Mers is evil. Maybe. The mortgage electronic registration system (Mers) has become something of divining rod for figuring out how someone stands on the fraudclosure mess. Mers is a private company, owned by several large, national lenders (Bank of America, Chase, Wells, et al) that registers ownership and servicing rights for mortgages held by its members. Those that see Mers as having systematized the assignment of mortgages such that many millions more could be made see it as a good thing. Those that see it bypassing the normal channels for recording mortgages in a way that operates as an end-around the legal system’s method of recording property interests, see things otherwise. I’m surprised that nobody has yet called in the trust-busting cowboys of the Justice Department. The Mers operation is a collusive effort by market competitors to reduce costs by not having to pay a recording fee each time a mortgage is assigned. If that doesn’t catch the eye of the anti-trust bar, it’s hard to see what would. Mers isn’t even affiliated with a government program (that might save it, like the FDIC is saved), unless Fannie and Freddie’s affiliation could be considered government involvement.
Good article on it here, from Bloomberg: Foreclosure Crisis Triggers Debate on Role of Mortgage Registry
Barry Ritholtz of the Big Picture blog has about lost his mind. Here’s what he thinks Bank of America’s CEO should attest in his next Sarbanes-Oxley certification:
I hereby affirm that my staff (and I) have reviewed the current, pending and recently completed foreclosures. In no instances did we find any substantive errors, including: The wrong house being foreclosed upon; a mortgage note that was held by another bank (but not B of A) incorrectly used as a basis of a B of A foreclosure. Nor did we find that an incorrect house or person was foreclosed upon. Last, I affirm that no home without a mortgage was ever the subject of a foreclosure proceeding by B of A
Brian Moynihan, CEO
Bank of America
I guess Banks should now be held to the perfection standard. Ritholtz can’t really be serious. There’s a reason we have a legal system. It’s to resolve injuries suffered by the mistakes, intentional or not, of others. The system is so robust because we humans are so prone to mistakes. Claiming to never have made any mistakes would itself be a mistake that a clever lawyer could bend into intentional fraud.
It wouldn’t be so bad if Ritholtz knew what the fuck he’s talking about, but it’s obvious he doesn’t when he hires some moron to give us 101 on the importance of the promissory note, and his expert doesn’t even know what it is:
Independent of the fraud that was committed on our courts, the current crisis is important because the note is a crucial document for every party to a mortgage. But first, let’s define what a mortgage is. A mortgage consists of two documents, a note and a lien:
Mortgages don’t have two parts. The note is not a part of the mortgage. The note exists independent of the mortgage, and in states that are not “no-recourse”, the note alone is enough to win a judgment against the borrower. If in that situation the mortgage isn’t also filed, there can be no foreclosure, but the note alone can get you to the courthouse for a judgment against the borrower. Turn it around. What good is a mortgage without a note? Nothing. Without debt to be secured, it secures nothing. But the note is not a part of the mortgage. It is not recorded in the public records, nor are its assignments recorded in the public records. In fact, a note is not “assigned” at all. It is endorsed, like a check. Mortgages have to be recorded in the public records to operate as a lien against third parties. Mortgages that aren’t recorded still operate as a lien, but only between the two parties to the mortgage. In other words, if somehow a mortgage failed to get recorded, when it came time to foreclose, it would only matter that it wasn’t recorded if there were intervening liens that had been recorded. Between the two parties, the mortgage is still good.
The real big picture here is that both sides are squeezing the middle, so Tarp II can’t be far away. The bank’s customers are squeezing them from below over their foreclosure processes, sometimes run amok. The bank’s investors are squeezing them from above, for the servicer’s failures (not just in the manner with which foreclosures are conducted).
Pacific Investment Management Co., BlackRock Inc. and the Federal Reserve Bank of New York are seeking to force Bank of America Corp. to repurchase soured mortgages packaged into $47 billion of bonds by its Countrywide Financial Corp. unit, people familiar with the matter said.
Suffice to say that a $47 billion hit to Bank of America’s balance sheet would render it insolvent, and probably kick off Financial Crisis, Part II, which would mean taxpayers bailing out BofA, again. Pimco and Blackrock and the NY Fed (!) just want to get theirs before Uncle Sugar runs out of his.
Things, methinks, are about to get interesting. Again.