Whatâs Wrong Today:
MERS may not be a household
name, but it should be. MERS is the Mortgage
Electronic Registration System. It was created in 1995 as a privately held
venture of the mortgage banking industry. If you’ve bought a house or
refinanced in the last decade, there’s a good chance you signed a document at
closing that designates MERS as your new lender. Its founders
and Board of Directors includes executives from Fannie Mae, Freddie Mac, JP
Morgan Chase, Wells Fargo, Bank of America and CitiBank.
The idea behind MERS was to
eliminate the physical transfer of loan notes and ownership information. Lenders
previously were required to physically register with county clerk offices every
time a mortgage loan was extended or re-sold. Instead, MERS provides an
“electronic registry” of mortgage notes where all such transfers were
recorded in a computer instead of on paper. So now, when investors of real estate notes purchase mortgage loans from people who want to sell, the transfer goes through
a computer on MERS instead of through physical paper.
Instead of the individual
banks or lenders registering with the counties each time a loan was sold or
re-sold, MERS would handle the initial registration and then become the
“nominal” note-holder. Then, each time the note was passed on, MERS
would record the transaction in its computer — but no matter who the actual owner of the note
was, MERS would remain the legally registered assignee of the note with the
county.
Without MERS, the mortgage bubble
would not have been physically possible. By using MERS, lenders/buyers of mortgages no longer
had to document their transactions with county clerks, or pay the courthouse
registration and processing fees. And MERS holds the liens on behalf of all the
players in the game.
So, Whatâs Wrong?
Well, it’s now the subject
of controversy and litigation. After the collapse of the housing market, MERS has
been under attack in courts across the country for two reasons:
1.  It turns out that it is unclear that
MERS actually has the right to foreclose on the mortgages it says it holds,
since the chain of title to many of those mortgages is not well-documented. Beyond that, MERS had designated thousands of
people around the country to sign foreclosure documents on its behalf, the âRobo-signingâ
we have heard so much about. In effect, MERS hadnât accurately documented the
chain of ownership of the mortgage. Then it filed for foreclosure with more falsified
documents. Judges in state appellate and Federal bankruptcy courts in more than
a dozen jurisdictions have determined that MERS did not have the right to
foreclose on many of the mortgages it held.
2.  Several local governments argue that
MERS has enabled the mortgage industry to avoid paying millions of
dollars in recording fees. Rolling Stone reports that upwards of $200
billion or so in recording fees (so far) have been lost by county
governments. Here are the details: Counties typically charge a small fee for mortgage registration, roughly $30.
But with MERS, you don’t need to pay the fee every time there’s an ownership
transfer. Multiply that by 60+ million mortgages and you’re talking about
billions in lost fees for local governments.
Think about whatâs
happened: In less than 20 years, weâve switched from democracy in
real-property recording to oligarchy in real-property recording.
The county clerks who established the ownership of land, who oversaw the
records, were democratically elected stewards of those records.
Now, a corporation headquartered
outside Washington DC, owned by the mortgage industry with less than 50
employees, oversees the records for 60 million mortgages.
There is no court case supporting
the takeover, no statue from Congress or from state legislatures, it was
accomplished in a private corporate decision. The banks just did it.
The
big question is, if MERS controls the chain of title, where and what law
enables that?
Apparently, it is not found in state and local statutes, rules,
regulations, interpretations, or precedents that lawyers, officials and
citizens work with. Nope, today, âthe codeâ is the computer code of the MERS
registration system itself, because the computer code controls the
chain of title.
It looks like we already
live in a libertarian paradise: If
MERS is the law for mortgages, then what about other State laws? If the law of the land is what the
banks have written in software and it is not controlled by the State â and itâs not, because with MERS, we know that âthe banks just did itâ
â then which State laws are next? And how should States regain control over their legal
processes?
MERS
is what a corporate kleptocracy is looks like.
And it is simply WRONG!
