Top Corporate Lawyer Claims Mortgage Rates Will Skyrocket Without MERS

Top Corporate Lawyer Claims Mortgage Rates Will Skyrocket Without MERS

By: David Dayen

Laurence Platt, a partner at the firm K&L Gates, which defended Wells Fargo and US Bank in the Ibanez case, basically threatened the American homeowner with sky-high interest rates if the banks aren’t allowed to run their own private land recording system.

If local governments succeed in the fight against how banks have recorded the transfer of mortgage notes through the Mortgage Electronic Registration Systems, home loans could become as expensive as credit cards, K&L Gates Partner Laurence Platt said Wednesday […]

Platt admitted there were issues with the system, but he warned that scoring short-term political points could be the end of affordable housing.

“They are making secured credit unenforceable,” Platt said. “If you think you’re going to get 4% mortgages on unsecured loans, you’re wrong. You’re going to get credit card rates. MERS was designed to make it easy to transfer assignments in modern economics.”

This occurred on a panel at a meeting of the Mortgage Bankers Association, where Platt appeared with Georgetown Law Professor Adam Levitin, who has been critical of MERS. I corresponded with Levitin, and this was an accurate rendering of Platt’s remarks.

“My response was that’s nonsense,” Levitin wrote in an email. “No one, absolutely no one, is arguing that a valid security agreement should not be enforced. Instead, the issue is whether we should enforce invalid security interests or let parties that do not hold a security interest enforce someone else’s. I hardly think that denying parties that right will result in a change in the cost of credit. It might result in them changing law firms, however, to ones that didn’t screw up their securitization deals.”

You can check out the rest of this interesting report here…


5 Responses to “Top Corporate Lawyer Claims Mortgage Rates Will Skyrocket Without MERS”
  1. Fred Smith says:

    I would like the following points regarding MERS to be clear to all:

    1) It’s not a PAPERWORK issue – it’s an OWNERSHIP issue. Whenever we see the word ‘paperwork’ describing the MERS scam, we should know that the correct word is ‘ownership’.

    ‘Paperwork’ is defined as: written or clerical work, as records or reports, forming a necessary but often a routine and secondary part of some work or job.

    That is not the issue with MERS. The issue is one of fundamental ownership – which is determined by signed and recorded paper.

    2) The most significant and basic nature of the MERS scam has not been discussed. It is, quite simply, that the obfuscatory nature of the MERS system allows the originating lender to sell the initial mortgage MORE THAN ONE TIME. I will demonstrate the implications with a simple example.

    Now, it may never be possible to prove that the same mortgages were sold repeatedly. In fact, because of the very nature of MERS, it is likely that it would not be possible to show clear evidence. The point is, however, that by flaunting the existing, centuries-old state property laws, MERS allows for this to happen. It does not guarantee that it happened but it allows for it to happen. It may well be the real reason the chain of titles were broken and the ‘paperwork’ has all gone missing.

    An example of the situation MERS allows and the financial implications:

    Consider a pre-MERS/pre-securitization scenario for a real estate loan. Bank A originates a $500,000 loan. The $500,000 is used to pay the seller of the house. In exchange, Bank A will receive monthly payments for the next 30 years at (for example) 6 percent. If Bank A decides that it does not want to collect small amounts each month, then it may sell the rights to the bank that will pay them the highest price, Bank B. For whatever reason (its own belief on what constitutes a ‘good interest rate’) – Bank B may pay $525,000 for this loan. The assignment of the loan is done based on the stable, ancient property laws of the state, and Bank A has then made $25,000 profit on this transaction. Bank B then owns the loan and there is no ambiguity.

    It would be hard to imagine Bank A being tempted to then sell the exact same loan to Bank C. The reason is that there is very clear evidence at the county recorder’s office that the loan was already sold to Bank B.

    Now consider the same situation with the MERS system in place.

