U.S. Regulators Examining Departures at Mortgage Electronic Registrations Systems (MERS)
U.S. Regulators Examining Departures at Mortgage Registry
As the rest of the housing industry recovers, a little-known firm with a key role in U.S. mortgage finance remains stuck in limbo, wrestling with regulators, lawsuits and the departures of senior employees.
The turbulence feeds uncertainty about the fate of Mortgage Electronic Registrations Systems Inc., or MERS, which documents the ownership and resale of about half of U.S. home loans. A breakdown could force clients such as Fannie Mae (FNMA) and Bank of America Corp. to make costly changes to their loan businesses.
Management hasn’t completed fixes promised in a broad 2011 U.S. settlement designed to stop foreclosure abuses, according to two people briefed on MERS’ operations. Regulators rejected one of the firm’s consultants as unqualified and are examining why four employees hired to help with reforms — including the chief legal officer — recently quit, said the people, speaking on condition of anonymity because the matter is private.
The closely held Reston, Virginia-based firm, a unit of Merscorp Holdings Inc., is also facing scores of lawsuits and state probes that challenge its business model as well as the legality of its filings in hundreds of county courthouses.
“Merscorp Holdings Inc. has an unwavering commitment to work with regulators under the consent order and to take all necessary steps to make the company and our members stronger,” President and Chief Executive Officer Bill Beckmann said in an e-mailed statement. He said the company can’t comment on personnel or its communications with U.S. agencies.
The biggest customers of MERS are also owners: Fannie Mae, Freddie Mac (FMCC) and Bank of America. Others with stakes include Wells Fargo Inc., Citigroup Inc. (C) and the Mortgage Bankers Association.
“If the use of MERS is found not to be valid, we could be obligated to cure certain defects or in some circumstances be subject to additional costs and expenses,” Bank of America reported in a February filing. “Our use of MERS as nominee for the mortgage may also create reputational risks for us.”
Fannie Mae, in its annual financial report filed in February, also noted the potential effects if the lawsuits or regulatory pressures force changes in MERS.
“A large portion of the loans we own or guarantee are registered in MERS’s name and the related servicing rights are tracked in the MERS System,” Fannie Mae’s report said, adding that if the firm couldn’t function in the same way, lenders could be forced to go back to time-consuming and expensive methods of recording land transfers.
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