walkitout (walkitout) wrote,

Mumble negotiable instruments mumble

As I was thinking about wisselruiterij and wechselruiterij [edited: whoops! wechselreiterei? I think?] and bills of accommodation and multiply endorsed checks and other negotiable instruments of varying degrees of reputability, I thought, mortgages!

Just to be clear: mortgages are _not_ negotiable instruments, altho they can be assigned if you do it correctly. So you would think, how could mortgages (or the Promissory Notes associated with them) be thought of in connection with those things I mentioned above? Well, they got securitized and assigned repeatedly in ways that violated the Commercial Code's rules about how the assignment is to be done (legible signatures! Just for starters), and they _behaved_ as if the parties involved (not the poor schmuck who signed the mortgage, mind you, but everyone else from the mortgage broker who sold it to them on up through the investors who bought a hot slice because it was guaranteed later one) all believed it was a negotiable instrument.

So which is it? Is it a negotiable instrument (which is how the financial system treated it as) or not (which the law oh so clearly says)?

It is Not, but the debate about whether it is or is not is interesting and important.

The argument in _favor_ of it being a negotiable instrument (beyond the "everyone else is doing it, mom! argument which I think we all can recognize as a steaming pile of #2, hopefully not human) is that the chain of assignation (<-- almost certainly not the correct term, but wouldn't it be cool if it was!?!) is so unclear for so many properties that if you don't let people who _say_ they hold the note foreclose on it than no one can ever foreclose again on that property and homeowners will strategically default (viz. stop making payments) because they'll know the holder of the note has no recourse. And then no one will ever write a mortgage again because, mess!

That's _actually_ worth thinking about, because it is not "everyone else is doing it, mom!", it's something infinitely worse: "My bad money has driven the good money away so you _have_ to accept the bad money."

So what are the alternatives?

Well, there are a ton of places to intervene. The simplest is to apply MASSIVE pressure on the note holders to negotiate with the people who owe on the mortgage: either figure out a short sale, or refinance and record it correctly or whatever. The problem throughout the boom were lenders who blew through all the things that were supposed to catch the debris when things went bad on the loan: the mortgage didn't get registered wherever deeds and liens are supposed to be registered (some of the state offices got famously backed up) and sometimes it was assigned multiple times without any notification showing up at the registry (lots of reason to believe a lot of these assignments didn't even _try_). The thinking in the industry was some form of, everyone else is doing it/it'll be such a mess they'll never clean it up/chicken won't be coming home to my roost, etc.

When teetering edifices of credit or debt instruments have collapsed in the past, however, English and American law has never actually accepted this sort of explanation. We _did_ clean it up, legislatively, judicially, administratively or otherwise (please find me a counterexample! Please!). Usually, in the course of cleaning up the mess, new rules and regulations are promulgated, some designed to make things more efficient, some to make sure everyone actually documents everything in an effort to limit fraud and/or make it forensically detectable after the fact.

Which is why I'm fairly certain I can be forgiven for temporarily thinking mortgages! when thinking about bills riding around on horses. Some of those mortgages _were_ riding around on horses, and some of those mortgages were complete with straw buyers and multiple assignments -- just like the Livesey bills.

And I will leave for the next post mumble guarantors mumble.
Tags: economy, politics
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