Zillow's Stan Humphries gives a clear explanation of the Mortgage Electronic Registration System and the problems it creates.
Irvine Home Address … 174 HAYWARD Irvine, CA 92602
Resale Home Price …… $480,000
Lend me your ear while I call you a fool.
You were kissed by a witch one night in the wood,
And later insisted your feelings were true.
Washed clean by the water but nursing its pain.
The witches promise was cunning,
And you're looking elsewhere for your own selfish gain.
Jethro Tull — Witches Promise
The mortgage industry was kissed by a witch in the night. Looking for their own selfish gain they came up with a cunning system to transfer mortgages and shortcut the public recording system. Washed clean by the market crash, mortgage holders insisted their title claims were true, and the system is nursing its pain.
Bubble, Bubble, Toil and Trouble in the Foreclosure Market
By: Stan Humphries, — October 11th, 2010
Well, what initially looked to be a technical road bump in the foreclosure process is now certainly blossoming into something with a more material impact on the housing market. Initially, this situation had the appearance of a sloppy record-keeping scandal, one that was important to resolve but that involved supporting documents that could ultimately be located and where correct procedures could be put into place. On the other hand, there are hints now of a mortgage system that has been put into place in service of mortgage securitization objectives that may have become detached somewhat from the underlying governmental recording procedures for titles and mortgages.
The latter situation involves a Reston, VA based company named Mortgage Electronic Registration System (MERS), which launched a mortgage tracking system in 1997. The system was designed to simplify the registration and transfer of mortgage ownership. From their website:
MERS acts as nominee in the county land records for the lender and servicer. Any loan registered on the MERS® System is inoculated against future assignments because MERS remains the nominal mortgagee no matter how many times servicing is traded. MERS as original mortgagee (MOM) is approved by Fannie Mae, Freddie Mac, Ginnie Mae, FHA and VA, California and Utah Housing Finance Agencies, as well as all of the major Wall Street rating agencies.
Note that MERS is used by the GSEs and other government mortgage entities. That makes it the standard in the industry.
Ok. For those fortunate individuals not initiated into the intricacies of deeds and mortgage notes, this statement might need further elaboration. Let’s use an analogy. Let’s say that you, I and a bunch of our friends all sell mortgages to people who want to buy homes. But, once we’ve sold a mortgage to an individual, we periodically re-sell it to each other. That is, I take the note that I’m holding on a house located at 123 Main Street (that obligates the homeowner to pay me a certain principal plus interest) and I sell it to you. Now the homeowner living at 123 Main Street pays their monthly mortgage payment to you and not me (and I’ve gotten a lump sum payment from you in return).
In the old days, this exchange would involve me walking down to the county courthouse and filling out some paperwork transferring the mortgage on 123 Main Street over to you. Not fun, but not the end of the world either. Enter mortgage-backed securities. Now, it’s not just a few of us friends holding onto mortgages. We create a bunch of companies that buy certain mortgages and then essentially sell shares in this new company to investors, each of whom now owns a small piece of all the mortgages owned by the new company (i.e., mortgage-backed securities). In this new world, we’re transferring mortgages on homes all the time. I’m not just having to go down to my local courthouse and assign the mortgage to another of my mortgage-holding friends. I’m having to go to the more than 3,000 courthouses around the country and assign the rights to a multitude of different parties. I’m on the road all the time just doing paperwork or I’m having to pay somebody in all the counties to do it for me. This whole recording process has become more than a minor nuisance. It’s now a major cost of business for me and it seriously affects the speed at which I can buy and sell mortgages.
So, you and I come up with an idea. We get our friend Sally to agree to be listed as the mortgagee on all these mortgage notes instead of you or me. Sally is someone we both trust and agrees to serve as an honest broker for recording agreements between you, me and all of our other mortgage-holding friends. So, for example, when I sell the homeowners of 123 Main Street a mortgage, we file a mortgage note that lists the homeowners as the borrower and Sally as the mortgagee (instead of me although I’m still listed as the lender, a distinction that will become important later).
