Why Mortgage-Backed Securities Aren’t (Backed by Securities): How MERS Toasted the Banks

Why Mortgage-Backed Securities Aren’t (Backed by Securities): How MERS Toasted the Banks

L. Randall Wray L. Randall Wray

In a series of pieces I have argued that MERS, a creation of the mortgage banking industry, has effectively destroyed the institution of private property in America. Ironically, MERS was created to facilitate quick and easy and cheap securitization of mortgages — what are called mortgage-backed securities. In fact, what it did was to eliminate any backing of the securities by mortgages. Of the total securitized asset universe, something like $7 trillion are (supposedly) backed by residential mortgages. However, MERS helped to delink the securities from the mortgages. At best, they are unsecured debt — there is no property backing the securities. What this means is that foreclosure is not permitted. As I have said before, it is likely that most or even all foreclosures occurring in the US are illegal seizures of property — home thefts. We are talking about 100,000 completed home thefts per month, with another 250,000 new foreclosures started to steal homes every month. Projections are that 13 million homes will have been “foreclosed” (read: stolen) by 2012.

Worse, from the perspective of the banks, they’ve got to take back all the fraudulent MBSs, most of which are toxic.

In what follows I want to present the most favorable case for the mortgage industry. That is to say, I will ignore fraud and criminal conspiracies. Let us look at the current predicament as if it resulted from a series of monumental errors. With that in mind, what is the best-case scenario? First a caveat: I am not a lawyer nor am I an investigative reporter. I have relied on my perusal of reported evidence, plus a discussion with James McGuire who has put together an entirely convincing argument that the securitizations of mortgages resulted in securities that are not backed by mortgages. I urge interested readers to go to his website.

With that caveat, let us work through the problems now facing the banks.

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13 Responses to “Why Mortgage-Backed Securities Aren’t (Backed by Securities): How MERS Toasted the Banks”
  1. fighting mad, mad as hell says:

    Richard, I’m assuming that you are an expert in all 50 states and the territories on property law and what every county in these 50 states and territories require?
    Because if you’re not, then you look pretty bad when a state like mine DOES REQUIRE RECORDING. It’s to maintain the chain of title, ya know.
    And it makes money for the counties, which by the way, should be screaming bloody murder about the billions in lost filing fees over the last 15-20 years!
    By the way, in my county oddly enough, ever since the “demand the note” began, MERS and quite a few others HAVE been doing a lot of recording. They even go back in time and record sales that are nearly 10 yrs old.
    Wonder why?
    It’s confusing enough, it’s easy to get burned out trying to get all this right and in order.
    Please try to help, not confuse, we are 50 sovereign nations united into one, each with its own laws and ways of doing things. I can only tell you about the states I’ve lived in or done real estate law in.
    We need to be united not picking at each other.

  2. DDr. Wray, please stick to economics and stop practicing law.
    I first began identifying foreclosure problems more than three years ago and have been researching the relationship of foreclosure, securitization and legal requirements during that period. Today many others have become aware of these problems and have written about the subject and helped craft legal defenses to foreclosure and proposals for reform.
    As part of this effort, it is counterproductive to have scholars, such as yourself, write about legal requirements incorrectly. You wrote:
    ” This practice is in violation of numerous laws. Property law requires filing sales in the public record. Notes must be affixed (permanently) to the security instrument — a mortgage without the note has been ruled a “nullity” by the Supreme Court. MERS’s recommended business practice (with the servicer retaining the note) would make the mortgages a “nullity”. A complete chain of title is required to foreclose on property — every sale of a mortgage must be endorsed over to the purchaser, and properly recorded. Without this, it is illegal to foreclose on property — no matter how many payments the homeowner has missed.”
    No property law requires recordation in the land records of a deed or a mortgage. One would be a fool not to obtain the legal protections obtainable through recordation but the failure to record such documents is not against the law. A “mortgage” is a legal arrangement which requires two documents to be executed. The first is a note which spells out repayment obligations and the second is a security agreement pledging real property as collateral known as the mortgage or deed of trust. No mortgage can be enforced by one document without the other. However, the note never needs to be attached to the mortgage. Typically, the mortgage but not the note is recorded. Accordingly, the two documents are separated. Most state courts rule that the mortgage follows the note. This means that the original note is freely transferable and whosoever owns the note as holder can enforce the remedy of foreclosure.
    Moreover when enforcing a mortgage, it is customary to pleads the recorded instrument not necessarily the original mortgage document. However, unless a “lost note” procedure is invoked, the plaintiff must provide the original, “wet ink” mortgage note to the court.
    A complete chain of title is not required to foreclose on property. If the defendant challenges the plaintiff’s allegation that plaintiff is the owner of the mortgage, then plaintiff must submit evidence of ownership. A court may also require evidence of ownership of the note as a submission requirement to obtain summary judgment. Such evidence includes but is not limited a chain of assignments in the form of paper documents properly executed and notarized from the original mortgagee. The plaintiff may also submit any other evidence of ownership limited to the court’s rules regarding the admissibility of evidence.
    The worst mistake is that” — every sale of a mortgage must be endorsed over to the purchaser, and properly recorded.” You have confused the requirements for transferring a negotiable note with the requirements for transferring a mortgage note. The two are completely different. A negotiable note must be endorsed to a subsequent holder to enable the holder to become a holder in due course. By comparison, the state courts have always facilitated and protected the transfer of mortgages especially between buyer and seller. Restrictions upon the free alienability of mortgage notes hobble the orderly operation of the secondary mortgage market. There is no legal requirement that the owner of a mortgage must obtain ownership by endorsement. The owner may well not be a holder in due course but have every right to enforce foreclosure as the holder of a note in default.
    Remember, the road to hell is paved by good intentions. The foreclosure mills have created enough bad law. Their opponents should know better than to make a similar contribution

