Most people have never heard the term “securitization audit” until they are already in a dispute with their lender. That is a problem, because understanding what securitization is, and what an audit actually does, is the first step toward knowing whether you have any leverage in your situation.
What Is Securitization?
When you take out a mortgage, auto loan, or personal loan, the lender rarely holds onto it. Within weeks of origination, most loans are sold to a depositor, who packages them with thousands of other loans and transfers the entire pool into a securitization trust. That trust issues certificates to investors, who receive payments based on the cash flow from the underlying loans.
The trust is a legal entity. It has a governing document called a Pooling and Servicing Agreement, or PSA. The PSA sets out the rules for how loans must be transferred into the trust, including deadlines, documentation requirements, and the chain of entities that must be involved in each transfer.
What Is a Securitization Audit?
A securitization audit is a forensic investigation into whether the transfer of your loan into the trust was done correctly. It traces the chain of ownership from the original lender all the way through to the trust, and it verifies every step against the requirements of the governing PSA and applicable law.
The audit looks for defects. Not minor paperwork errors, but substantive legal defects that affect who actually owns your loan and whether the entity claiming to own it has the legal authority to enforce it.
What Defects Does a Securitization Audit Look For?
- Broken chain of title: A gap in the recorded assignment chain means the claimant cannot prove ownership.
- Late assignments: PSA agreements have cutoff dates. An assignment recorded after the cutoff is void under the PSA.
- Missing endorsements: The promissory note must be endorsed at each transfer. Missing or defective endorsements break the chain.
- Robo-signing: Thousands of assignments were executed by individuals who signed hundreds of documents per day, often with no actual knowledge of the underlying transaction.
- UCC perfection failures: For auto and personal loans, the security interest must be properly perfected. Gaps in perfection can render the lien unenforceable.
How Are Audit Findings Used?
A well-documented securitization audit is a legal tool. Attorneys use audit findings to challenge standing in foreclosure and repossession proceedings, to support arbitration filings, and to negotiate settlements. An audit that identifies a broken chain of title or a PSA cutoff violation gives your attorney something concrete to work with, something the lender has to respond to.
That is the difference between a generic audit and a forensic one. Generic audits look for calculation errors. Forensic audits build a case.
Who Should Order a Securitization Audit?
Anyone with a securitized loan who is facing a dispute, a collection action, or who simply wants to understand the true legal ownership of their debt. If your loan was originated after 2000, there is a strong probability it was securitized. Whether the securitization was done correctly is a separate question, and one worth asking.
View our audit packages to see which level of forensic analysis is right for your situation.