[ed. President Obama proposed today to help hundreds of thousands of homeowners refinance their mortgages at a better interest rate. But, as always, there might be a little devil in the details. If you're unfamiliar with MERS, read on and reflect on all the ways bankers have gamed the system.]
by NY Times
The Mortgage Electronic Registration System, or MERS, is owned by banks and mortgage finance firms. It was created during the housing boom to smooth the process of turning mortgages into complex securities -- and to allow lenders to avoid paying registration fees to counties each time the mortgage changed hands. It is the nation's largest electronic mortgage tracking system.
In the fall of 2010, as evidence mounted that many foreclosures may have been mishandled, the system was faulted for sloppiness and questions were raised about whether it was used to sidestep legal requirements. The rising calls for halts to foreclosures suggested that the new approach could in fact have created huge new vulnerabilities for lenders.
In October, on the same day that all 50 state attorneys general announced that they would investigate foreclosure practices, JPMorgan Chase & Company became the first big lender to acknowledge that it had stopped using MERS for foreclosures.
The registration system is an electronic database meant to replace the reams of paper that were once the cornerstone of the residential mortgage market. The registry was also meant to eliminate the need to record changes in property ownership in local land records.
About 60 percent of mortgages in this country show up in local records as being owned by the service. In fact, none are owned by MERS. It was created to act as an agent for others, whether banks or securitization trusts, which own the actual mortgages -- an arrangement that lawyers for homeowners and some judges have called into question.
For centuries, when a property changed hands, the transaction was submitted to county clerks who recorded it and filed it away. These records ensured that the history of a property’s ownership was complete and that the priority of multiple liens placed on the property — a mortgage and a home equity loan, for example — was accurate.
During the mortgage lending spree, however, home loans changed hands constantly. Those that ended up packaged inside of mortgage pools, for instance, were often involved in a dizzying series of transactions. So to avoid the costs and complexity of tracking all these exchanges, Fannie Mae, Freddie Mac and the mortgage industry set up MERS to record loan assignments electronically. This company didn’t own the mortgages it registered, but it was listed in public records either as a nominee for the actual owner of the note or as the original mortgage holder.
The problems with MERS began to come to light when “vice presidents” of the firm began to submit affidavits in foreclosures, saying the original note had been lost. In some cases those notes were signed by people who signed thousands of such affidavits, and have now admitted they did not actually review the files, as the affidavits said they had. Nor were those people really employees of MERS.
Cost savings to members who joined the registry were meaningful. In 2007, the organization calculated that it had saved the industry $1 billion during the previous decade. Some 60 million loans are registered in the name of MERS.
When the bottom fell out of the market and delinquencies soared, thousands of foreclosure proceedings began to be filed through MERS. But as cases filed by MERS grew, lawyers representing troubled borrowers began questioning how an electronic registry with no ownership claims had the right to evict people. The system also led to confusion. When MERS was involved, borrowers who hoped to work out their loans couldn’t identify who they should turn to.
In September 2010, a number of the nation's largest mortgage lenders suspended evictions after disclosures that employees signed documents without ascertaining the accuracy of the material, a legal requirement. Attorney General Eric H. Holder Jr. said at a news conference on Oct. 6 that the federal Financial Fraud Enforcement Task Force is looking at the foreclosure issue, while the attorneys general in as many as 40 states are planning a coordinated investigation.
While the outcry has centered on the question of forged or overly rushed reviews of foreclosure documents, figuring out the role of MERS will be important in the federal and state investigations because it acts as a middleman in the mortgage market, allowing the loans to be sold to investors while keeping track of who actually owns them.
The question being raised by many lawyers for homeowners is whether MERS should be allowed to act in court as the owner of the mortgage, when in fact it is not the owner of them, but only represents a bank who owns the note -- or a bank who later sold shares of a pool of mortgages to investors, who could themselves have resold the shares.