    Bank A makes the same original loan for $500,000 which is used to pay the seller of the house. Now, when it is interested in selling this loan to the highest bidder, Bank A realizes that because the way things operate now (regardless of state laws), it will not be selling the loan directly to another bank (Bank B above). Instead, it has become customary for Bank A to ‘bundle’ hundreds of loans together and sell them all to ‘investors’ who are probably made up of entities such as mutual funds, city governments, foreign governments, etc. Each of these entities likely represents many people’s money – none of whom really have any idea of which individual loans they are purchasing.

    Well, after all the bundling and selling to entities and stuff, it may turn out that, on average, Bank A gets $525,000 for each loan – and so in that way it made the same profit.

    In this scenario it is not at all hard to imagine Bank A being tempted to sell this same loan again. Unlike before, when there was ‘Bank B’ and ‘Bank C’ and very clear records at the county recorder’s office, there is no ‘Bank B’ but only a mish-mash of bundled loans sold to investors/entities who do not know which loans they have bought — and by the way — the documents have been ‘lost’. In this scenario, it is all too tempting to sell this same loan to the securitized version of ‘Bank C’ – which is the same loan bundled with hundreds of other loans – sold to vague entities who do not know what they have really bought.

    Comparing the two scenarios, one might think that Bank A has just doubled its profit. It has just sold the loan twice after all. Wrong! In the second scenario, Bank A has made more than 20 times its profit. In the original scenario, Bank A’s profit is ($525,000 – $500,000) = $25,000. Of course, if the loan is fraudulently sold a second time, then all of the $525,000 from that sale would be (illegal) profit because there would be no transfer of $500,000 to the original seller of the house, as was done with the initial loan. Therefore, Bank A’s profit would be ($25,000 + $525,000) = $550,000.

    Bank A has increased its profit by 22 times simply by bundling/schmundling. Is that possible to prove? Probably not, given the destruction of so many documents and the entire system of banks/lawyers/politiicans/lobbyists, etc. But it is not necessary to prove any of this. It is only necessary to realize that the system allows for this, it encourages it, and it is likely the key driving dynamic to all we are seeing unfold. It is far more likely than the latest explanations in the media that banks “wanted to evade fees at the county recorders’ offices”.

    It explains why we are where we are. The remedy, of course, is to adhere strictly to the state property laws which have been the same for centuries. These laws require clear, recorded, signed documents which do not allow the above confusion to exist. The courts must simply enforce these laws and let the chips fall where they may. If past foreclosures need to be voided, then so be it.

    Fred Smith

  2. Laurence “how else could we copy (counterfeit) all those notes into so many pools” Platt

  3. Michael says:

    This is the old “if forced to pay legitimate insurance claims, insurance rates will increase” argument. It’s junk, and it’s always been junk.

    Banning muggers hurts the economic interest of the mugging industry, making insurance companies pay legitimate claims also results in less money for bonuses, and requiring banks to follow the law when keeping a note secure penalizes those who broke the laws. And .. so what?

    Guess what Platt, homes would be cheaper if people just didn’t have to pay for them. I’m guessing that you have an issue w/ that argument as legitimate. Well, you’re arguing exactly the same thing from the other side. You signed up to be in this market knowing the rules; stop whining about them now.

  4. Officer of the Law says:

    So, the banksters want to continue to violate the recording laws to avoid taxes, but isn’t tax evasion a crime? I wonder why the prosecutors have time to prosecute citizens for tax evasion, but none of the prosecutors are prosecuting any of the banksters for tax evasion and fraud, don’t you?

  5. pelucheven says:

    there you go Mr. Levitin,

    these crooks only know how lie, cheat and steal as a career choice.

    if the banksters created this mess they should take a spoonful of their own medicine.

    if they choke in the process so be it.

    these lawyers will destroy your character in court, they will fight to make you homelesz, but they now have become experts for panel discussions.

    I am confident the truth will prevail.

    any whistle blowers outthere knowledgeable about FIRST MAGNUS, I Am filing a law suit later today against them. would love to hear from you. specially their secondary market desk and the broker corresponding area.

Leave a Reply