Fraud in Your Mortgage Pools Who Pays For Your Loss?

This article originally appeared in Anderson Kill's Financial Services Alert (Summer 2002).

You are a sophisticated financial officer of a sophisticated financial insti-tution. Your company has recently purchased a mortgage pool. However,you have just found out—after the seller skipped off to a far off pacific island that has no extradition treaty—the mortgage pool you purchasedincluded $12,500,000 in forged loan notes and mortgages are worthless.

As a large financial institution that regularly purchases mortgage pools, doyou have adequate insurance coverage to cover such risks?

Mortgage pooling or securitization is the business of transferring a groupof mortgages and “exchanging them for marketable interests in the transferredpool or in other mortgage loan pools.” Securitization of Financial Assets, 2d Ed.Volume 2 (2002) § 16.01.