Credit Loan Securitization Audit Reports

The process of turning non-tradable assets into tradable securities is known as securitization. It is a kind of structured finance that divides risk by pooling debt instruments and issuing new securities that are backed by the pool.

Instead of selling assets to raise money when a bank or other financial institution needs more money to finance a new facility, the latter chooses to sell a portion of the loan to a Trustee called a Special Purpose Vehicle (SPV), who will then collect the money upfront and remove the loan asset from the institution’s balance sheet. Bonds are issued to investors by SPV, which holds the asset as security on its balance sheet. It pays the asset’s creator with the money received from the sale of those bonds.

Process Flow for Securitization

Following are explanations of the functions and duties of various securitization structure components:

• A person or entity that borrows money from a bank or financial institution and makes monthly payments is known as the borrower.
• Mortgage Broker: Mediates transactions between borrowers and lenders. At loan closing, the mortgage broker earns a fee income.
• A Special Purpose Entity (SPE) established to enable a securitization and issue securities to investors is the issuer.
• Lender: A company that evaluates and finances loans before selling them to the SPE for inclusion in securitization. Lenders receive payment in cash for the loan purchase as well as fees. The lender may occasionally get into a deal with mortgage brokers. Banks or non-banks can be lenders.
• The organization tasked with collecting loan repayments from borrowers and sending them to the issuer for distribution to investors is known as the servicer. Fees based on the number of loans serviced are often paid to the servicer. In addition, the servicer manages late payments on loans and foreclosures and is usually required to optimize payments made by borrowers to the issuer.
• Trustee: An independent party chosen to represent the interests of the investors in a securitization. The trustee ensures that the securitization functions as specified in the agreements governing the securitization, which may include judgments on whether the servicer complies with defined servicing requirements.
• Documents pertaining to the securitization – These documents both establish and describe the securitization. The Pooling and Servicing Agreement (PSA), one of the securitization documents, is a contract that specifies how loans are combined in a securitization, how the loans are administered and serviced, representations and warranties, and permissible loss mitigation techniques that the servicer may use in the event of loan default.
• The underwriter manages the distribution of securities to investors.
• Credit Enhancement Provider: In securitization deals, credit enhancement (meant to lower the structure’s credit risk) may be offered by a separate third party in the form of guarantees or letters of credit

Note

Securitizations vary widely from one another. For example, brokers may not be involved in other agreements, or the lender and the servicer may occasionally be in the same organization.

Audits of Securitization

Securitization is the process of turning debt into bonds or pass-through certificates, which are securities with principal and interest payments drawn from a pool of loans, such as mortgages.

Many people are unaware that the first mortgage was securitized in 1909. However, that practice became quite popular over the next 20 years, up until 1929, when the extreme leverage of stock pools, along with some financial manipulation and speculation by Goldman Sachs, caused the 1929 stock market crash.

Sounds recognizable? It ought to. Today’s events are not very novel; they have occurred before.

Today, when we discuss securitization, we typically refer to CDOs, CMOs, CLOs, ABS, MBS, CDS, or ABS of CDS, synthetic CDOs, CPDOs, securitized notes of various kinds, or ABCP conduits—alphabet soup, in the eyes of the majority of people.

Undoubtedly, such financial innovation has drawbacks, but the greater use of derivatives and securitization has largely made it possible to manage capital and risk more effectively. Companies that have access to more money use it to support innovation and expansion, which boosts productivity for the American economy. Mortgages were, however, securitized in historic quantities over the past ten years as they moved at the speed of light, and frequently both the laws governing the transfer of real estate and the rules governing securitized pools of loans were disregarded. And the outcome has served as the foundation for the newly growing legal specialty known as foreclosure defense.

Before securitization’s resurgence in the 1970s, a bank or Savings & Loan would create a mortgage and hold it on its books, frequently for the duration of the loan. However, today’s securitized mortgages are transferred between various parties before arriving at the securitized trust, where they serve as the security for the sale of bonds and pass-through certificates purchased by investors around the globe.

As one might anticipate, several laws and rules govern the transfers involved in the securitization process. But unfortunately, the truth is that many loan originators, commercial banks, and Wall Street investment bankers frequently failed to follow them during the most recent real estate boom. When that happens, customers use the lenders’ disregard for the law to fight back against unjust treatment by going to court and demanding fair judgments.

What you’ll discover in your Property Solutions Report is:

1. VALUATION SUMMARY: Based on 35 AVMs and a confidence score, this section estimates the high, medium, and low values of your property and provides a link to a detailed report.
2. VESTING INFORMATION – For instance, the manner in which you acquired ownership and whether the property was put into a trust.
3. TAX INFORMATION – Indicates whether you owe any property taxes and, if so, the due amount.
4. ASSESSMENT INFORMATION – The value of the property as determined by the county is shown in this section. The deal is used to determine the property’s tax basis. Mortgage and credit information can be found here. Voluntary liens can be found here. Depending on the state where the property is recorded, this part will include the mortgage or deed of trust.
5. ORDINANCES, LIENS, AND OTHER RECORDINGS – Any involuntary liens will be displayed in this section. The federal tax liens, HOA liens, child support, etc., are all located here. This must be considered when considering a request for a modification or short sale. For instance, a house worth $185,000 with a $125,000 federal tax lien would undoubtedly be considered by the bank in either a modification or short sale.