A Comparative Analysis of Mortgage Loan Assignments and a Call for Reform in the United States

The flow of capital into mortgage loans depends heavily on the ability to transfer those loans. In the United States, Germany, and other countries, mortgage loans are transferred on the secondary market. A loan originator may sell loans to a purchaser who intends to hold the loans and collect payments or to a third party who will pool the loans and issue mortgage-backed securities to investors.In the United States, assignments of mortgage loans have created legal challenges and have been the subject of much litigation. The transfer and storage of large volumes of paper promissory notes, still the prevailing method of evidencing mortgage loans in the United States, is cumbersome, expensive, and subject to error. In addition, recordation of mortgage assignments in the real property records of the county in which mortgaged property is located is time-consuming and expensive. Furthermore, confusion and conflicts in the law governing mortgage loan assignments exist because the loans involve both real and personal property, which are subject to different legal rules, and because of a lack of uniformity in the law of the various states.In Parts I and II of this article, the Author reviews the basic mortgage loan transaction and the law applicable to mortgage loan assignments under American and German law. In Part III, she compares American and German law, focusing on those issues in the assignment of mortgage loans that have been troublesome in the United States. Finally, she draws conclusions from these comparisons and recommends reform in the United States.The chapter is written for a Festschrift dedicated to Professor Dr. Werner Ebke