From Public Records to Private Databases

In a typical subprime mortgage loan, a homeowner communicates with a mortgage broker that receives a commission for selling the loan. At closing the homeowner signs a promissory note on behalf of the originating lender and a mortgage or deed of trust with the originator as the mortgagee or the trust beneficiary. Before closing the originator generally purchases a title insurance policy from a title insurer that searches the public land title records, or a plant copy taken from the public records. Typically subprime originators quickly assign their loans to a seller, which is usually a subsidiary of an investment bank. Ultimately the promissory note and mortgage are then assigned,
along with many other loans, to a special purpose vehicle that usually takes the form of a trust. A special purpose vehicle is a business entity that is exclusively a repository for the loans—it does not have any employees, offices, or assets other than the loans it purchases. A pooling and servicing agreement specifies a trustee to manage the loan assets and a servicer to collect monthly payments and interact with the homeowner. The trust, then, transfers the right to receive the income stream to an underwriter and then various investors such as mutual funds, hedge
funds, pension funds, and insurance companies. Under a traditional interpretation of state land title recording acts, the seller and the trust must both record their assignments in order to protect the priority of their mortgage against a subsequent bona fide purchaser for value. Despite the costs recording mortgages and assignments, not a single American legislature has ever seriously considered eliminating their public land title recording acts.

History - Or how we got here