Occupy Wall Street has become a serious threat to the fraudulent banksters with their new “Occupy Your Home” campaign against foreclosures. Although some make no pretense of legality and justify their actions with the moral idea of putting an empty house to use and giving a family a home; others are battling the banking industry in court with a surprising amount of success.  The opportunity to take a legal path towards home ownership may be the silver lining in the cloud of the sub-prime mortgage bubble. 

Let’s review the process of “mortgage securitization” to understand why banks are so vulnerable to foreclosure resistance.  Banks used to just make loans and collect interest, but they discovered that they could make more money and reduce the risk of loss from defaults if they sold the mortgages to investors.  The investors would collect the money from the lenders and theoretically owned the mortgages.  The mortgages were bundled together into strange investment “instruments”, sold and re-sold. 

One mechanism that the banks and investors used to facilitate the trading of mortgages and mortgage bundles was the Mortgage Electronic Registration System, (MERS).  MERS asserts to be the owner of the mortgage so that the mortgage can be traded while avoiding the cost and nuisance of registering each trade with the town that the house is located in. 

When a bank decides to foreclose they must first produce the original documents to prove that they have a legal claim to the property.  Unfortunately for many of the banks and investors who bought the mortgage bundles the original documents have been destroyed or lost.  Usually the bank will just hope that you don’t demand them or produce photocopies.  Copies are not good enough, the bank needs the original document to ensure that no one else has claim to the mortgage. 

          Even if the bank does produce the documents necessary for foreclosure, there is still a good chance that the homeowner can find something wrong with the mortgage origination process; like fraudulent disclosures, forged signatures, and fake fees; and sue the bank for fraud.  Fraud was also rampant in the re-sale of the mortgages, with banks faking assessment documents and individual earnings in order to make the mortgages seem more attractive for re-sale to investors.  Also fraud is commonly taking place during the foreclosure proceedings: banks are forging the necessary documents which had been destroyed.  Homeowners should look for discrepancies between their documents and the banks documents, and scrutinize all the documents, perhaps with legal help, for signs of fraud. 

If you have a MERS mortgage you have an even better chance of getting out of your mortgage.  Numerous court cases have recently determined that MERS does not have sufficient proof that they are the real owners of the mortgage and capable of foreclosing.  Homeowners with MERS mortgages are filing for title (called action to quiet title) and even suing for damages based on fraudulent ownership claims.  Because MERS is not the actual owner of the mortgage they don’t even need to be notified.  If they want to reclaim the title they will have to sue and produce proper documentation, which they are usually unable to do. 

          If these tactics are used on a large scale they could bring the banks to their knees.  Banks hold mortgages as collateral to make additional loans.  With the top four giant banks; JP Morgan and Chase, Citibank, Bank of America, and Goldman Sachs, lending 50:1 on their collateral, a loss of only 2% of these assets would bankrupt them. 

          Homeowners and activist that go this rout should research carefully and be wary of scams, but for many there is little to lose.  The Occupy Wall Street protesters and homeowners are closer than most of them know to bringing down the crony capitalist house of cards.