MERS Fatigue

Posted on by Phil Querin

OK, I admit it!  I am suffering from chronic MERS fatigue.  Every few days, in some part of the country, MERS gets sued by someone.  Sometimes it involves a pending foreclosure; other times it involves some state or county suing to recover lost recording fees.  And the beat goes on. MERS apologists, aka the Big Banks and their toadies attorneys, appear before one judge or another with arguments so specious as to make intellectually honest lawyers grimace and intellectually dishonest lawyers grin. – PCQ

On Thursday evening, November 15, we learned through the Oregonian, that the Multnomah County Commissioners unanimously authorized the filing of a lawsuit against Mortgage Electronic Registry System, also known as “MERS,” which describes itself as follows:

MERSCORP Holdings, Inc. is a privately held corporation that owns and manages the MERS® System and all other MERS® products. It is a member-based organization made up of thousands of lenders, servicers, sub-servicers, investors and government institutions. Mortgage Electronic Registration Systems, Inc. (MERS) serves as the mortgagee in the land records for loans registered on the MERS® System, and is a nominee (or agent) for the owner of the promissory note. The MERS® System is a national electronic database that tracks changes in mortgage servicing and beneficial ownership interests in residential mortgage loans on behalf of its members.

The purpose of this post is not to try to explain what MERS is.  I’ve done that here, here, here, here, and here. Suffice it to say that MERS was the brainchild of the Big Banks, with the aid and assistance of Freddie, Fannie, and the America Land Title Association[Why the national industry organization for title insurers went along with this is a mystery to me.  It was a bad idea at the time and is a bad idea now. – PCQ]  At some point in the late 1990s, the Big Banks realized that they could save millions of dollars in local fees if – instead of publicly recording all of their mortgage and trust deed transfers – they created their own private electronic registry.  So, without filing a single piece of legislation anywhere in the country, they unilaterally created their own national tracking system.  In short, they quietly took public recording underground.  This little stunt went relatively unnoticed by the general public until the foreclosure crisis began, circa 2006-7.

Then, primarily in the judicial foreclosure states, like Florida, we began seeing what appeared to be bogus legal documents, such as promissory notes and foreclosure paperwork, offered into court as “evidence.”  Then, like peeling off the skin of an onion, we began to uncover one foreclosure ruse after another, culminating in a new American term, “robosigning,” where low-paid, low-level bank employees, using titles such as “Assistant Vice President” for MERS or one of its members, signed and illegally notarized thousands of legal documents about which they had no knowledge or interest.

Why was this sham necessary in the eyes of the Big Banks?  Simple; they didn’t want to go to the time and expense of tracking down all of their wayward assignments and promissory notes.  You see, registration on the MERS system is not really mandatory for its members.  Moreover, MERS membership only comprises approximately 60% of the banking and servicing industries.  So when a mortgage or trust deed is assigned to a non-MERS member, it may never be publicly recorded or electronically registered.  The result was that when the foreclosure crisis hit, banks and servicers had no reliable resource, such as the county records, to track down the documents necessary to commence a foreclosure.  So they did the next best thing:  In addition to using robosigners, the Big Banks hired companies, such as DocX, a subsidiary of Lender Processing Service, or “LPS.” to manufacture bogus legal documents necessary to complete their foreclosures.

The MERS virus of bogus foreclosures spread throughout the country, infecting almost every state. So for all the money MERS’ members saved by going underground, they undoubtedly spent the same, or more, in litigation.  MERS, it seems, while initially created to act as an electronic registry, has now morphed into an electronic scoreboard to tout its winning court cases, apparently so its members can feel comfort in knowing that their dues are going to worthy causes, such as The Lawyer Full Employment Act.  Their string of losing cases, especially in Oregon, paints a much bleaker picture for the future of MERS’ flawed business model.

After all the knee-jerk litigation and legislation that ensued, the net effect of the Great MERS Experiment, was to slow down the foreclosure process, increase the shadow inventory of distressed homes, and continue to be an albatross around the neck of our real  estate market and national economy.

As for me, I’m tiring of MERS stories.  There is really nothing new to see or say. It’s like watching reruns of the same horror flick.  While MERS may provide journalistic grist for newspaper reporters, it’s really time to move on.  It isn’t like MERS is the only scandal in the banking industry to talk about.  There are plenty of skins on that onion.

Posted in Fannie&Freddie, Financial Crisis, Foreclosure, Lenders, MERS, Miscellany, Real Estate/Distressed, Subprime Crisis | Tagged , , , , , , , ,
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