How a mortgage clearinghouse became a villain in the foreclosure mess
By Ariana Eunjung Cha and Steven Mufson
Washington Post Staff Writers
In the early 1990s, the biggest names in the mortgage industry hatched a plan for a new electronic clearinghouse that would transform the home loan business – and unlock billions of dollars of new investments and profits.
At the time, mortgage documents were moved almost exclusively by hand and mail, a throwback to an era in which people kept stock certificates, too. That made it hard for banks to buy and sell packages of home loans to investors. By contrast, a central electronic clearinghouse would allow the companies to transfer thousands of mortgages instantaneously, greasing the wheels of a system in which loans could be repeatedly and quickly bought and sold.
“Assignments are creatures of 17th-century real property law; they do not coexist easily with high-volume, late 20th-century secondary mortgage market transactions,” Phyllis K. Slesinger, then senior director of investor relations for the Mortgage Bankers Association of America, wrote in paper explaining the system.
On March 4, 1994, the MBA unveiled its plan to county recorders who were charged with keeping track of title, signifying the ownership of land. Not everyone was sold on the idea. “There needs to be some outside control or oversight,” one recorder said, according to a transcript of the meeting. Another said that if errors were put into the electronic system, “they’re really hard to track further down the road.”
Sixteen years down the road, the mortgage business is a mess. The electronic clearinghouse has become a reality: The Virginia-based Mortgage Electronic Registrations Systems, a registry with 67 million mortgages on file, has become part of the industry’s standard operating procedure.
But critics say promises of transparency and of ironing out wrinkles in record-keeping haven’t panned out. The firm, which tracks more than 60 percent of the country’s residential mortgages but whose parent company employs just 45 people in a Reston office building, is on the firing line now.
Clerks from counties across the country are suing MERS to collect unpaid filing fees. Several state courts have rejected attempts by MERS to act on behalf of banks seeking to foreclose on delinquent mortgages. And Congress is weighing legislation that would bar home loan giant Fannie Mae from buying any mortgage listed in MERS, potentially a death knell for the registry.
Merscorp, the registry’s parent company, argues that it helps borrowers. Spokeswoman Karmela Lejarde said MERS has kept costs low, reduced the risk of record-keeping errors and made it easier to keep track of loans.
“MERS,” Lejarde said, “plays an important role in building and sustaining confidence in the mortgage process.”
But in the recent uproar over improperly prepared paperwork in foreclosures, MERS has become the central villain.
“They’ve tried to turn the mortgage business into … a production line, but in reality you’re dealing with humans, you’re not building cars or widgets,” said banking lobbyist Rick Hohlt.
The blueprint
The impetus for a nationwide electronic database of mortgages originally came from the biggest players in the mortgage business – the MBA, Fannie Mae, Freddie Mac and Ginnie Mae – during the early 1990s.
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No wonder there is fraud in the mortgage market since the advent of MERS. Naked short selling was not a problem before the DTCC was in place. The two entities always appeared similar to me. I just had not known that MERS was based on the DTCC. They are both where truth goes to die.
If our State AGO consumer protection protects it’s contribitors like Wells Fargo. Chase as it was WA-MU and Bank of Italiy or America , whichever it is known as today. will we need to go back to wearing side arms as our forefathers did?