Foreclosures Hit a Snag for Lenders

Homebuyers in the US borrowed money, some with adjustable-rate mortgages that offered low payments early in the loan’s term. Mortgage companies and banks packaged these loans into huge pools and resold the securities to global investors eager to cash in on the higher payments promised during the later years of the loans. With the loans secured by people’s homes, investors assumed the deals carried little risk: If a borrower failed to repay the loan, the bankers expected to prevent heavy losses by selling the home. But a federal judge in Ohio has ruled that, because the mortgages were repackaged and sold, sometimes numerous times over, the ownership of such homes could be in question. Attempts to spread risk by combining mortgages in large securities packages even means that some individual loans are divided among two or three investors around the globe – none of whom can prove that they own the home outright. – YaleGlobal