The old system required recordation in the public record of every transaction that is secured by real estate. The public record has no organization at all which is why title companies sprung up to create a searchable database of all this recorded information. From the beginning of our property records system, private databases of public records have been the foundation of the real estate industry.
Title companies issue title insurance because they have organized the data and know all the encumbrances and transfers in a chain of title. Everyone relies on title insurance companies. If no insurance were offered on title, mortgage interest rates would be much, much higher because it would be impossible to loan on a secured basis. Every loan would become unsecured debt similar to a credit card. Loan balances would be a small fraction of what they are today.
Certainty of title is the foundation upon which our system of real estate finance is built.
Sally then starts a spreadsheet where she lists me as the actual lender of 123 Main Street. When I go to sell this mortgage to you, I don’t need to go down to the courthouse and transfer the mortgage to you. We simply call up Sally and tell her to update her spreadsheet with the information that you are now the lender for the mortgage on 123 Main Street and not me (I also send a letter to the homeowners telling them to send their monthly payment to you now and not to me).
This is a critical point: MERS allows the transfer of ownership of mortgages without that transfer being recorded in the public record. With the ownership of the promissory note is the mortgage, the right to foreclose in event the borrower fails to pay on the promissory note. The basic claim of those challenging this system is that transfer of the promissory note does not simultaneously transfer the mortgage unless both are recorded in the public record; therefore, the new holder of the promissory note does not have the right to foreclose.
This innovation makes the current lender of any mortgage quickly knowable by anyone and allows for the rapid transfer of mortgage rights. Think of it as a clever work-around to the Federal system put into place by our Founders (i.e., local, state and national governments, each of which controls different governmental functions) which can make nationalized businesses that deal with local-level processes cumbersome.
The current imbroglio that seems to have developed arises when the homeowners of 123 Main Street stop making payments to you (assuming I’ve sold the mortgage to you), thus necessitating you to foreclose on them. When this occurs, you tell Sally to head over to the county in which 123 Main Street is located and file a foreclosure notice (since Sally is the registered mortgagee for the property). Generally, this proceeds along the lines of any foreclosure: the house is foreclosed and you attempt to recoup some of your money by selling the house subsequently. Sally is really just acting as an agent on your behalf in this process.
In some cases, however, the local courts will take a dim view of the record-keeping system that you, Sally and I have set up. They will assert that, according to their records, Sally is the mortgagee but I’m still the lender of record. They’ll go on to say that since Sally is not the lender and they have no record that you are, in fact, the lender either (remember, my sale of the mortgage to you was just recorded in Sally’s spreadsheet, not with the county itself), neither Sally nor you can foreclose on the property. Only I can, but I’ve long since forgotten about this mortgage because I sold it to you (but only told Sally about the sale, not the county). This leads Sally to whip out her spreadsheet in open court and start explaining the system that we’ve set up. This, in turn, can leave the judge feeling a bit like a New York state judge who, when confronted with exactly this scenario in his courtroom this past May, observed that the mortgage and servicer companies seemed to be “operating in a parallel mortgage universe.” He actually called it the Twilight Zone. His opinion is a good read.
If a judge were to rule that the MERS system does not transfer the holder of the promissory note the right to foreclose, the entire MERS system would collapse. Every mortgage would need to be recorded in the public record as being transferred to the new holder of the promissory note. The result would be millions and millions of filings in recorders offices all over the country and months of delay while this happened.
Just to make sure we’re all on the same page in this analogy, you and I are mortgage-holding companies like Bank of America, HSBC, and others. Sally is the Mortgage Electronic Registration System, a company jointly owned by all the big financial firms which has as its members any financial firm that lends money for mortgages and wants to easily exchange them to other firms. Sally’s spreadsheet in the analogy is actually the MERS database which is online for anybody to look at. Any mortgage for which MERS is acting as the mortgagee will list a MIN number (see example below). Anybody can type this MIN number into the MERS website and find out the name of the servicer and the actual lender for the mortgage (note, sometimes the lender info is not shown and you must contact the servicer first). Try it yourself: Search for MERS on your county recorder website, type any MIN number that you happen to find into the MERS system and see what you get.
