Tim Stephenson and Matt McHugh didn't start MSA Associates with a doe-eyed understanding about mortgage-back securities; both had worked in the trenches at brokerage firms long before opening the Scappoose business in 2009.
But even their background in working with complex financial products didn't fully prepare them for some of the revelations they've experienced since the start of 2011.
This year, the MSA Associates' principals believe, the volume of discrepancies they've discovered in mortgage foreclosures challenges the outlook on the nation's already turbulent financial system.
Specifically, Stephenson and McHugh say they have unveiled systemic chain of title discrepancies and multiple instances in which loan subservicers - often going by names with familiar resonance to the loan originator, though without the authority to negotiate mortgage terms - cut unbinding and illegitimate deals with distressed homeowners. Some of the discrepancies in the mortgage foreclosure proceedings are more sophisticated.
'It probably wouldn't be right to say all of them [have issues],' Stephenson explains. 'But all of them we have worked on have issues. Significant issues.'
Probably the most widespread has been the suspected forgeries.
Of the 100 or so mortgages MSA Associates has investigated, Stephenson said 40 percent exhibit 'suspicious' signatures. Reams of documents requiring signatory authority display a variety of handwriting styles for the same name.
Their efforts haven't gone overlooked. In June MSA Associates helped a Vernonia woman stay in her home, at least temporarily, following a victory in Columbia County Circuit Court. In that case, Columbia County Circuit Judge Jenefer Grant blocked a U.S. Bank foreclosure on the home. She ruled the foreclosure proceedings, which involved the Mortgage Electronic Recording System, or MERS, failed to record deed of trust assignments with the county clerk's office.
Analysts have said it is a milestone case that could have far-reaching implications on how loans foreclosures are processed statewide.
Few lawmakers have picked up on MSA Associates' research, however. Stephenson says he reached out to the governor's office, Sens. Ron Wyden and Jeff Merkley and the Attorney General's Office, and has largely been met with indifference.
But not all have turned a deaf ear, and new court cases are springing up in Washington and Oregon.
Oregon Rep. Brad Witt, a Democrat running to fill the seat vacated by Rep. David Wu in Oregon's First Congressional District, said following a meeting with the MSA Associates team he would be drafting legislation to ensure deed of trust assignments are recorded in the counties. It's a process that could prove to be a significant revenue stream, Witt said.
'My interest in it is the fact that when mortgages are sold and transferred, they are not always recorded, which means that the counties are losing millions of dollars in revenue,' Witt said. He said he also wants to explore deeper how homeowners have been possibly affected by deficient loan foreclosure processes.
In Oregon, foreclosure is a non-judicial process, meaning foreclosures are largely settled out of court. Oregon law provides that the financial institution owning the loan must provide a transparent process, so troubled homeowners know who to contact for relief.
But that hasn't been the case, says Stephenson and McHugh. Instead, loan servicers, through agreements with the loan trust, have built-in fee incentives to have a loan go into default, and they serve as an obstacle between the borrower and the trust that has title to the loan.
They also discovered that many of the loans such subservicers claim are in default are not. For example, loan servicers are contractually obligated to ensure loans are current with the loan trust, Stephenson explains. In the case a homeowner fails to make a payment, the subservicer pays up to the loan trust, he says. As far as the trust that owns the loan is concerned, the mortgage is current. And, as Stephenson explains, the homeowner arguably has no legal obligation to the subservicer for repayment.
'This isn't something that's just happening to deadbeats,' McHugh says. 'People are getting suckered into this.'
The MSA Associates business card says the company provides securitization analysis, forensic loan audits and expert testimony. To reach this point, they spent months digging into the complex mortgage-backed securities system that guarantees loans.
'You don't even want to know how many hours. Hundreds of hours,' Stephenson says.
The fundamental flaws they have discovered present a nationwide problem, they say, that has yet to really hit Wall Street - or Main Street, for that matter.
Though cautious not to give what could be construed as legal advice, MSA Associates works with attorney's to help imperiled homeowners wade through the complexities of the foreclosure process. But they don't guarantee success. In fact, they only work in tandem with attorneys on cases already in the works.