Wells Fargo Ducks|’Bad’ Foreclosure Case

     SAN JOSE, Calif. (CN) – A federal magistrate dismissed a wrongful foreclosure case against Wells Fargo after the homeowners’ lawyer failed to show up for the Tuesday hearing.
     “I would tell Mr. Matthews if he was here, but this is a poorly drafted complaint,” U.S. Magistrate Judge Howard Lloyd said at the brief hearing. Lloyd referred to Jonathan Matthews, attorney for plaintiffs Helen and Victoriano Torino.
     The Torinos claimed that Wells Fargo improperly securitized and transferred their mortgage.
     However, Wells Fargo attorney Tom Abbott said the bank never transferred or securitized the mortgage.
     “This is a popular canard,” Abbott said. “You just either allude or talk about securitization. I haven’t encountered Mr. Matthews and I don’t know if he is new to the area, but he appears to have identified a theory but not applied it to the facts.”
     Lloyd agreed.
     “This loan was never securitized,” he said. “It was never turned into a security.”
     Mortgage-backed securities are widely indentified as one of the principal culprits behind the housing bubble that led to the Great Recession of 2007. Banks created the investment product, eager to find a way to transfer a mortgage into a security that could then be purchased by investors.
     Leading up to the bubble, banks increasingly bundled these mortgage-backed securities together and traded them on the market. In order to increase the number of securities available for trading, banks and lending companies took advantage of federal programs to flood the market with mortgages.
     Accordingly, many financial institutions eased loan requirements in the years leading up to the housing crisis, giving mortgages to unqualified people in the form of subprime loans. Those borrowers were prone to defaults, however, which compromised the quality of mortgage-backed securities.
     As the number of loan defaults increased, the mortgage-backed securities — assumed to be strong assets — essentially became worthless or toxic assets. Many investment banks suffered as a result, most notably Lehman Brothers which filed for bankruptcy in 2008.
     Recent case law, Glaski v. Bank of America in particular, has given beleaguered homeowners hope that improper securitization of home loans by banks or other financial institutions can be a valid defense for staving off banks’ foreclosure efforts in California.
     But in the Torinos’ case, Lloyd sided with the defense by finding that the theory of improper securitization did not conform to the facts.
     “This is a bad securitization theory,” Lloyd said during Tuesday’s hearing, and issued his written dismissal of the case on Wednesday.

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