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Crazy little thing called MERS

By Jay MacDonald · Bankrate.com
Monday, December 20, 2010
Posted: 10 am ET

Like a rollicking round of Whack-a-Mole, problematic participants in our national foreclosure mess just keep popping up. We've been wailing on subprime lenders for two or three years now, followed by foreclosure mills and robosigners and robojudges and rocket dockets.

Comes now a new mortgage mole that at least one expert claims deserves a whack: a crazy little thing called MERS.

MERS is short for Mortgage Electronic Registration System, the electronic database that holds 60 percent of the nation's residential mortgages. I like to think of MERS as a cousin to HAL 9000 from "2001: A Space Odyssey" without the bubbly personality. Or maybe a robo-robo!

Christopher L. Peterson, a consumer rights attorney and law professor at the University of Utah, recently gave the House Judiciary Committee an earful on how MERS effectively usurped the traditional role of county clerks across the land 12 years ago, to the benefit of mortgage lenders and the detriment of borrowers.

Quick, painless mortgage lesson: a mortgage entails two legal rights, 1) the right of the lender to receive payment from the borrower, which is contained in the promissory note, and 2) the right of the lender to foreclose, which is contained in the mortgage document.

When a home sells, these two documents traditionally are transferred at the same time. But when mortgage securitization (where's my mallet?) caught on in a major way and loans were changing hands five and six times in a matter of weeks, the banks grew weary of ponying up $35 in pocket change to Madge at the courthouse every time, so they dreamed up MERS to handle the chore.

You know where this is headed, right?

"Mortgage loan originators or servicing companies can enter information about changes in loan ownership if they want to. But there are no penalties if they don't," Peterson told the St. Petersburg Times. "The result is in many cases the MERS database is inadequate, and we don't have reliable information about who owns what mortgage loans."

Got a problem with your mortgage? Tell it to HAL ... uh, I mean MERS.

But it gets better. Because there are only a few great and powerful Ozes behind the MERS curtain, "employees at service companies and law firms can go on MERS Web page, fill in a blank form, press submit, then MERS kicks back a corporate resolution that purports to make these employees assistant secretaries or vice presidents of MERS to do business with the courts," Peterson says.

Top that, HAL!

Peterson says streamlining the mortgage process with MERS has perpetrated a legal puppet show that further removes homeowners from fair treatment. Rep. Marcy Kaptur, D-Ohio, has introduced a bill to prohibit Fannie Mae and Freddie Mac from purchasing any more loans drawn out of MERS.

So, whack a MERS? Not me.

To quote HAL, "It can only be attributable to human error."

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3 Comments
Jay MacDonald
January 11, 2011 at 5:21 pm

Hi, Betsy: To your question, if your bank had sold your mortgage, you would have received notification from both your original lender and the company that acquired your loan. If you're unsure, simply call the customer service number listed on your mortgage statement. As for MERS, Attorney General Coakley seems intent on shedding some sunshine onto the clouded title issue. We haven't seen the end of this by a long shot. Stay tuned.

Betsy Cazden
January 11, 2011 at 8:00 am

Please do an update now that the Massachusetts Supreme Judicial Court has called the whole MERS system into question. My understanding is that Martha Coakley and her fellow AGs are challenging the validity of all those transfers-inside-the-MERS-box that never got recorded in the registry of deeds, and/or trying to recapture all those $35 fees that never got paid to Madge at the courthouse. Will title insurers paper over all those transactions? Or are 60% of the housing stock essentially unsellable until they go back and do it right?
I believe my mortgage is still held by the original bank -- at least that's who I pay every month. Is there any way to tell for sure?

John R Anstett
December 28, 2010 at 6:06 pm

MODIFICATION
Yes there are delays in obtaining a mortgage modification; take my ongoing two year case.
My bank has delayed since January 2009 by several obstructions delaying my quest with them to obtain assistance or a worst a denial for my four applications with countless phone calls, at the least seventy, submission of all
Requested documents four times.
Almost two years since this stall has prevented me from depleting my small retirement nest egg to keep payments up and on time. On the brink of falling off the cliff and not a glance my way from my bank.