Law Expert: MERS Mess Could Have “a Massive Effect on the Economy.”

[Joanne98]

So I had a pretty incredible conversation last night with Christopher Peterson, the law professor and Associate Dean for Academic Affairs at the University of Utah, who wrote two illuminating Law Review articles about MERS, the shell entity that created an electronic database for the trading of mortgages. I’m going to do my best to summarize the findings of the interview, but I want to stress two things that I learned – 1) this is very heady stuff, tied up in contract law and all sorts of associated legal issues, 2) absolutely nobody in this country knows with any certainty how this is going to play out.

With that as a base, here’s the gist of the conversation.

It’s important to know from the beginning that MERS is a wholly owned subsidiary of big financial institutions. The mortgage bankers wanted to avoid recording fees and reduce their overall expenditures. So they basically devised a method that would free them from those fees, ran an accounting study showing the savings, and just created MERS. There was no public debate or legislative statute to overturn what had been the customary practice for generations. The money backing MERS came from investors, according to Peterson, including some of the biggest banks and mortgage brokers in the country like Bank of America, Citi, and Countrywide, as well as Fannie Mae. You can see all their shareholders right here. It’s just a creation of the banks.

There are actually two MERS companies at this point. There’s MERSCORP, which owns some physical assets, including an office location in Reston, Virginia, and has about 60 employees, including a group of lawyers. There’s also MERS Inc., which has zero employees. This shell company is the one listed as the “mortgagee” on about 60 million American homes, or 60% of the total mortgage market.

Peterson described MERS to me as “a big Excel spreadsheet,” where financial institutions can input mortgage trades and information. “I don’t even like the word tracked,” he said. “They don’t assign records or anything.” The servicers use it to make a loan or a trade, and MERS stays as the mortgagee throughout the duration of the loan. This avoids recording the mortgage change each time with the county recorders office, altering the tradition for hundreds of years of recording the mortgage. This particularly becomes important if there’s a dispute on the property, which is what we’re dealing with now

http://news.firedoglake.com/2010/10/18/law-expert-mers-mess-could-have-a-massive-effect-on-the-economy/

[Demeter]

1. It's ALREADY Had a Massive Effect on the Economy

What we need now is the failure of the "Too Big to Fails"

[grasswire]

2. can of worms, can of worms

look at this post from the comments section following that story:

"On David’s prior diary, Mason @ 34 linked to a HuffPo investigative report on the next level of this real estate scam: The New Tax Man: Big Banks And Hedge Funds

The article describes how the same bad actors, the big banks, as well as hedge funds (one of them created by former Fannie Mae chief Daniel Mudd) are buying tax liens on millions of homes, using dozens of subsidiaries each to hide their common identities as the orinators of the problem in the first place, coming in as vultures to pick at the carrion of devastated homeowners.

Once one of these companies buys the tax lien, which could be for a couple of hundred dollars of unpaid water bill (Vicki Valentine in Baltimore), they tack on thousands of dollars in ‘legal fees’, even though they only use computers to churn out thousands of the demand letters.

Left out of the HuffPo investigation is any word of how so many homeowners got behind in their taxes. I suspect that the servicers failed to pay the taxes out of escrow, by having previously tacked bogus late (or other) fees onto the borrowers’ accounts, then crediting payment to the fees prior to crediting the mortgage payment, much less the tax escrow account. And do the servicers bother to notify the homeowners of their tax default before the local government sells the tax lien? I’d like to know if this is yet one more level of evil in this scheme to deviously deprive people of their homes.

Couple this scheme with the Kelo decision and it makes my blood run cold, thinking about the collateral damage of homeowners not in default, or with paid-off homes, being forced out by eminent domain, as happened in New London, if a hedge fund or private capital fund has its sights on their neighborhood."


Calling Naomi Klein.