So, where does all this leave us?
• The securitization of mortgages in this country has been a powerful innovation which has created enormous benefits to homeowners. Mortgage-backed securities provide vastly more money for the mortgage markets than would be available in the prior system where lenders held onto each mortgage that they originated.
The benefits of securitization are debatable. Securitization is not the reason we had a housing bubble, but it was the mechanism by which the housing bubble was inflated. Look at securitization as the pumps the hoses that inflated home values. It was still foolish lenders and kool aid intoxicated homeowners who operated the pumps. 
Ok, let’s be honest, it probably benefitted too many consumers during the bubble, lots of whom got mortgages because the money was there courtesy of securitization while the people approving the mortgages weren’t aware enough of the potential risks. By reaching deeper into the pool of potential homeowners to sell new mortgages, the risks were two-fold. First, they were lending to people with more credit risk (so, in bad times, default rates would be higher). Second, the expansion of homeownership helped fuel unsustainable price appreciation which, when markets began to correct, made real estate a depreciating asset. This depreciating asset roiled both the newer, less credit-worthy borrowers but also lots of the more credit-worthy people who now found themselves in negative equity precisely at a time when lots of them started to lose their jobs in the recession.
In short, securitization made the Ponzi Scheme possible.
• I’m not a real estate lawyer so I won’t comment on the legality of the MERS system, but it does seem a logical response to the tangible problem of complying with long-standing county recordation processes while still enabling a modern mortgage market. It’s been in place since 1997, has registered more than 64 million mortgages, and, notwithstanding the occasional legal challenge that I describe above, it seems pretty well established in most jurisdictions.
• If the entire MERS approach were deemed illegal tomorrow, the only thing that would change is the speed with which these foreclosures would occur. Back to our analogy, if a court deemed that neither Sally nor you could foreclose on the homeowners of 123 Main Street, they could ask me to come down to the courthouse and do the foreclosure myself. Or, more likely, I would make an official assignment of the mortgage to you, and then you now have the legal standing to proceed with the foreclosure. The house would still be foreclosed upon, a fact that was precipitated by the homeowner’s non-payment, not by anything about the record-keeping system itself. A reversion to the old county process would just make things go more slowly.
Everyone seems to forget that each of these "unwarranted foreclosures" is a delinquent borrower. This problem didn't spring up because people making their payments were suddenly facing foreclosure. A paperwork problem does not make the house belong to the delinquent borrower, nor does it make their debt go away. These people are not keeping their homes, they are keeping the bank's house through procedural delay.
• At the risk of understatement, slowing down the foreclosure process just for the sake of slowing it down is really not helpful at this point in the housing correction. In fact, it’s really quite bad for the market as it will delay the natural process of supply and demand reaching equilibrium because buyers will stay away from a market that they view as still heading down. And we’ll have less of a real sense of total supply because a lot of it will be tied up in homes that are in foreclosure limbo. We absolutely need to make sure that the foreclosure process is proceeding in a legal and transparent manner but, once that is satisfied, it’s not going to help real estate markets to delay foreclosure actions that are ultimately going to happen anyway at some point in time.
Clearly, the banks do not believe that delay hurts them. They have been looking for excuses to delay foreclosure for the last three years.
• With the various states serving as laboratories for different foreclosure processes, we have the opportunity to see the differing results produced by these processes. I believe that a key reason for why markets in some non-judicial states like California seem to be recovering faster than markets in judicial foreclosure states like Florida is because foreclosures are clearing through the market faster in the non-judicial foreclosure states. Since I risked understatement in my previous bullet point, let me be clear here: calls for a moratorium on foreclosures – while politically attractive for elected officials and their regulators – are misguided and would do significant damage to the nascent stabilization in home values.
