JPM: Robo-signing now borrower strategy to avoid foreclosure
One of the largest investment banks at the center of the robo-signing scandal is claiming that distressed borrowers are using the allegations as a stall tactic to prevent losing their homes. Further, the secondary industry is rejecting claims that the current transfer of mortgage titles into the bond market is faulty. According to one analyst at JPMorgan Chase (JPM), the storm surrounding robo-signing activity may delay the process but will not help troubled homeowners retain their property. In a strategy call Friday morning, JPM mortgage-backed securities analyst Ed Reardon said that borrowers who are in default on their homes will naturally search for a number of ways to prevent foreclosure. These borrowers will look for any legal technicality to make the lawsuit or procedure "inappropriate," he said. "Robo-signing is just the latest legal strategy by borrowers to try to prevent foreclosures," Reardon said. "Our view is robo-signing can be fixed relatively quickly," and the foreclosures will go forward eventually. Reardon also said borrowers are trying to retain their homes by challenging the validity of their loans being held in the Mortgage Electronic Registration Systems. They are also looking at other means within mortgage "chain of ownership." Another attempt is to challenge what is referred to as "assignment in blank," a formal transfer of title to bonds where the name of the new mortgage holder is left blank. The rationale is that the correct name may be written in later; but borrowers are also challenging the legality of this as well, Reardon said. "That is not correct and that is not how the law works," he said. "The 'assignment in blank' is to facilitate the secondary market loan transfer…protected under Article 9 of the consumer credit code." And Reardon is correct according to trade group the American Securitization Forum. The ASF recently ?consulted with several lawfirms that all agreed the current method of title transfer under US securitization laws is correct and adequate. "In the last few days, concerns have been raised as to whether the standard industry methods of transferring ownership of residential mortgage loans to securitization trusts are sufficient and appropriate," said ASF director Tom Deutsch. "These concerns are without merit and our membership is confident that these methods of transfer are sound and based on a well-established body of law governing a multi-trillion dollar secondary market." JPMorgan Chase's primary servicing portfolio totaled roughly 6.8 million loans for an unpaid principal balance of roughly $1.2 trillion as of June 30. The strategy call was held to address some of the fears secondary market players may be feeling in light of the robo-signing scandal. Lately there is a feeling of a heightened risk of private label putbacks, which Reardon calls "a separate issue." "Non-agency putbacks have been limited," adding that the challenges to nonagency MBS is the requirement of 25% of voting rights which presents the biggest near term obstacle to a putback actually happening. Write to Jacob Gaffney. The author holds no relevant investments.