What is Mortgage Securitization


Plaintiff’s loan references a “Secondary market” securitized mortgage backed asset that is comprised almost entirely of securization structures related which is to a “Trust”. Thus the reference to securitized mortgage loans. In order for a securitized trust to qualify as 100% federal tax benefit certain rules apply in that trust assets must be “Bankruptcy Remote” Mortgage Backed Securities (“MBS”) have signed themselves up under oath with the Securities Exchange Commission (“SEC”) and the Internal Revenue Service’s (“IRS”) as mortgage asset pass through quality as a Real Estate Mortgage Investment Conduit (“REMIC”) rather than an ordinary Real Estate Investment Trust (“REIT”). As long as the MBS is qualified REMIC, no income tax will be charged to the MBS. For purposes of this action, “Trust” and “MBS are interchangeable..

Securitization divides the "beneficial ownership" of mortgage loans from "legal title" to the loans and from the management of the loans. The ["ALT 2003-2"] (or more precisely itsTrustee) holds "legal title" to the loans, and the trust is the "nominal beneficial owner" of the loans. The "Certificate Holders" or Investors in ["ALT 2003-2"] are formally creditors of the trust, "not owners of the loans" held by the "Trust".

The economic reality, however, is that the investors are the true beneficial owners as they are entitled to the cash flows from the pools of notes. This design is done to protect the "Investors" from any litigation arising from fraud or misrepresentations. The "Trust" is just a cash pass-through holding entity, rather than an operating company.

REMICS were newly invented in 1987 as a tax avoidance measure by Investment Banks or Fannie Mae. To file as a REMIC, and in order to avoid one hundred percent (100%) taxation by the IRS, an MBS REMIC could not engage in any prohibited action.

The “Trustee” cannot own the assets of the REMIC. A REMIC Trustee could never claim it owned a mortgage loan. Hence, it can never be the owner of a mortgage loan. Pursuant to the “Custodial Agreement” between the “Custodian” and the “Trustee”, the Custodian” is required to hold the related Mortgage Loan Documents (loan level file) on behalf of the Trustee in an individual file, separate from other Mortgage Loan Files held by the Custodian, and is also required to maintain the said documents in a fireproof facility intended for the safekeeping of such Mortgage Loan Files.

Additionally, and important to the issues presented with this particular action, is the fact that in order to keep its tax status and to fund the Trust and legally collect money from investors who purchased the REMIC, the Trustee or the more properly named, Custodian of the REMIC, had to have possession of ALL the original blue ink Promissory Notes and any original allonges and assignments of the Notes, showing a complete paper chain of title.

Most importantly for this action, is the Trustees Custodian MUST have the mortgages recorded in the investors name as the beneficiaries of the MBS in the year the MBS “closed”. An attempted assignment of the “Note” to the “Trust” after this period is a “Prohibited Transaction” which jeopardizes the favorable tax status accorded a “REMIC”. This transaction would be in contradiction to the TRUST Laws” and is “VOID”.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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