Actually, the reason California has temporarily stabilized is because the banks have chosen not to foreclose and instead have chosen to create an enormous shadow inventory. His contention in support of his argument is pretty weak.
• Those of us who’d like to find a way to help stem the foreclosure crisis should focus on some of the concrete proposals to help homeowners like tweaking the FHA streamline refinance guidelines or more ambitious proposals like that of Hubbard and Mayer. I don’t always agree with every proposal but it’s ideas like these that explicitly target the foreclosure problem that merit our consideration, not putting our hope in gumming up the gears of government and commerce (again, unless we come to the conclusion that these gears are not legally constituted).
He is missing the bigger point: there is not foreclosure problem. Foreclosure is not the problem, it is the cure.
• My hunch is that the MERS approach will stand up to scrutiny and that this current situation will end up being more of a sloppy record-keeping scandal that should and will be cleaned up. This will result in a slowdown of foreclosures over the next 30 to 90 days. If the MERS approach doesn’t survive, I’d be gravely concerned for the near-term stabilization of the housing market and for the long-term viability of mortgage securitization.
I agree with him on his conclusions. There will be a short-term slowdown in foreclosures that will hardly be noticed. Right now, at every auction site in the country, 80% to 90% of currently scheduled foreclosures are postponed or canceled. We are only processing a tiny fraction of the foreclosure backlog on any given day. When the floodwaters are washing away everything in site, a few days without rain do not make the raging floodwaters recede significantly. Even after the delinquencies and foreclosure proceedings stop being initiated, it will take years to work through the backlog.
Is MERS really a problem, or is this whole exercise a witch hunt?
I watched the flow of properties through the Las Vegas auction site last week. Monday was slow due to the holiday, but the Tuesday through Friday showed no difference in the number of properties that were auctioned. Any Bank of America foreclosures that were postponed were made up for by the other banks who ordinarily would have postponed their sales.
The hot potato
The Ponzi Scheme that is the California housing market is a giant game of hot potato. Each participant in the Ponzi Scheme runs up a huge mortgage and tries to pass it to someone else before the market crashes and they get their hands burned by the hot potato. The story of today's featured property begins with the previous owners. They managed to buy the property, extract significant equity through periodic, foolish borrowing and pass that debt on to the current owner who has to deal with a huge loss.
- The house was purchased by the previous owners on 3/23/2004 for $550,000. They used a $440,000 first mortgage, a $82,500 second mortgage, and a $27,500 down payment.
- On 3/14/2005 they refinanced their first mortgage with a $492,000 Option ARM with a 1% teaser rate, and they obtained a $46,000 HELOC.
- On 6/6/2005 they enlarged their HELOC to $91,000.
- Total property debt was $583,000 plus negative amortization.
Of course, they were the lucky ones because the current owner bought it from them for $639,000 by taking out a $639,000 first mortgage and putting $0 down. It looks like the knife catcher tried for a while, but he finally gave up in the spring, probably after realizing he was $150,000 underwater on a property he put nothing into. No sense sending good money after bad.
