Critics Claim Mortgage Tracking System Has Complicated Foreclosu - 8 News NOW

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Critics Claim Mortgage Tracking System Has Complicated Foreclosure Crisis

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Ever since the housing market collapsed, the Mortgage Electronic Registration Systems created in 1995 by the mortgage lending industry has found itself in the center of controversy. Critics accuse MERS of shoddy record-keeping and say its registry often doesn't reflect the true owners of mortgage loans, resulting in illegal foreclosures. But MERS says its registry is transparent and that any changes in mortgage ownership is between the loan servicer and the borrower, not MERS.

Quasi-government mortgage giants Fannie Mae and Freddie Mac and major banks such as Bank of America and Wells Fargo created the Mortgage Electronic Registration Systems in 1995 with the intent of establishing a way to electronically register every mortgage loan in the country.

MERS, as it is known, was viewed by the mortgage banking industry as a viable alternative to filing deeds with county recorders, which many lenders considered a time-consuming and cumbersome process. But it wasn't until the housing market collapsed that attention became focused on MERS and whether it was contributing to the record number of foreclosures in Nevada and other states.

Critics say that MERS, which isn't regulated, has contributed to the housing crisis because it hasn't done a good job of tracking who actually holds the beneficial interest in mortgage loans. In simpler times, when deeds were filed with county recorders, it was fairly easy to track the paperwork chain, such that when it came time to foreclose on a home it was usually clear who had the right to initiate the foreclosure. But as it became more fashionable for mortgage lenders to package and sell the loans to third-party investors on Wall Street, the picture became muddled and critics complain that it became harder for the lenders to prove who had the authority to initiate foreclosures. Scandals such as robo-signings of mortgage documents involving fake signatures have added to the confusion.

Delaware Attorney General Beau Biden, son of Vice President Joe Biden, had enough and sued MERS on Oct. 27 in Delaware Chancery Court. He declared that MERS violated state law and was at the center of the housing crisis.

"Since at least the 1600s, real property rights have been a cornerstone of our society," Biden said. "MERS has raised serious questions about who owns what in America. A man or woman's home is not just his or her largest investment, it's their castle. Rules matter. A homeowner has the obligation to pay the mortgage on time, and lenders must follow the rules if they are seeking to take away someone's house through foreclosure. The honor system won't work."

The lawsuit, which can be accessed on the Internet at attorneygeneral.delaware.gov, alleges that MERS engages in deceptive trade practices in three major ways:

  • MERS knowingly obscures important information from borrowers and the information is frequently inaccurate. It is also difficult for consumers to know of or challenge inaccuracies in the MERS registry, making it difficult for borrowers to seek out owners of their loans and pursue loan modifications or other options.
  • MERS often acts as an agent without authority from its proper principal, and often doesn't even know the principal's identity. When the true owner's name isn't recorded in MERS, any action the registry takes on behalf of the purported owner is without authority.
  • MERS fails to properly oversee its registry or enforce rules on its participating members. Because MERS operates through a network of more than 20,000 deputized non-employee corporate officers, it causes the registry to act without any meaningful oversight from anyone who works at MERS. This has led MERS to record robo-signed documents with county recorders and fail to follow its own rules regarding foreclosures.

   
The lawsuit cited a Delaware foreclosure in which MERS foreclosed on a loan in which it had no interest and without naming the real party who owned the mortgage loan. The entity upon whose behalf MERS sought to foreclose actually had been dissolved months earlier, according to the complaint. The MERS records on this property also reflected numerous paperwork transfers that were not reflected in county records, creating confusion and inaccuracies, the lawsuit alleged.

Janis Smith, spokeswoman for MERS parent MERSCORP in Reston, Va.., responded to the lawsuit by saying that the MERS business model is straightforward and transparent.

"There is no merit to the Delaware attorney general's allegation of deceptive practices, and we refute claims that use of the MERS system caused confusion to borrowers or any other participants in the mortgage finance system," Smith said.

Smith said that homeowners have free access to their loan servicer information through MERS, which can be accessed through the website www.mersinc.org. She also said that the borrower's customer relationship is with the servicer, not with MERS, and that federal laws require the loan servicer to disclose all changes in ownership to borrowers.

MERS claimed a major victory in early October when a federal court in Arizona dismissed 72 cases against MERS, including some alleging violation of Nevada law. The court ruled in the multi-state litigation that MERS' role as a beneficiary was proper, that promissory notes and deeds of trust aren't split when MERS is the beneficiary, and that MERS and MERS-appointed trustees have the power to foreclose.

In addition to Bank of America, Wells Fargo, Fannie Mae and Freddie Mac, MERS shareholders include the American Land Title Association, Chase Home Mortgage Corporation of the Southeast, CitiMortgage, Commercial Mortgage Securities Association, First American Title Insurance, GMAC Residential Funding, HSBC Finance, Mortgage Bankers Association, SunTrust Mortgage and AIG United Guaranty.

The chairman of MERS is Kurt Pfotenhauer, executive vice president and vice chairman of First American Title Insurance in Santa Ana, Calif.

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