Countrywide Comes Clean, Admits Screw-Up In Failure To Convey Promissory Notes Into Mtg Securitization Trust; Says It Was Customary To Keep Possession

Naked Capitalism reports:

• Testimony in a New Jersey bankruptcy court case provides proof of the scenario we’ve depicted on this blog since September, namely, that subprime originators, starting sometime in the 2004-2005 timeframe, if not earlier, stopped conveying note (the borrower IOU) to mortgage securitization trust as stipulated in the pooling and servicing agreement.

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• As we indicated back in September, it appeared that Countrywide, and likely many other subprime orignators quit conveying the notes to the securitization trusts sometime in the 2004-2005 time frame. Yet bizarrely, they did not change the pooling and servicing agreements to reflect what appears to be a change in industry practice. Our evidence of this change was strictly anecdotal; this bankruptcy court filing, posted at StopForeclosureFraud provides the first bit of concrete proof. The key section:
  
  As to the location of the note, Ms. DeMartini testified that to her knowledge, the original note never left the possession of Countrywide, and that the original note appears to have been transferred to Countrywide’s foreclosure unit, as evidenced by internal FedEx tracking numbers. She also confirmed that the new allonge had not been attached or otherwise affixed to the note. She testified further that it was customary for Countrywide to maintain possession of the original note and related loan documents.

For more, see Countrywide Admits to Not Conveying Notes to Mortgage Securitization Trusts.

For the court's ruling, see In re Kemp, Case No. 08-18700-JHW (Bankr. D. N.J. November 16, 2010) (for publication).

See also:

• Seeking Alpha: Countrywide Never Sent Mortgages to Trust,
• The New York Times: Trying to Put a Price on Bank Errors:
  
  In an opinion published last Tuesday, the chief judge, Judith H. Wizmur, cited testimony from an executive at Bank of America, which bought Countrywide. The lender’s practice, the executive said, was “to maintain possession of the original note and related loan documents.” Countrywide did this even though the pooling and servicing agreement governing the mortgage pool that supposedly held the note required that it be delivered to the trustee, the court document shows.
  
  If Countrywide’s practice was to hold onto the note, then investors in this pool and others may question whether the security was constructed properly and legally and may be able to require Bank of America to buy back their securities.
  
  Larry Platt, a partner at the law firm K & L Gates in Washington, spoke on behalf of Bank of America on Friday. He said the New Jersey decision did not constitute a basis for broad mortgage repurchase requests. “We believe the loan was sold to the trust even if there wasn’t an actual delivery of the note,” he said. “The risk of repurchase is going to depend on the unenforceability of the loan and we think the loan is enforceable. We think this is an aberration; Countrywide’s practice was to deliver the notes.”