A widely used third-party registry of mortgage assignments has found itself at the center of the foreclosure controversy amid allegations that its service is part of the faulty foreclosure practices plaguing the industry.
Legal challenges to the Mortgage Electronic Registration System, or MERS — a technology platform that tracks more than 64 million mortgages and is owned by some of the industry's biggest players, including Fannie Mae, Freddie Mac and several large lenders — include questions about whether MERS can serve as nominee for lienholders in foreclosure processing, as well as about claims that it does not properly file mortgage and note assignments when the documents change hands.
Mike Wileman, the president and chief executive of Orion Financial Group in Southlake, Texas, which performs assignment and lien-release services for lenders, said claims against MERS' legal standing in foreclosures are not new but are gaining attention after allegations that banks are using so-called robo-signers to process foreclosures faster and without filing the paperwork properly.
Merscorp Inc., which operates the registry, went on the defensive in a press release last Friday.
President and CEO R.K. Arnold said the "foreclosure process itself was not designed to withstand the extraordinary volume of foreclosures that the mortgage industry and local governments must now handle."
"Mers helps the mortgage finance process work better," he said. "The MERS process of tracking mortgages and holding title provides clarity, transparency and efficiency to the housing finance system."
Mers cited court cases in which it received favorable rulings against challenges to its system and to the company's right to act on behalf of lenders.
When loans are transferred among MERS members, "there are no statutes in the United States that say you must record servicing assignments in the county court," said Karmela Lejarde, a company spokeswoman. As mortgagee, MERS has the power to sign lien releases and to file foreclosures — which means being listed as plaintiff in the nation's 23 judicial foreclosure states, where foreclosures are handled in the courts. But the agreement between MERS and its members also grants employees of its member servicers the power to serve as "certifying officers" and to sign documents on behalf of MERS.
"Most courts recognize MERS as the mortgagee on the property," Wileman said. "As far as what they do and the MERS concept, I think most people have bought into it. There are still some jurisdictions that have said — because they don't own anything — that they're just a tracking mechanism, so they can't do certain actions in the name of the entity."
In those cases, Wileman said, companies like his work with lenders to file assignment documents with municipalities in order to take the loan out of MERS and remove its registry as the mortgagee of record.
"Though they're a MERS member, they're taking it out of the MERS name and proceed[ing] in their own name, with MERS not even in the picture," Wileman said. "They're trying to get ahead of the curve and eliminate the objection before it comes up."
Fannie Mae policy requires this practice for all its loans.
Lejarde said MERS policy requires members to take this extra step for every foreclosure in the state of Florida. There, lienholders have faced a rash of lost notes. So in order to foreclose, the lienholder must transfer the mortgage out of MERS and into its own name and then file a lost-note affidavit in lieu of the signed promissory note.
Mers contends that its platform averts the paper- and time-intensive process of recording mortgage assignments and that its mortgage identification number system is a more accurate way to track loans through multiple sales.
In addition, through a Web-based public search engine, anyone can find the current servicer or owner of a mortgage that is held by a member organization. But the effectiveness of all these tools is predicated on members' updating loan information in a timely and accurate way.
"People think that we maintain the information," Lejarde said, "but it's the members that are required to file the information themselves."
