MERS says it’s as an “innovative process that simplifies the way mortgage ownership and servicing rights are originated, sold and tracked.” Problem?
First, I have a problem because they never got permission from a democratically elected legislature to do it. Second, it doesn’t simplify anything, but has made it much more complicated. The new system also makes it much more difficult for homeowners to negotiate with somebody with authority to modify their mortgage loan.
It’s also inherently deceptive…
By Kris Hundley
Christopher L. Peterson, a consumer rights attorney and professor at the University of Utah’s law school, was confused when he first heard about MERS, the Mortgage Electronic Registration System, which was created by U.S. bankers to track mortgage loans.
“It didn’t add up,” he said of the electronic database that, unbeknownst to most homeowners, holds 60 percent of the nation’s residential mortgages. “At first I thought I didn’t understand, but after studying it for a few years, it became clear there are basic and quite fundamental problems with MERS.”
Those problems have been exacerbated as millions of foreclosures work their way through the legal system and MERS’ role as the mortgage holder, invisible in good times, gets scrutinized when homeowners default. Peterson, who taught at University of Florida’s law school until 2008, believes MERS is a shell company that usurped the traditional role of county clerks to the benefit of lenders and the detriment of borrowers.
MERS, based in Reston, Va., and owned by its members, defends its operation, saying, “MERS has been designed to operate within the existing legal framework of all 50 states.”
Today, Peterson will testify before the U.S. House of Representatives Judiciary Committee, which is investigating the foreclosure crisis. Earlier this week, he told the St. Petersburg Times why he believes the nation’s long-standing property records system was hijacked by mortgage bankers, creating chaos in foreclosure courts.
What does MERS do?
People talk about a mortgage loan as if it is one thing, but it is two different but related rights. The first is the right to receive payment from a borrower, and that’s embodied in the promissory note. The second is the right to foreclose or take back land that’s been pledged as collateral. The foreclosure right is created in the mortgage document. The mortgage document and the promissory note were always inextricably intertwined and transferred at the same time. But about 12 years ago, this changed with MERS.
It used to be that every time a mortgage loan changed hands, the new mortgage owner would go into the county clerk’s office and record the document, memorializing that the loan had changed hands. But since loans were changing hands five and six times in the first few months with the securitization of mortgages, the financial institutions didn’t want to record the loan assignments, particularly since they’d have to pay about $35 each time. So they designed this shell company that pretends to own all these mortgages.
Check out the rest here…