The decision last week by the Massachusetts court to void foreclosures due to what they considered to be faulty paperwork in the securitization process bodes ill for all securitizations. The court demonstrated a strong and ill advised political bias against lenders and a clear ignorance of how the securitization and lending process really works. If the process really was to detail every single mortgage transfer one at a time and in some step by step timing, then the system would simply bog down. It is not too dissimilar from the whole robo signer issue. Yes there should not have been robo signers, but the fact is all those people really did default and remained in default for over a year and in some cases two years. Having been in the business of buying defaulted residential mortgages, I know first hand that homeowners who are under water often do not even respond to efforts by lenders to reach them and they do everything to live rent free in the house for as long as they can. The media and the politicians never like to talk about this.

The worrisome issue for commercial CMBS is that some lawyers will now take the Massachusetts ruling and see how they can use it in the commercial sector. There is similar procedures for transferring mortgages in securitized pools and some lawyer is likely to bring a case in a liberal court where they will claim the poor borrower is being unfairly harassed by the big bad lender/servicer and should not have to lose his property.

The issue for all of us is that we do not need any further restraints on reviving solid lending just as we are trying to get the transaction business revived. We need the courts to act rationally and the servicers and investors holding paper to put more effort into resolving issues than into creating new issues for lawyers to bring to the courts. While everyone needs to protect their position and their investment, it is better to try to professionally work to a responsible resolution than to carry out nuclear war and tranche warfare. We have hundreds of billions of loans to work through, and we can’t be fighting battles over every one of them, or we will never get to move ahead. That was the wonderful thing about the RTC. They seized and sold and it was over. Then we all moved on to make a lot of money.