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1/5

home buyer

originator

Step 1: Originator makes loan to homebuyer, gets Note and Mortgage;In NJ, the Mortgage is lien on the property and represents collateral andclaim to title; originator may be financed by warehouse liquidity bank or LOC

Loan $

warehouse liquidity bank

Note and Mortgage

Mortgage Securitization: What Was Supposed to Happen

Pre-1990s, the originator would have been a local bank who kept the mortgage in housefor the life of the loan.

The Note and Mortgage would have been duly filed with county clerk or registrar asevidence of a lien on the property

In NJ, the Deed might remain with the homebuyer

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home buyer

originator sponsor depositor MBS trust

Loan $Note and Mortgage

warehouse liquidity bank

Step 2: MBS pool Sponsor buys loans from Originators and

re-sells loan package to Depositor, who places loans inissuing Trust; Note and Mortgage assigned at each step.Qualifying loans typically had to be placed in the Trustwithin a 90 day window.

Note and Mortgage

Note and Mortgage

Note and Mortgage

Sale $ Sale $ Sale $

Mortgage Securitization: What Was Supposed to Happen

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home buyer

investor

originator sponsor depositor MBS trust

Loan $Note and Mortgage

Bond

Investment$

warehouse liquidity bank

Step 3: MBS Trust obtains ratings, issues bonds to institutional investors

rating agency;bond insurer;credit default swap

Note and Mortgage

Note and Mortgage

Note and Mortgage

Sale $ Sale $ Sale $

Mortgage Securitization: What Was Supposed to Happen

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home buyer

investor

originator sponsor depositor MBS trust

Loan $

Bond

Investment$

warehouse liquidity bank

Note and Mortgage

Mortgage Securitization: What Really Happened

1. Mortgage separated from Note; never assigned so no chain of title to MBS trust2. Assignments recorded with MERS, if at all, and not with County Clerk or Registrar3. Sponsor and Depositor were dummy entities with no assets, so no true sale occurred4. Loans upstreamed to MBS Trust directly from originator in some cases5. MBS Trust has no legal interest in the property

6. Warehouse bank may be true lender

X XX

rating agency;bond insurer;credit default swap

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home buyer

investor

MBS trust

Bond P&I

The loan originator, and the pool sponsor and depositor arelong gone. The MBS Trust hires a loan servicer to processhomebuyer payments and manage the loans via a Poolingand Servicing Agreement.

The servicer has no ownership interest in the propertyand

cannot foreclose.

Mortgage P&I

And Theres More

loan servicer

Mortgage P&I

Title? Title?