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MERS goes dark on foreclosures, instructs servicers to obtain their own assignments

Massachusetts follows Delaware in probing mortgage clearinghouse


Remember the acronym MERS?

MERS had pivotal role in robo-signing fiasco

It stands for Mortgage Electronic Registration Systems, the "clearinghouse" created by Fannie Mae, Freddie Mac and large mortgage lenders to streamline the mortgage transfer process made necessary when securitization of mortgage-backed assets replaced traditional mortgage lending. Last fall, MERS emerged as one of the crucial components of the foreclosure scandal in general and the robo-signing debacle in particular.

According to an exclusive report by Reuters, "MERS, the electronic mortgage registry that faces multiple investigations for its role in thousands of problematic foreclosure cases, changed its rules to lower its profile in court-supervised foreclosures.

Company bans 'any more foreclosures' in MERS name

"MERS, a unit of Merscorp Inc. of Reston, Virginia, owns the computerized registry, Mortgage Electronic Registration Systems. Mortgage loan giants Fannie Mae and Freddie Mac and several of the largest U.S. banks established MERS in 1995 to circumvent the costly and cumbersome process of transferring ownership of mortgages and recording the changes with county clerks.

"In rule changes announced to MERS members on July 21, the company forbade members to file any more foreclosure actions in MERS's name."

'Why now?' not explained

According to the article, MERS also told mortgage-servicing companies to get their own mortgage assignments and record them with the appropriate county clerks before initiating any foreclosures. However, the story doesn't mention why MERS is only now removing itself from the mortgage-transfer paper trail, months after the robo-signing disgrace broke open--and years since defense attorneys realized foreclosures were proceeding without the so-called "wet-ink" notes that prove ownership.

'Holder of record' for 60 per cent of U.S. mortgages

It is a significant change, though:
Mortgage-law specialists say that lenders and servicers for a long time relied heavily on bringing foreclosures in MERS's name. This helped make possible foreclosures that otherwise might not have taken place because the necessary original documents were missing.

MERS says that it is the holder of record of 32 million, or 60 per cent, of U.S. mortgages. But it has only a handful of employees. Instead, it has designated some 20,000 employees of banks and other servicers as MERS "officers."

Some courts and homeowners' lawyers have criticized this system because in effect it enables servicers to assign mortgages to themselves whenever they needed one to foreclose.

AG Coakley launches investigation, questions lack of transfer payments

A "handful" of employees, in charge of 60 per cent  of U.S. mortgage records? Sounds like a disaster in the making, right? Increasing numbers of officials and consumer advocates agree that MERS needs to be investigated; a June 26 report in the Boston Globe says that Massachusetts Attorney General Martha "Coakley joins a growing number of real estate attorneys, judges, and consumer advocates voicing concerns about MERS" and that she is:
beefing up her investigation into foreclosure fraud, targeting a powerful lender-created company in Virginia that claims to be the official owner of tens of millions of mortgages nationwide.

Yesterday, Coakley said she will ask county registers to provide information to see if Mortgage Electronic Registration Systems Inc., known as MERS, is violating Massachusetts laws related to property seizures. She is concerned that MERS failed to pay government fees as well as “impaired the integrity’’ of the state recording system by failing to document loan transfers.

Coakley also said she would not agree to releasing MERS from any liability in talks between government regulators and large banks to settle allegations of sloppy and fraudulent mortgage-related practices. State and federal regulators launched the probe last year after some bank representatives, now known as “robosigners,’’ admitted to signing thousands of mortgage-related legal documents without accurately reviewing them.

“We want to be clear we are not prepared to give a release of liability on any broad scope of MERS issues,’’ she said. “We intend to complete the investigation.’’

Delaware, New York also looking into MERS' operations

Coakley is not the only AG interested in MERS; according to a July 27 Washington Post blog:
The Post reported [in a June 14 story that also involves MERS] that courts across the country are trying to determine the validity of foreclosures already in process. In addition to Delaware and Massachusetts, the firm is also under investigation by the New York attorney general’s office. Earlier this year, a Michigan court of appeals ruled against MERS, saying state law requires a foreclosing party to have a stake in the loan itself, which the firm did not.

Deeds officer calls his office 'a crime scene'

According to the Globe story, [the Massachusetts Registers of Deeds] "association contacted Coakley after issues were brought up by John L. O’Brien, register of deeds for the Southern Essex District Registry of Deeds in Salem. In June, O’Brien called his office a 'crime scene' after releasing an audit alleging that hundreds of mortgage-related documents were invalid or fraudulent.

"Last year, O’ Brien asked Coakley to investigate MERS, saying that the company owes Essex County more than $22 million because it failed to record mortgage transfers locally, thus bypassing a $75 fee per transaction."

At consumer level, Chapter 13 may offer quickest protection

For those facing foreclosure, these investigations may be coming too little, too late. No doubt, some percentage of the more than two million homes that have been pushed into foreclosure were repossessed by use of faulty paperwork. Perhaps some of those people will get some sort of settlement for some amount when the states' AGs finally wind up the case with the big mortgage lenders--someday. True, it's a good thing the foreclosure rate is falling, but there's still millions of distressed properties "out there." Bottom line? If you're staring at the possibility of foreclosure and want to save your home, filing for bankruptcy protection under Chapter 13 may still be your best bet.

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