If it turns out that this new system does not fit properly in the foreclosure process, then the value of the billions of dollars of mortgage-backed securities sold to investors could be called into question. That could lead to even further litigation against the banks and investment firms that sold mortgage securities if the ability to foreclose on home mortgages is not what it was portrayed to be in the documents used to sell the securities.
via:
Photo: Joe Raedle/Getty Images
by NY Times The Mortgage Electronic Registration System, or MERS, is owned by banks and mortgage finance firms. It was created during the housing boom to smooth the process of turning mortgages into complex securities -- and to allow lenders to avoid paying registration fees to counties each time the mortgage changed hands. It is the nation's largest electronic mortgage tracking system.
In the fall of 2010, as evidence mounted that many foreclosures may have been mishandled, the system was faulted for sloppiness and questions were raised about whether it was used to sidestep legal requirements. The rising calls for halts to foreclosures suggested that the new approach could in fact have created huge new vulnerabilities for lenders.
In October, on the same day that all 50 state attorneys general announced that they would investigate foreclosure practices, JPMorgan Chase & Company became the first big lender to acknowledge that it had stopped using MERS for foreclosures.
The registration system is an electronic database meant to replace the reams of paper that were once the cornerstone of the residential mortgage market. The registry was also meant to eliminate the need to record changes in property ownership in local land records.
About 60 percent of mortgages in this country show up in local records as being owned by the service. In fact, none are owned by MERS. It was created to act as an agent for others, whether banks or securitization trusts, which own the actual mortgages -- an arrangement that lawyers for homeowners and some judges have called into question.
For centuries, when a property changed hands, the transaction was submitted to county clerks who recorded it and filed it away. These records ensured that the history of a property’s ownership was complete and that the priority of multiple liens placed on the property — a mortgage and a home equity loan, for example — was accurate.
During the mortgage lending spree, however, home loans changed hands constantly. Those that ended up packaged inside of mortgage pools, for instance, were often involved in a dizzying series of transactions. So to avoid the costs and complexity of tracking all these exchanges, Fannie Mae, Freddie Mac and the mortgage industry set up MERS to record loan assignments electronically. This company didn’t own the mortgages it registered, but it was listed in public records either as a nominee for the actual owner of the note or as the original mortgage holder.
The problems with MERS began to come to light when “vice presidents” of the firm began to submit affidavits in foreclosures, saying the original note had been lost. In some cases those notes were signed by people who signed thousands of such affidavits, and have now admitted they did not actually review the files, as the affidavits said they had. Nor were those people really employees of MERS.
Cost savings to members who joined the registry were meaningful. In 2007, the organization calculated that it had saved the industry $1 billion during the previous decade. Some 60 million loans are registered in the name of MERS.
When the bottom fell out of the market and delinquencies soared, thousands of foreclosure proceedings began to be filed through MERS. But as cases filed by MERS grew, lawyers representing troubled borrowers began questioning how an electronic registry with no ownership claims had the right to evict people. The system also led to confusion. When MERS was involved, borrowers who hoped to work out their loans couldn’t identify who they should turn to.
In September 2010, a number of the nation's largest mortgage lenders suspended evictions after disclosures that employees signed documents without ascertaining the accuracy of the material, a legal requirement. Attorney General Eric H. Holder Jr. said at a news conference on Oct. 6 that the federal Financial Fraud Enforcement Task Force is looking at the foreclosure issue, while the attorneys general in as many as 40 states are planning a coordinated investigation.
While the outcry has centered on the question of forged or overly rushed reviews of foreclosure documents, figuring out the role of MERS will be important in the federal and state investigations because it acts as a middleman in the mortgage market, allowing the loans to be sold to investors while keeping track of who actually owns them.
The question being raised by many lawyers for homeowners is whether MERS should be allowed to act in court as the owner of the mortgage, when in fact it is not the owner of them, but only represents a bank who owns the note -- or a bank who later sold shares of a pool of mortgages to investors, who could themselves have resold the shares.
If it turns out that this new system does not fit properly in the foreclosure process, then the value of the billions of dollars of mortgage-backed securities sold to investors could be called into question. That could lead to even further litigation against the banks and investment firms that sold mortgage securities if the ability to foreclose on home mortgages is not what it was portrayed to be in the documents used to sell the securities.
via:
Photo: Joe Raedle/Getty Images
