Once-public mortgage records moving to private hands
By Holden Lewis • Bankrate.com

A company called MERS is quietly trying to register every new mortgage in the country.

Mortgage Electronic Registration System has saved the mortgage industry millions of dollars in its four years of operation. Executives of the McLean, Va., company say some of those savings have been passed along to home buyers via reduced fees. That's the benefit.

"We're invisible to the consumer," says Dan McLaughlin, executive vice president for MERS's product division. "We benefit the consumer, but the consumer doesn't know it."

If there are any drawbacks to MERS, they aren't as tangible as the benefit of saving money. MERS moves formerly public information into private hands. Essentially, the MERS mission is to privatize the record keeping that traditionally has been done by county recorders. The mission is being accomplished with virtually no public policy debate.

Why MERS?
MERS exists to make it easier for mortgage lenders to sell loans on the "secondary market." When you take out a mortgage, sometime later it might be bundled with hundreds of other mortgages and sold as an investment. That's the secondary market. When your lender sells your mortgage on the secondary market, the lender can use the proceeds to underwrite someone else's mortgage, which is sold so the lender can underwrite another mortgage, and so on.

It's an efficient system -- except for the record keeping. When hundreds of mortgages are bundled and sold on the secondary market, records in dozens of counties have to be updated, sometimes by hand. It can be a paperwork nightmare.

County recorders are the officials who record ownership of property. When you buy a house, the title company files papers with the recorder's office that list you as the owner. The recorder keeps track of who holds your mortgage loan and who services the loan -- in other words, who receives your monthly checks and makes sure your property taxes and insurance are paid.

If the recorder makes a mistake, or takes a long time to update records, the loan-selling process bogs down, wasting time and money. Inefficiency in the recorder's office can directly affect you if you're trying to refinance your mortgage: You might lock in a rate, only to watch the deadline pass while the recorder's office tries to clear up its records.

That's where MERS comes in.

When a mortgage is registered through MERS, the county records list MERS as your lender, or "mortgagee of record."

No one has to update county records when the loan is sold or transferred; only the MERS database has to be updated, and that can be done quickly and electronically. This saves time and money -- $25 or more each time a mortgage is transferred.

Private public records?
MERS executives compare their registry to the Depository Trust Co., which was created in the 1970s to track ownership of securities electronically, eliminating the need to fill out paperwork each time stock is sold. You don't interact directly with DTC when you buy or sell stocks and bonds, but the company works in the background, allowing the transaction to go through quickly and cheaply.

The difference is that ownership of stocks and bonds isn't a public record. Ownership of real estate is a public record. You have a right to go to your county recorder's office and find out who owns what property and who the lender is. But if the mortgagee is listed as MERS, you have to take the extra step of getting the information from MERS.

Who would want to look up such information? Maybe you, if you want to know who holds your loan. More to the point, some community groups peruse property records to find out who is lending -- and who is not lending -- in certain neighborhoods. They can use the information to pressure lenders to extend loans in minority and poor neighborhoods, in accordance with federal law.

Matthew Lee, a bank watchdog and editor of the Bronx-based Inner City Press, worries that community groups will lose easy access to information about mortgages and home equity loans in the neighborhoods they serve.

"The actual ownership is in the database of this private company," he says. "It just shows you that because it's in the lenders' interest, this is why it's being done."

The folks at MERS respond that they aren't out to inconvenience anyone. The company has toll-free numbers for the public to call to get information about MERS-registered properties. And MERS executives say their information often is more up-to-date than county recorders' files.

'Nothing negative'
In the 1990s, recorders' associations in Illinois and Ohio looked into MERS and were untroubled by what they found.

"I have nothing negative to say about them," says Sandra Corder, the recorder in Coshocton County, Ohio, and president of that state's recorders' association. "What they want to accomplish will be of service to everyone."

She says MERS keeps accurate records and its staffers are efficient and courteous on the phone.

It's easy enough to get information about a mortgage that is registered through MERS. The county recorder's office will be able to tell you the 18-digit identification number for the mortgage in the MERS database. The recorder can query MERS online or by phone to find out which companies own and service your loan, or you can get the information yourself by calling (888) 679-6377.

Chances are that right now your mortgage isn't registered through MERS. The 3.5 million mortgages registered through MERS constitute less than 5 percent of the nation's outstanding mortgages. But the number is expected to jump to 7 million this year as MERS picks up steam.