How to Understand Debt and Money in Foreclosures Today

LivingLies: “With debts, financial analysts and innovators discovered that a debt can be broken up into different attributes — interest, principal, monthly payments, fees etc. And they found that each of these attributes could be separately sold. But this created a monetary split which the law did not recognize.

Nevertheless, it occurred. The law requires the presence of a specific legal person who possesses a claim based upon actual loss from nonpayment. With the split, the potential claimants immediately broadened to everyone who had purchased any attribute of the debt. This makes it difficult if not impossible to present or even identify one legal person who actually has the legal standing to bring a claim for nonpayment.

Hence no creditor is alleged or identified and no ownership of the debt is alleged or proven.  [. . .]

Securitization, to be clear, is the process of distributing the risk of any investment to many people. There is nothing wrong with it. It has been done for centuries and it is the basis for capitalism which is our system and seems, by general agreement, to be the best economic system humans have yet to devise, despite its obvious shortcomings.

“Securitization” since 1983 has taken on a more particular meaning, i.e., the distribution of risk on consumer debt, and in particular residential loans because those are the biggest debts. All paper instruments that declare ownership of a particular asset derive their value from that asset.

So all such paper instruments are by definition derivatives whether the paper is a certificate of common stock, a bond, car title or anything else. “Derivatives” has taken on a more particular meaning, i.e., instruments that derive their value from debt.

In theory securitization of debt can be accomplished in one of two ways: either many people invest in one debt or many people invest in many debts. The obvious answer is that diversification of investment diminishes the risk of a total loss. So securitization became the investment by many people into many debts.”

Source: How to Understand Debt and Money in Foreclosures Today

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