Foreclosure Record
Recording Date: 06/21/2010
Document Type: Notice of Default
Irvine Home Address … 174 HAYWARD Irvine, CA 92602 
Resale Home Price … $480,000
Home Purchase Price … $639,000
Home Purchase Date …. 4/18/2007
Net Gain (Loss) ………. $(187,800)
Percent Change ………. -29.4%
Annual Appreciation … -8.1%
Cost of Ownership
————————————————-
$480,000 ………. Asking Price
$16,800 ………. 3.5% Down FHA Financing
4.25% …………… Mortgage Interest Rate
$463,200 ………. 30-Year Mortgage
$91,079 ………. Income Requirement
$2,279 ………. Monthly Mortgage Payment
$416 ………. Property Tax
$100 ………. Special Taxes and Levies (Mello Roos)
$40 ………. Homeowners Insurance
$306 ………. Homeowners Association Fees
============================================
$3,141 ………. Monthly Cash Outlays
-$360 ………. Tax Savings (% of Interest and Property Tax)
-$638 ………. Equity Hidden in Payment
$26 ………. Lost Income to Down Payment (net of taxes)
$60 ………. Maintenance and Replacement Reserves
============================================
$2,228 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$4,800 ………. Furnishing and Move In @1%
$4,800 ………. Closing Costs @1%
$4,632 ………… Interest Points @1% of Loan
$16,800 ………. Down Payment
============================================
$31,032 ………. Total Cash Costs
$34,100 ………… Emergency Cash Reserves
============================================
$65,132 ………. Total Savings Needed
Property Details for 174 HAYWARD Irvine, CA 92602
——————————————————————————
Beds: 3
Baths: 2 baths
Home size: 1,752 sq ft
($274 / sq ft)
Lot Size: n/a
Year Built: 2002
Days on Market: 163
Listing Updated: 40457
MLS Number: S616203
Property Type: Condominium, Residential
Community: Northpark
Tract: Aubr
——————————————————————————
According to the listing agent, this listing may be a pre-foreclosure or short sale.
SHORT ESCROW OK!! Excellent private location, all living space on one floor, high ceiling entry, rotundra extends to expansive great room w/custom paint, neutral carpet, shutters, fireplace, versatile media niche, lighted ceiling fan, kitchen w/granite, upgraded cabinetry, walk-in pantry, recessed lighting, dining area leads to large balcony, lovely master suite w/retreat, separate shower, deep oval soaking tub, dual sinks, oversize walk-in closet, French door opens to balcony, attached side/side garage with vertical storage cabinetry, resort association amenities: pools, parks, spas, meandering greenbelts, gazebos w/fountains, sports courts, clubhouse, walk to Hicks Canyon Elementary/Beckman High Schools, close to freeways, toll-roads, and Tustin/Irvine entertainment complex
rotundra?
I enjoyed Humphries’ article, but every time I hear the adjective “innovation” applied to a financial concept, I reach for my gun.
I cackled when, in reference to a world without title insurance, that loan balances “would be a small fraction of what they are today.” It is cruel to tease us with such a delightful vision; one which the government and our corporate masters will never permit to become reality.
The securitization of mortgages certainly made the issuing bank care less about the quality of the borrower, if they were planning to sell the mortgage from the get go. They earn their fees upfront risk-free; the risk goes to the mortgage buyer. This is an incentive to give loans to anybody and everybody, which is what happened. And, since loans were available to anybody and everybody, demand increased, which meant prices increased. But since the borrowers were anybody and everybody, lots defaulted, and then YOU ARE HERE.
Or, to put it another way: The securitization of mortgages was the major cause of the clusterfuck of an economy that we currently have.
It can be a reality if you want it to be right now. Unfortunately for you, the odds of achieving that in California are stacked against you. But in more sane areas of the country, it is definitely still possible.
Yes indeed:
“Ok, let’s be honest, it probably benefitted too many consumers during the bubble, lots of whom got mortgages because the money was there courtesy of securitization while the people approving the mortgages weren’t aware enough of the potential risks.”
Bass-ackwards! The benefits went to the securitization people, who created enormous pools of debt that they could sell, borrow against and bet against, while generating fees and commissions at every step. Consumers got inflated house prices, and employers crushed out of existence when the debt used to buy them was then transferred onto their books.
“If the MERS approach doesn’t survive, I’d be gravely concerned for the near-term stabilization of the housing market and for the long-term viability of mortgage securitization.”
Ending the viability of mortgage securitization makes a delay in the near-term stabilization of the housing market look like a price worth paying.
I’ll try not to get too much into the legal discussion of MERS. I’ll leave it at the fact that MERS has repeatedly been recognized as legal and legitimate in court rulings (many of which I was involved in as a representative for MERS).
I’ll touch on the broader policy implications of actually finding MERS as “illegal” or as an illegitimate wasy of tracking assignments.
IF, and that’s a big IF, MERS was somehow found to be illegal or an illegitimate way to track mortgage assignments, I can’t imagine that we don’t get a congressional fix.
