Tuesday, October 19, 2010

Is MERS nothing but a scam?

MERS stands for Mortgage Electronic Registry System. This system was set up by banks and other financial institutions specifically to save themselves time and fees when selling mortgages to each other. It was intended from the very beginning to make an end-run around the requirement in every local jurisdiction in the country to transfer and record the original mortgage loan paperwork with each and every transaction. The headline on their web site home page says “Process loans, not paperwork.” They seem proud of being “created by the real estate finance industry.” MERS “eliminates the need to prepare and record assignments when trading residential and commercial mortgage loans.”

The problem is all those local and state laws still on the books everywhere across the entire country that do require the preparation and recording of assignments when trading any mortgage loans. It seems like everyone just decided to look the other way while the financial companies made things much easier and cheaper for themselves. To make things even worse, by no longer properly recording the mortgage loan assignments state and county registrars are shielded from knowing who the true owner is. Mortgage loans transferred through MERS list MERS as the mortgagee even though they don’t hold title to the land.

Which brings up another problem with MERS. Many of MERS member companies have MERS carry out foreclosures in MERS’s name. This despite the fact that MERS does not own legal title to the mortgages. MERS therefore lacks legal standing to foreclose. Foreclosure courts have a very difficult time disputing this because the mortgage loan assignments are not recorded so the actual owner cannot be found.

All of the above is further complicated by the fact that MERS has no employees. This means all actions taken by the company are out-sourced to third parties. The third parties are usually document processing companies such as LPS or DOCX or large attorneys’ offices specializing in document processing. Yes, the same ones under so much scrutiny in Florida and around the country for questionable signature, verification practices and notary stamps.

Given the way the real estate crisis has played out during the past few years, it is hard not to wonder if MERS wasn’t a planned scam from the first. If the financial companies wanted to be able to sell and trade and securitize mortgages as quickly as possible without scrutiny, what better way than to remove those sales and trades from public view. The true legal owners of any given mortgage loan could no longer be tracked down through any public records. No government regulators could track how or when or how often mortgage loans were assigned. It was as if a huge segment of the mortgage industry got sucked into a black hole never to be seen again. Until people started to default on those “hidden”, “off-the-books” mortgages, of course.

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