How courts treat a little-known electronic database of mortgages will have a big impact foreclosures and the housing market this year.
The Mortgage Electronic Registration System, or MERS, that the banking industry created in the early 1990s was designed to streamline the recording of mortgage documents like assignments, which say who owns the mortgage when it’s sold, and the promissory note. That’s the IOU you sign, promising to pay back the home loan.
Mortgage bankers wanted to improve the time-consuming, paper-intensive task of recording mortgage documents at county clerk offices across the country. After all, everything was being centralized and digitized. Old-fashioned paperwork was too clunky when banks were selling mortgages at lightning speed and bundling them into mortgage-backed securities for Wall Street.
Instead of recording new mortgage sales in county clerk offices across the country, banks would list MERS as the “nominee” representing the mortgage owner, whoever that might be.
The database and its mortgage firms ran into trouble as homeowners began defaulting in droves. By law, only the mortgage holder (the mortgagee) can foreclose on a home. Transferring ownership back to the actual owner would be time-consuming and the MERS certainly doesn’t have the resources to foreclose on homes itself. So the database firm lets outsiders call themselves MERS employees on court documents. Thousands of people working for law firms, mortgage servicers or debt collectors have told the courts that they’re a MERS vice president or assistant secretary.
Critics call it illegal, fraudulent, and an end run around state laws.
How it will turn out it unclear. MERS maintains it is legal in all 50 states and that states have approved its practices, but some state courts have blocked foreclosures involving the registry. Whatever happens, will have an impact. At last count, MERS, a private company in Reston, Va., has recorded over 67 million mortgages. If courts don’t support foreclosures involving the mortgage database, banks will lose even more money and a housing recovery could be further delayed
At least some county recorders criticized MERS from the start. Some tried but failed to stop it from being created. Its critics say its data is not accessible to the public, that it can break the chain of title, and is not consistent with state laws. Critics say that prevents homeowners from finding who has held their mortgage. MERS disputes that but admits about 3 percent of investors in the database don’t allow their names to be revealed.
Rep. Marcy Kaptur, an Ohio Democrat, has introduced a bill that would prohibit Fannie Mae and Freddie Mac from using MERS. On top of that, Massachusetts Attorney General Martha Coakley wants to investigate MERS to find if it has avoided paying millions of dollars of property recording fees in the state.
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unlawflcombatnt
January 6, 2011 @ 4:13 pm
Thanks for posting this. This is the best explanation I’ve seen of MERS.
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Timshel
January 9, 2011 @ 3:27 pm
There are two Primary Issues. 1. Potentially Billions of dollars for re-imbursement of fees and penalties due to Counties for failure to file & record transactions. 2. Re-construction of destroyed Chains of Title – which could result in Tillions of dollars in “Securities” suddenly becomming “un-secured” transactions. It is becomming very apparent that the result of resolution is potentially catastrophic. So far, it appears that some members of Congress are just too ignorant, while others who are more informed are just too fearful – to deal with either situation – particularly the second one. BOTH are slowly becomming generally public knowledge. Huge change may be in the wind.
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