Is the country really going to throw out over 60 million mortgages and leave them effectively unenforceable? You want to talk about the destruction of wealth (or perhaps calling it a transfer of wealth might be more appropriate). At that point, doesn’t someone in congress stand up and say that we need to enact legislation that recognizes the legitimacy of this system? (I’m not looking to get into a discussion about federalism and state’s rights under the constitution, but I’m confident that congress would have the authority to legally enact such legislation).
Faced with the choice of giving 60 million borrowers a free home, or enacting legislation that leaves security interests intact and enforecable (as was understood at the time people were borrowing money to buy their property), I think that congress would step in and preserve the enforceability of those mortgages. But, I could be wrong. 60 million borrowers (voters) make quite a faction. Should that happen, we will be headed for Thunderdome.
Well, if it is found illegal, there is a fix-unwind every transaction that took place via it and use the old fashioned system. That is almost certainly what would occur-I don’t think Congress will want to or be able to get involved. The “Twlight Zone” judicial opinion certainly leaned towards it being illegal. I suspect it will be found legal in some jurstictions and illegal in others.
Certainly, unwinding transactions and seeking judicial intervention (reconstruction of the assignment chain) is another possible solution. I just don’t know how practical this is with respect to more than 60 million individual pieces of property.
Needless to say, that sort of thing couldn’t be done in a month or two or three or fifty.
I think the most efficient fix would be through the legislative process. Perhaps we don’t want to federalize this and there are solid arguments against going down that road. At the end of the day, I think it would still be the most efficient way to restore all the parties to their original positions and their understandings (I loan you money, you pay it back, if you don’t, I will foreclose) at the time the original transaction was consumated.
Honcho
That is brilliant! Lets have Congress create a law that reinstates everyone’s 401 K, everyone’s down payment, and now when ever a company goes bankrupt the investors don’t loose any money, lets have a bailout for everyone because we don’t want a “wealth transfer”. Except maybe from the tax payer. Brilliant!
That was the great thing about our legal system and society. If you did something illegal you lost your rights. You would loose your money, property, or freedom. It was not always fair but you always knew the rules. But I think you are right we should throw that out the window. Brilliant!
I am not proposing any such “bailout.” I’m simply proposing a legislative fix that would restore the parties to their bargained for positions (I loan you money, you pay me back, if you don’t I will foreclose).
A legislative fix would simply recognize the reality of modern day property law and securitization.
Again, this is only needed if, and only if, MERS is somehow found to be “illegal.” I haven’t seen any court come close to making that determination.
If they do not have the right to foreclose they should loose any monies they invested because they do not own the property or own a right to foreclose on the property, they bought a worthless piece of paper. Making a law to make some thing legal after it is found to be illegal is just a bailout.
I assume you are arguing just to argue, or you didn’t read or comprehend what I wrote. I’ll try again if the later is true.
The legislative fix I proposed will be the most efficient way to restore the parties to their bargained for positions. Certainly, if MERS were to be found illegal nad they had to go back and seek judicial confirmation of each assignment, the parties would be back in the same spot of their original understanding and agreement. However, the time and costs associated with doing that over 60 million times seems rather ridiculous.
The MERS system has not destroyed any security interest in the property. The assignments took place. Whether you get someone to recognize the assignment and transfer within the mortgage system or have a court recognize it later doesn’t matter. No one is escaping their debt obligation.
Sorry Honcho, I concur with christian..
Banks are supposed to be sophisticated investors. As such, they are supposed to know the difference betwen trading paper and trading real property. MERs turns property into paper. That’s fine, but it needs to be turned back into property before you can forclose on someone. If the banks lose money on this, so what, they should have known better. I can’t see the legisture getting involved unless the bankers pay individual legislators to do something. Oh wait, the bankers due pay off the legislators, oh well, I guess there will be legislative “fix”
Totally ok to disagree with my proposed solution. I simply think it would be a tremendous waste of time/money/resources of the courts and the parties to fix this with respect to over 60 million individual pieces of property.
