Life on MERS: Archive is at center of mortgage mess

This story accompanies a special report on foreclosures which can be seen here: Reuters SPECIAL REPORT: Banks Still Robo-signing, Filing Doubtful Foreclosure Documents

By Scot J. Paltrow

(Reuters) – A little-known institution in Reston, Virginia, has done much to help loan servicers produce foreclosure documents of questionable legitimacy, according to multiple recent court rulings and deposition testimony.

Mortgage Electronic Registration Systems, or MERS, has only about 50 full time employees. Yet it claims to own about half of all mortgages in the United States, roughly 60 million loans, and is involved in about 60 percent of new mortgages issued.

Fannie Mae, Freddie Mac and several large banks established MERS in 1995, as a registry meant to speed up the recording and transfer of mortgages. Until then, this had to be done in individual county clerks offices and the process was glacial. The founders went ahead even though no state laws authorized them to bypass the required filing with clerks.

The purpose of MERS was simple: to make it possible to track the owner and servicer of each individual mortgage, and to make it easier to rapidly transfer mortgages. Lenders designated MERS as either the mortgagee (the legal holder of a mortgage, even though MERS had never paid a penny to obtain it), or as “assignee” (an entity to which a mortgage is entrusted). In either case, MERS was granted power to assign mortgages as they changed hands from one real owner (such as a bank) to another (such as a mortgage security trust) – even though MERS itself didn’t have a financial interest in any of the mortgages. MERS also claims the right to transfer promissory notes, even though it doesn’t own them.

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