Some courts say computer system doesn’t own mortgages

Jeremy Hobson Oct 7, 2010
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Some courts say computer system doesn’t own mortgages

Jeremy Hobson Oct 7, 2010
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Kai Ryssdal: You don’t usually see this happening when the president’s party controls both houses of Congress. But the White House said today the president is not going to sign a bill that both the House and the Senate had passed. The legislation in question would have required state courts to recognize foreclosure documents that were notarized in other states. That would have made it harder to challenge foreclosures when the documents were put together out-of-state as is often the case these days.

That develop, in turn, brings us to a four letter word you may not have heard before, even if you might somehow be tied into it: MERS, the Mortgage Electronic Registration System. It was set up to make mortgages easier to track but has wound up doing quite the opposite.

Marketplace’s Jeremy Hobson reports.


Jeremy Hobson: Back in the day, mortgages were as simple as a piece of paper. They were official, legal documents passed around based on who owned the loan. But back in 1997, the mortgage industry got together and came up with a new idea.

Guy Cecala of Inside Mortgage Finance says the idea was:

Guy Cecala: Come up with an electronic registry system for mortgage documents so we could trade mortgages more easily, and we wouldn’t have any question about who owned the mortgage and all the paperwork associated with it.

That system made trading mortgage investments — as well as slicing and dicing them — as easy as buying and selling stocks. No more going through the county clerk when the loan changed hands. Cecala says today, more than half of the nation’s mortgages are registered in the MERS system.

Cecala: By and large, the system has worked quite well up until now.

But now, since everyone and his brother is going through foreclosure, MERS has become a target for home owners looking for reasons why their foreclosure notices are invalid. Some state courts have sided with home owners and ruled that MERS doesn’t have the authority to foreclose on a home because, they say, it doesn’t officially own the loan.

Mortgage industry analyst Thomas LaMalfa of TSL Consulting says if MERS’s role is in doubt…

Thomas LaMalfa: It would create a real problem, because it would raise questions about the foreclosure process as well as about foreclosures that have taken place.

That, he says, could drag out foreclosures for months and even years, prolonging the work of stitching the housing market back together.

LaMalfa: I would think there’d be just myriad legal challenges.

And that, analysts say, could have a serious impact on the health of the nation’s largest banks, who service many of these mortgages. But Guy Cecala says when it comes to the lawsuits…

LaMalfa: We’re not talking about foreclosures that shouldn’t have been initiated. We’re talking about foreclosures that aren’t being handled properly.

In other words, with or without MERS, our housing market remains in a whole lot of trouble.

In New York, I’m Jeremy Hobson for Marketplace.

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