There are two types of transactions in which a loan enters the stream of claims of securitization --- origination and acquisition. Origination is what it sounds like --- money from the investors is used to fund the loan. Acquisition is a purchase of the loans with investor funds from someone who made the loan without the help or money of anyone else. Either way, it is the money of investors that is used and therefore they are the only ones paying value for the loan. Therefore they are the creditor.
There are two ways that the investors money can enter the system --- Purchasing mortgage bonds or direct funding. Either way there is an intermediary party aggregating or carving the loans up. And here is the problem, to wit:
The investor money was used for direct funding of the loan origination or direct funding of the purchase of the loan. But the loan documentation named some third party that didn't loan or purchase the loan. My analysis indicates that not only was there no agency agreement between the investors and the party NAMED as the originator or purchaser, but that this was an intentional act of deception. The broker dealers selling the bond were selling a security issued by a REMIC trust.
But instead of giving the trust the money, they kept it and tacked on fees. And instead of using the investors' money to make loans through a trust they converted a direct funding transaction in which the investors should have been named the lenders into an acquisition from a "third party" thus creating a "profit" for the broker dealer. The profit was the sale of the loan the investor already owned to a trust that was never funded. They took junk mortgages and sold them as platinum loans --- creating an entirely fictitious profit for the broker dealer and increasing the risk of loss to investors exponentially.
So the investor had his money split into two pieces --- neither of which was the purchase of the bond, which is why all those investors and agencies and law enforcement are accusing the broker dealer of fraud. One piece was used to fund the origination or purchase of the loan and the other piece was a pool of money that would be used for Servicer advances and extra trading profits on fictitious trades generated internally by the broker dealer. This process creates a lying mortgage securing a lying note. And that is why the investors are saying the paper is unenforceable.
The banks have done a good job of blaming the borrowers for the fraud. But it is clear that no borrower even understands this process now, much less as the designer of the scheme. The broker dealers racked up huge profits through theft of investor money that should have been used to fund the origination or acquisition of mortgage loans but was used instead to create a slush fund. The fact that SOME of the money was used for loans is not good enough because that changed the whole deal and created a loan transaction with the borrower in which the actual lender was left out and the designated lender was a party controlled by the broker dealer to create fictitious transactions or purchase insurance on loans the brokers didn't own.
In cases like this the law is clear. Victims of the fraud must receive as much restitution of their investment as possible. And the perpetrators of the fraud are not allowed to enforce any "contracts" (loans) that they created under false pretenses to both the lender and the borrower. It is called unclean hands. So unless the foreclosing party can show a money trail that leads to the doorstep of the foreclosing party they have nothing but dirt on their hands.
Does this create a free house for the borrower? In most cases the answer is no. Because the borrowers were putting down earnest money and equity in their homes to get these wondrous loans that were too good to be true based upon appraisals of pricing that were coerced.
The bottom line is that the perpetrators of false schemes may not be allowed to keep the benefit of the money they stole nor the benefit of contracts they created under false pretenses to both the lender and the borrower.