Again, I think MERS was a legit system, and so far, courts seem to agree.
Honcho, the MERS system certainly doesn’t sound legit based on my layman’s understanding, but I agree that national legislation sounds like the most likely scenario If it’s found to be invalid.
Thanks much for posting, and for identifying yourself as a MERS representative — always great to get a bit of inside scoop / opinion from an industry professional on these things.
Just to clarify, I’m not a MERS representative. I represented MERS in a number of lawsuits in which it was a defendant.
I understand that you are looking to find justice in the fastest and cheapest way and I think that we are all trying to solve the problem, But I do not always believe that justice is “easy” If MERS is illegal then the people selling the securitizations were committing fraud. Some one owns the mortgage and only they are allowed to foreclose because that is the law. They may have tried to sell the mortgage but if the way they sold it is illegal, it was not sold and they still own it. So the owner forecloses and they owner pays the investors for the losses from the fraud. The homeowner gets foreclosed on. The loan owner looses money and the investors get their money back. It will be long and drawn out but it will follow the system we have and that works. I think we need to stop taking shortcuts with the law.
A U. of Utah prof brought the house down at the summer American Bar Assoc Conference by giving a speech titled “MERS is Bull Shit.” In front of an audience of 300+ financial services attorneys whose income is derived from banks, this prof methodically went through the MERS BS and after every point, repeated “MERS is Bull Shit.” It was classic.
I’m really trying to understand this paperwork mess but let me throw a question out there with regards to the me, you and Sally analogy. I thought that part of the problem was that I didn’t just sell the 123 Main Street mortgage to you, but I bundled a bunch of ’em together and sold you a batch and Billy a batch and Tommy a batch. Now when you go to foreclose on 123 Main Street, you in fact own one-third of the mortgage and Tommy and Billy own part of the mortgage….. so the resident at 123 Main is gonna claim that you don’t own all of the loan so you can’t kick ’em out….. am I wrong? In other words, could one mortgage be chopped into many pieces and sold, or can mortgages only be sold whole?
Naive question from a guy just trying to figure it out….
Doesn’t the Depository Trust Company perform a similar function for corporate securities? What is the big deal? Someone acts as a central nominee to speed up and simplify the title transfer process.
Exactly….
Not exactly…
Corporate securities are paper, no one can be foreclosed on, there is no real gold behind the paper, just promises…
That’s the big deal…
There is a big difference between owning bars of gold and paper stock in a gold mine…
Honcho is confusing real with virtual..
Hence my proposed legislative fix, iF MERS were found to be illegitimate.
I just don’t see how the borrowers are harmed by all this. They know the lender may assign its position. Why does it matter if the assignment is through a nominee and is disclosed later, if necessary, at the time of foreclosure?
The borrowers are not harmed. If fact, they explicitly agree to it in their mortgage documents.
They aren’t harmed-it’s just a legal gimmick to allow people to stay on the free rent program for awhile. It truly is a paperwork matter; the home owner has stopped paying, so somebody certainly has the right to foreclose.
Geotpf nailed it.
It is not as though MERS just rolled out during the bubble – it has been around since the 90’s. It took some Government stooges 15 years to suddenly call into question its legality?
Oh, when the money was flowing all was well then some hopeless house debtors stop paying the mortgage and get foreclosed by some robo-signers and all of a sudden its all illegal.
WHATEVER.
It seems to me that MERS does an end run around the official and legal registration system of mortgages.
It is one thing for a Title Insurance Company do duplicate the official records, but organize it better making it more searchable and accessable.
But MERS has many transactions that are not in the officaial registry. This seems to usurp the role of government and put control in the hands of a private company that is owned by the government.
It’s like a shadow government of some kind.
It seems to me that MERS does an end run around the official and legal registration system of mortgages.
It is one thing for a Title Insurance Company to duplicate the official records, and then organize it better making it more searchable and accessable.
