on mortgages that name MERS as the nominee of the lender and mortgagee on record have a low likelihood of success, according to Moody’s.
Another risk mentioned in the report concerns the validity of RMBS trusts’ real estate mortgage investment conduit tax-exempt status in situations in which the ownership of the loans is challenged based on allegations that the loans were not transferred properly at closing. Moody’s said this challenge “erroneously” equates the concept of record ownership of the mortgage, which may transfer some time after the closing date, with economic ownership of the loan, which is transferred to the trust at closing.
The rating agency also said that challenges to REMIC status based on claims that loans have defective or missing documents can be cured under REMIC rules.