    • Richard F Kessler

      I know for fact that there were a few grammar mistakes in Wray’s article but those resulted from lack of time and the message was needed to be known to the world.

      As for recording not be required, oops, Texas Local Government Code 192.007 “must record” to cite the statute, that takes care of Texas.

      The document that Wray pointed to, and I thank him, is without error.

  3. fighting mad, mad as hell says:



  4. Patrick Farrell

    Wraith of the Irish, interesting. Maybe, I should check the family trunks to see if a Kilt was passed down the family line.

  5. Jan says:

    British “Crown” is NOT the Queen, but the Temple Crown – the Rothschild Empire that occupies the original Church Temple of the Knights Templars, (after they killed them and tried to take their wealth – they took over the church) this is where the offices of the BAR _British Acredited Registry) the attorney’s allegience are based. In the City of London – an independant sovereign city – like the Vatican. They run the financial empire of the world. The collectors of the money. Look up “Attorney” in a dictionary – it means one who collects money.

    Our entire court system has been hijacked by the “Law Society” and we are paying debts to them for them to exist. I say we cancel the contract that allows them to exclusively issue our money and our society will turn around because we won’t have to be dependant on the banksters for money. If they can print it out of thin air, why can’t we? It’s all based on OUR credit. OUR energy. OUR labor. Why are we allowing them to enslave us? Time to rise up and get REAL change in this country – for the PEOPLE. We need our unalienable property rights back! The Public debt is money THEY owe US!

  6. internetasker says:

    “Better New Years Wishes” to the Forum, and note of appreciation to all writing about homes not houses -or at least along with houses..

  7. l vent says:

    My deed on my home has been recorded and stamped paid since origination. My mortgage was recorded but never assigned to my deed or anything else. No note was ever recorded. My mortgage was paid off 10 years after origination under my nose and sold to “another” bankster, then a few years later put in MERS. No assignment was ever made to my paid off deed. I have my original deed with my name on it stamped and recorded paid. My recorders office told me that there has not been an assignment to my deed in 18 years and the statute of limitations has run out on “them” to assign a debt to my deed and I can do whatever I WANT with MY HO– USE. I am guessing that “they” could not gamble on my deed if it had a lien on it and this is why “they “never attached a debt to my deed. Now that the cat is out of the bag persay I can only say that the banksters are very greedy in wanting to STEAL the people’s homes, too. They made I heard on CNBC 600 TRILLION dollars since 1999 on derivatives and that is not the only way “they” made money off all of us.’THEY’ are trying to tell ‘US’ that this nation is broke? Really now. I think the U.S. is the wealthiest nation on the planet. ‘THEY’ just want us to think that we are broke and saddle us all with a bunch of unsecured debt that occured only after the INTENTIONAL FINANCIAL COLLAPSE “THEY” created to trick us all into DEBT SLAVERY. We all need to default on all of the unsecured debt and free ourselves from these opressors. Our national GDP for one year is about 60 trillion in comparison. I think these people should just admit why they never securitized the mortgages and call it even with the homeowners. After all is said and done We The People, the ones that ‘THEY’ robbed all of the wealth from should SUE THEM from ROBBING US ALL BLIND. The whole country can get in on one big class action lawsuit and SUE THEM.We must stand indivisible against these Nazi’s who want to kill us one way or another .

