Foreclosed Palm Springs, Calif., home with a graffiti message on the garage door that reads "Mortgage fraud by Mission Hills Mortgage." (Photo Credit: CC BY-SA/Florian Boyd/Flickr)
America’s housing crisis was caused by a number of factors. One that has remained largely hidden from the general public until now is MERS. According to the Nolan Chart LLC mortgage industry blog, MERS (Mortgage Electronic Registration System) is an institution that enables the Mortgage Backed Security (MBS) industry to pass over rules regarding recording and transferring title when a property changes hands. Created by Fannie Mae in the mid-1990s, MERS acts as a quasi-agent (they call it “nominee”) for any party that becomes involved in the mortgage, with the exception of the homebuyer. MERS transacts in an online (rather than brick-and-mortar) world. Thus, as mortgages are bundled, bought and sold at the speed of the MERS electronic network, there is definitely convenience. But since Fannie Mae – which handles well over 50 percent of all U.S. home mortgages – is now owned by the U.S. Treasury, various sources have raised the question of whether MERS has the legal right to be listed on mortgages in the first place, considering that the company never pays for any property.
Suspicion over MERS and the lack of a paper trail
The most significant question raised by the operation of MERS, particularly as it relates to potential mortgage fraud, is whether the company should be able to listen itself on electronic mortgage documents, as MERS has neither paid for any property nor represented the mortgage holder in any tangible legal way. MERS’ streamlined method of recordkeeping has not set well with mortgage industry critics, as the old methods of mortgage processing documentation constituted legal transaction in the past. MERS claim to represent up to 60 million mortgage cases, reports Nolan Chart, is legally questionable in the minds of critics. That’s over $10 trillion worth of mortgages, and it seems likely that a company like MERS – with little or no free market competition – will be hearing from the Supreme Court before long. The question of whether MERS should have the right to foreclose homes must be answered to the satisfaction of the law.
State intervention creates profit machine
MERS sits in a position of great privilege and benefits from public funding. Thus, argues Nolan Chart, the public has a right to be skeptical when little to no free market competition exists to regulate prices. The contract law loopholes that have allowed MERS to operate thus far have expedited the MBS. That industry is largely responsible for creating the U.S. housing crisis in the first place. MERS may need to be reined in by the highest court in the land for the long-term benefit of homebuyers nationwide.
Sources:
Freddie Mac commercial on mortgage fraud
