The economic collapse is revealing itself as a series of events triggered like dominoes cascading to their demise. The latest to drop informs us of problems related to foreclosures. Not only did foreclosures hit a record high in September 2010, but public awareness also peaked with the investigation of potential mistakes by banks.
I am not an expert on this topic, but from a recent study I will try to give a basic overview of this vital personal finance topic. Dubbed “foreclosure gate” and “fraudulent closing,” banks are “under the gun” for the light shining on their mortgage banking practices. Due to reports of “robo”signers” (signing foreclosure documents without actually reading them), several large banks have initiated temporary document processing freezes.
A misstep in technical procedure would be bad enough, but in fact, the automated signature in question diverts attention from the elephant in the boardroom: systemic failures.
The banking industry’s homeownership ad campaign of the early 2000s enticed countless Americans to become “true believers.” The mantra of “real estate would only go up” seemed to mesmerize the masses. Millions threw caution to the wind to exploit the real estate gold rush.
On the front end, realtors and mortgage brokers happily racked up bigger-than-ever commissions and sometimes bonuses from under-the-table lenders; turning a blind eye to inflated income levels, false home appraisals, and other lies inserted into mortgage underwriting documents. In turn, the word on the street was “all systems work” for those who would never otherwise qualify for a loan.
The rest is history.
Time has shown that many of these financial products were really designed to benefit the financial sector, not the small one. Wall Street bankers developed them while the government allowed them; a happy joint venture!
Most real estate professionals were well aware of their (often high-risk) clients’ likely inability to pay over the long term. Bottom line: A bad loan and a foreclosed home were ultimately worth more money. However, the real estate bubble and crash was just the tip of the iceberg.
At the heart of this story is MERS the heretofore elusive child of the mind of a group of elite bankers who in the early 1990s sought to expedite (speed up) the real estate mortgage process, thereby also avoiding traditional county recorder title registration fees.
MERSCorp Inc. (Mortgage Electronic Record System) was incorporated in Delaware in 1995. MERSCorp Inc. operates as an “electronic conduit of legal transfer”, owns nothing and has no building or employees. Surprise surprise, the shareholders listed on their website are some of the usual suspects and major beneficiaries of the TARP bailout and global revenue in general: Bank of America, Chase, CitiMortgage, Inc., Fannie Mae, Freddie Mac, HSBC, SunTrust and Wells Fargo.
Below is the best overview of MERS I could find by Christopher L. Peterson, Associate Dean for Academic Affairs and Professor of Law, University of Utah, SJ Quinney School of Law.
“MERS operates a computerized database designed to track the servicing and ownership rights of mortgage loans anywhere in the United States. Originators and secondary market participants pay membership and transaction fees to MERS in exchange for the right to use and access MERS records.
“But, in addition to keeping track of property and service rights, MERS has tried to take on a different, more aggressive legal role. When closing home mortgages, mortgage lenders now often list MERS as the “mortgage of record.” in the The mortgage is then recorded at the county property recorder’s office under the name of MERS, Inc., rather than the name of the lender, although MERS does not apply for, finance, service, or own any mortgage loans to the lender. over the life of a mortgage loan, even after the original lender or a subsequent assignee transfers the loan into a pool of loans that are ultimately sold to investors, a process known as securitization. Although MERS is a young company, 60 millions of mortgage loans are registered in their system. (Now 62 million in 2010 – ed.)
Some of these 62 million homeowners are extremely concerned about the implications of MERS showing up as a mortgagee of record. US lending laws state that only a loan owner can initiate foreclosure and MERS cannot legally own mortgage loans! Also, investors who bought pools of bank loans called securitizations now question the accuracy of the ratings assigned to the loans at the time they bought them. In addition, the legitimacy of the same group of loans sold and again to different investors is also under investigation.
Serious questions remain given the way MERS’s private governance of the nation’s real estate registration system quietly supplanted centuries-old property law without an act of Congress. To date, class action lawsuits against MERS are pending in California, Georgia, Kentucky, Nevada, and Arizona. Who knows, maybe the big banks will be forced to allow families to stay in their homes, as well as buy back bogus loans they sold to investors.
Should the issues of incomplete and erroneous information provided to borrowers, loss of hard evidence of title ownership (broken chain of title), and investor deception prove to be true; Will such revelations serve to level the playing field between the banks and the people?
Time will tell.
Some analysts say President Obama, sometime after the midterm elections, will most likely sign the same executive order he vetoed in his pocket on Oct. 7 to make it harder for families to sue banks. This could include an official retroactive redemption from the sins of mortgage banking and the future blessing of MERS as the digital savior of the “old school” county title registration system.
Oct. 20, 2010, on ABC News Today, Housing and Urban Development Secretary Shaun Donovan said that while reviews continue on foreclosure documentation issues regarding specific lenders and banks that may not be following the rules , there does not seem to be any “underlying systemic problem”. “.
If you believe this… I have a bridge I’d like to sell you!
