What is Loan Securitization?


Mortgage Loan Securitization


In order to understand why loan securitization presents an opening for the use of the standing defense, you must understand the process itself. The term “securitization” derives from the fact that essentially, it is the process by which a loan is connected into a security, similar to a stock certificate. Of course, this is not a process involving a single loan, or even dozens. To the contrary, a typical “trust” or loan pool into which a single loan is bundled with others and poured into consists of a thousand loans, with a total face value of a billion dollars.


Why Securitize?


After funding the trust with the loans, the trustee sells “mortgage-backed certificates” (i.e. stock) in the trust to Wall Street investors for considerably more than the value of the loans. And therein lies the reason for securitization: to allow the lender to strip away the profit from the loan, normally realized over a period of years, as payments are made, without any risk whatsoever.


How Does Securitization Provide a Defense to the Homeowner?


The elaborate process of Loan Securitization is visually demonstrated by the following diagram:



Loan Securitization Diagram




The left side of the diagram shows the “ownership claim”; that is, the parties who are, at least in theory, transferees of your mortgage note after you sign it.


However, the reality often is that the parties in between the Originator (Fremont Investment and Loan) and the Trustee (HSBC) rarely, if ever, have anything to do with your note.
Rather, the only reason they are involved in the process is to insulate the Trustee from claims by the homeowners arising from the origination process. And therein lies the opportunity to present the standing defense – because these intermediate parties have not in actuality been “holders” of the note, then there is a distinct possibility that the Trustee is not either, and therefore cannot enforce the same.




McGookey Law Offices, LLC
Daniel L. McGookey
Trey Hardy