Fisking the American Securitization Forum’s Congressional Testimony

posted by Adam Levitin

Tom Deutsch, the Executive Director of the American Securitization Forum (ASF) testified before the Senate Banking Committee this past week about chain of title problems in securitization.  I was fascinated to see how much attention the ASF spent in attempting to rebut my testimony from a pair of previous hearings (here and, in a more polished form, here). My first thought was “gosh, ASF’s awfully defensive. They sure seem spooked.” And on looking at the details of the ASF’s rebuttal, my sense is they’re on very shaky ground if these are the best arguments they have.

Below I review some of the ASF’s arguments and show why they’re just wrong. In particular, note the PSA language that I quote that demolishes the ASF’s claim that PSAs do not require an endorsement from every party in the securitization chain:

“the original Mortgage Note bearing all intervening endorsements showing a complete chain of endorsement from the originator to the last endorsee”

If there’s any doubt about what that language means (more discussion below), I’d love to hear it in the comments.  There’s a very specific method of transfer required in securitization by PSAs and if it wasn’t followed, then under New York law, the transfers are void.  And it is sure looking like many deals didn’t comply with the PSA terms.

  • Lack of Caselaw Support

ASF takes me to task because the argument I make about PSAs is not supported by caselaw. Duh. Of course it isn’t. These issues have never been litigated. The whole point I’ve been making is that there are a bunch of unresolved legal issues. I’m not the one who decides what the outcome is. I can only offer my semi-learned opinion. But just as my argument lacks caselaw support, so too does that of the ASF. At least I’m not the one who built a $1.2 trillion dollar private label residential mortgage securitization industry hinging on uncertain law.

  • We’re Too Big to Fail

The next piece of the ASF argument is that private label residential mortgage securitization is too big to fail. The ASF implies that its argument has to be right because otherwise the private mortgage securitization industry would collapse. News flash: it already has.

The creditors of some of the securitization deals of General Growth Properties tried this argument in bankruptcy court when GGP figured out that the “bankruptcy remote” securitizations could be pulled into the Chapter. The creditors claimed that permitting the filing would kill the whole securitization industry. The argument didn’t fly, not least because the industry is pretty dead at the moment.

  • PSAs Require Endorsements by Every Party in the Chain of Title

ASF argues that the language in many PSAs requiring a “complete” or “unbroken” chain of endorsements only means that there must be a chain of endorsements legally sufficient to effectuate the transfer of the note to the trust.

Here’s what the ASF claims:

The typical language does not state, nor does it imply, that a “complete” or “unbroken” chain means that all prior owners or holders of the note must appear as part of the chain. Nor does any judicial proceeding consider or uphold this novel opinion. Nor does Professor Levitin provide any third-party support for his interpretation of a typical PSA.


The typical PSA requirement for a complete or unbroken chain of indorsements to the person signing the indorsement in blank means only that there be no gaps in the chain of indorsements, and that the chain of indorsements be sufficient to effect a transfer to the trust under applicable law.

There are a few problems with this argument.

You can find out the problems here…

Be sure to check out the article in its entirety…