So I had a pretty incredible conversation last night with Christopher Peterson, the law professor and Associate Dean for Academic Affairs at the University of Utah, who wrote two illuminating Law Review articles about MERS, the shell entity that created an electronic database for the trading of mortgages. I’m going to do my best to summarize the findings of the interview, but I want to stress two things that I learned – 1) this is very heady stuff, tied up in contract law and all sorts of associated legal issues, 2) absolutely nobody in this country knows with any certainty how this is going to play out.
With that as a base, here’s the gist of the conversation.
It’s important to know from the beginning that MERS is a wholly owned subsidiary of big financial institutions. The mortgage bankers wanted to avoid recording fees and reduce their overall expenditures. So they basically devised a method that would free them from those fees, ran an accounting study showing the savings, and just created MERS. There was no public debate or legislative statute to overturn what had been the customary practice for generations. The money backing MERS came from investors, according to Peterson, including some of the biggest banks and mortgage brokers in the country like Bank of America, Citi, and Countrywide, as well as Fannie Mae. You can see all their shareholders right here. It’s just a creation of the banks.
There are actually two MERS companies at this point. There’s MERSCORP, which owns some physical assets, including an office location in Reston, Virginia, and has about 60 employees, including a group of lawyers. There’s also MERS Inc., which has zero employees. This shell company is the one listed as the “mortgagee” on about 60 million American homes, or 60% of the total mortgage market.
Peterson described MERS to me as “a big Excel spreadsheet,” where financial institutions can input mortgage trades and information. “I don’t even like the word tracked,” he said. “They don’t assign records or anything.” The servicers use it to make a loan or a trade, and MERS stays as the mortgagee throughout the duration of the loan. This avoids recording the mortgage change each time with the county recorders office, altering the tradition for hundreds of years of recording the mortgage. This particularly becomes important if there’s a dispute on the property, which is what we’re dealing with now
http://news.firedoglake.com/2010/10/18/law-expert-mers-mess-could-have-a-massive-effect-on-the-economy/