But MERS has many transactions that are not in the officaial registry. You can’t just go to the the official county registry to see who owns what. The must be only one primary source of information.
MERS seems to usurp the role of government and put control in the hands of a private company that is owned by the the lenders. It’s like a shadow government of some kind.
Let me try to reword my concern with MERS.
There can be only one official place to register all these real estate transactions. If there was more than one, what happens when they don’t match. Which would be deemed correct? So clearly there has to be only one official registry. There can be duplicates, but they should reflect what the one official one holds.
Now who has the authority to keep these official records? Isn’t it the local governments, like all the counties in every state?
Now maybe, if it wanted to, a county could assign the responsible for record keeping to some private firm like MERS. Or maybe not. I don’t know.
MERS is acting like they are the one official registry for all these mortgage transactions. But who granted them the authority to be the official registry?
Assignments of the mortgage can be made outside of the official land records. I don’t think that anyone has claimed that asignments are not valid if they are not recorded.
First I must thank IR for addressing this issue, while it may be his cuppa tea I do appreciate him giving it some attention.
Second it’s time to add that I do not give a damn about the HELOC abusers who gamed the system nor for the banksters who knew beforehand their customers could never repay their loans, not sure Dante had a circle especially for them but a revision would.
Third, I am one of the few with a paid-off mortgage and what pressed me to comment on this MERS garbage is that by the very nature of the MERS process the title to the real estate I thought (and could pre-MERS prove) thaat I owned is now in question. And that is unacceptable. And those of you who are militant capitalists should be screaming in pain as the ability to prove ownership of property is the bedrock of the capitalist system.
Please give a read to this, “Banks Sold the Same Mortgage Over and Over to Investors”. This is what MERS wrought. BTW, they were securitizing mortgages since 1970 or thereabouts but MERS didn’t kick in until 1997 and didn’t really get going until 2004 (thanx GW). You can have mortgage securitization w/o a MERS system, was it really worth saving $22 per mortgage transfer to take us to here?
Scary stuff, darms. Thanks for the link. Hopefully that problem of properties being “duplicated” across multiple mortgage pools will turn out to affect only a small number of properties.
Don’t read too much into the allegations raised in the lawsuit.
I don’t understand why payments being received on the note couldn’t be placed in different investment vehicles. Why can’t you have principle tranches and interest tranches that belong to different securities?
I still don’t understand what this has to do with someone not being able to pay their mortgage or why the defaulted borrower would be entitled to a free house.
Honcho, my read on this was that 100% of a loan, in some cases, was being duplicated onto multiple mortgage pools, not just, say, 50% of it being placed into one pool and 50% into another.
Yeah, I don’t think any of this means borrowers should get free houses — the concern is that unwinding this mess will further delay a return to sanity in areas that haven’t fully corrected from bubble pricing. (Or in the worst-case scenario, that securitizing mortgages in the way they’ve been doing would be found to be illegal, but that seems pretty unlikely to occur without legislation quickly following on to legalize the existing system or something very close to it.)
How does a lender show to a court that he has standing to foreclose on a property. Wouldn’t all the transactions that lead to that lender being the one with standing have to be recorded in the official registry at the county office?
The MERS trustee has standing.
Another thought…
You don’t need to undo all the 60 millon unrecorded mortgages at once to unwind MERs. You only need to do the ones entering into foreclosure, the rest can be done over say 3-5 years.
wheneth dideth this comment section, dearest prudence, get taken over by lawyers?
we shall start here
It is a question of trust.
If you are going to take someone’s property by force of foreclosure, you must be sure that the person doing the foreclosing actually has the legal right to foreclose.
So how do you know who has that right? Well you look in the official registry at the county office to see who owns the note and who holds the mortgage.
But the lenders apparently want to circumvent that and use the MERS database alone to make that determination. But can you trust a private database of a firm that is owned by the lenders?
Isn’t there an conflict of interest here? The same people that are taking the property, i.e. the lenders, are also providing the evidence, through MERS a database that they control, that they are entitled to take the property. Not trustworthy.