  8. As I said before…the funding in my daughter’s mortgage was money wired to the closing company..a Title Co. This money was put into escrow by the title co. Never did the title co. give a complete record of the closing to my daughter. The title co. recorded the mortgage and requested the recorded mortgage to be returned to them..NOT to the bank..at no time did anyone..the broker, the bank or title co. tell her the funding was done by investor(s). The bank pretended to be the funder. On the note and the mortgage the bank (WaMu) listed themselves as payee/lender/…when in fact they were not the payee/lender. This made the mortgage VOID. So from the very start their greed turned on them. My daughter called the title co. and requested a complete copy of the closing and was told to subpoena the title co. cause of the privacy act. What was so private? Social Security numbers…LOL…bells were getting louder. So I still went further into the boiling pot and found so much fraud it is disgusting. It’s a good thing she got a good attorney cause if it was me in front of the judge…I would have a hard time shuting my mouth. This whole thing reeks with fraud. Comments on a firing squad…LOL…no single shot..use an automatic…why waste time. The worse part of this whole sick mess..is this government has not done a damn thing to convict these criminals…crime breeds crime…so guess who are the bed partners? WAKE UP AMERICA…THIS IS A NEW YEAR…LET’S MAKE THIS A BANNER YEAR…WE WILL GET OUR COUNTRY BACK WITH VICTORY …WE MUST STAND TOGETHER…THE FACTS ARE OUT THERE..THE CORRUPTION HAS BEEN PROVEN…NOW IT IS UP TO EVERYONE TO FIGHT FOR OUR RIGHTS AND OUR COUNTRY..GREED AND FRAUD ARE NOT WINNERS…THEY HAVE ALREADY LOST…THEY GOT CAUGHT.

  9. John says:

    Somewhere there is a man working a boring job doing as he’s told by the big bosses at the bank he works for and gets a low salary..
    I feel sorry for him as before this is over, several little peons like him will go to prison and be made the scapegoats while the real big boys give more money to politicians! That will cause a cleanup of the goofy laws that give homeowners a chance.

    Sad, but far more likely to be accurate!

  10. John R. says:

    Well I understand the dilemma as described, except for the separation of note and mortgage nullifying the transaction part. In section 4. you write… “4. However, if the notes can be found and if MERS can provide records, it is possible that the mortgages can be made valid (“proved up”) for purposes of collecting upon the indebtedness, but foreclosure would not be possible without a valid continuous perfected mortgage showing a chain of title from origination through to the current party trying to enforce the mortgage note. Any break in the chain of endorsements along with any break in the chain of title renders the Power of Sale clause in the security instrument to be a nullity and therefore no party can foreclose on the real property.

    My own opinion (and I also am not a Lawyer!) is that actually, at the point of the break in the chain, the original holder, at that time, would still be able to bring (not the current “Servicer’s” suit but a whole new suit), suit, not, as Mr Wray puts it “renders the Power of Sale clause in the security instrument to be a nullity.” It would in fact do what Mr. Wray said to all those purporting to hold title UP the chain… but they lack standing because of the break anyway. Since the breaks are pre servicer and pre trust, then it would probably fall back either to the securitizing entity or the original lender. Interestingly though, since the originating lender used monies from the trust and not their own… this also begs some thought.

    As the Investor’s sue to regain monies lost them through misrepresentations and warranties, they’ll get paid back from the Lenders…. hence the debt to them is repaid and in the end they should actually, probably reap a higher profit on their investments because of fines, penalties, etc.

    Now the Invewators would be getting repaid because of the fraud brought on by the Banks. Leaving one to think the Banks then would recover from the homeowners… but the Banks NEVER lent any monies to the homeowners in the first place… it was money taken from the trusts!

    Essentially then the Banks would suffer no loss! And suffering a loss is pat of what needs to be to have standing.

    Of course this is just how I, an ordinary ole country Boy, see’s it. Opinions anyone? John R.

    PS I do agree….. The Banks are Screwed! But that’s just what happens when you take money and don’t do your job. Too bad…. So sad… I still wanna see a perp walk! John R.


      Perp walk? R U freekin’ kiddin’ me?
      I want to see a firing squad.With me as the executioner.
      Sorry but us Irishmen, hare everything British.
      And everything regarding banks are based in British law, British jurisdiction, and British entitlement Bull shit.

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