If the prospectus states mortgage backed securities and the paperwork is actually screwed up and legally no mortgage note exists, then the issuer of the prospectus is vulnerable to the charge of fraud. Legally the buyer of the mortgage backed securities can return the investment to the issuing bank and demand their money back. This is known as a putback which can cost the banks billions if the investors choose to do this. This is on top of the state investigations that can conclude the prospectus for these securities were inaccurate and if the issuer knew this they can be charged with fraud. You are talking about hefty fines and prison terms for the ones involved. Bankers are already threatening the US gov that any prosecutions would result in no new mortgages. They even threaten the US gov that if the investors successfully sue them, the US gov must bail them out or they will crash the US economy. If Obama or the new GOP House of Rep really want to score PR points, put the criminal bankers on trial and jail them. After melting down the economy with liar loans and bailouts, the bankers are not contrite but have become more strident in their private demands to the US Treasury and Congress.
>>Legally the buyer of the mortgage backed securities can return the investment to the issuing bank and demand their money back.<<
Why on earth would someone want to do this with the rate of inflation we currently have?