On Second Thought, Don't Show Me the Note

At Calculated Risk, guest blogger albrt has an analysis of court decisions regarding Mortgage Electronic Registration Systems, Inc., the tracking service that has drawn controversy over its role as a front end for mortgage debts that have been sliced up and securitized.

Among fair housing advocates for housing fairness, MERS' indirect and sometimes ambiguous role in an individual mortgage has led to a widespread belief that many mortgages will be unforecloseable. In reality, most of the legal decisions have turned on paperwork problems more than MERS' novel status, but there are enormous logistical questions around MERS-involved foreclosures.

Albrt has the lowdown on several of these decisions, and enough legal curlicues to keep all you armchair Johnny Cochrans entertained for years. Does naming MERS as the foreclosing entity rob borrowers of their right to pursue predatory lending claims (since MERS was not the original predator)? If so, does the borrower have to be made whole in some other way for the loss of that right? Will MERS' (successful) effort to prove it had title and right to foreclose in a Minnesota case turn out to be a monkey's paw, bringing with it unwelcome fiduciary responsibilities that MERS has been trying to avoid? And plenty more. If you're at all interested in the Show Me the Note movement, it's a must-read.

Comments

[American Delight]

If these borrowers spent half as much energy paying their mortgage note as they have spent on these frivolous lawsuits against MERS, we wouldn't have so many foreclosures!

[matt]

Also if the borrowers had put a little less energy into creating a MERS system to pass on their bad loans to others, then maybe they'd have had some left over for due diligence on whether or not the loans they were making were worth a shit...

[matt]

strike "borrowers", insert "lenders"

[highnumber]

Either way, your comment doesn't display any understanding of the industry. Not trying to be rude, just calling it as it is.

[matt]

I'm not offended, but I wouldn't mind knowing what I'm missing.

It's demonstrably true that securitizing mortgages and putting them into the derivatives market is a new practice, and also that it changes the lender's incentive structure drastically (we all treat and choose things we're about to sell differently than things we intend to keep).

Those are two facts. Is one of them wrong, or is there a third fact that I would understand if I were an insider that makes the conclusion drawn from them incorrect?

What I'm doing here is the opposite of an anti-libertarian screed. I see a structure that seems to integrate fraud into itself and be to some extent protected by force, and I don't like it.

[Kroneborge]

no, you are pretty much right on. The current securiization strucutre pretty much sets the system up for failure. solution, stop securitization. Make the banks keep the loans on the books. If banks need to make more loans, they can sell bonds. But must retain the risk. Combine that with a focus on long term incentives, higher capital requirments, and probably getting rid of most of the more exotic mortgage products, and you will have a much more stable system.

[highnumber]

MERS is just an electronic registry for mortgages. Unless you are entirely against anyone selling mortgages under any circumstances, you shouldn't have a problem with MERS. MINs get assigned to almost every mortgage that will ever change hands. It saves a ton of time and labor when, for example, a small mortgage banker who sells 50 loans a month to an investor is able to spend a minute or two registering each loan with MERS then assigning the mortgages to the investors, rather than recording assignments. (Mortgage bankers are not banks. They put up their own money, more or less, to fund a loan and sell that loan to an investor on the secondary market. Mortgage bankers can be forced to buy loans back at a later date if the investor decides there is something hinky about the loan.) Anyway, that was my understanding having seen it from that perspective. We used MERS mostly for A paper and I doubt that this efficiency itself leads to fraud.

Sorry I am a bit rambley today.

[Kroneborge]

I would actually be against selling loans in most circumstances, and definitely against splitting them up into thousands of many little pieces.

Just to much trouble for IMHO, very little real economic benefit.

[American Delight]

Well, Kroneborge, I wouldn't go that far. I see nothing wrong with the responsible use of credit.

To matt's point, over-securitization may be awful in itself, but I still don't think that excuses borrowers from repaying their debts.

Thanks, highnumber, for the extra breakdown of MERS--that confirmed my perception...

[Johnny Longtorso]

MERS is racist

[Johnny Longtorso]

Notes are racist

[Untermensch]

fair housing advocates for housing fairness

What is it exactly that they are advocating for? I don't think that was repetitive enough for me to quite get it 😉

[Johnny Longtorso]

Repetitiveness is racist.

[?]

If the slipcover doesn't fit, armchair Johnny Cochrane will finish this joke.

[JSinAZ]

"[F]air housing advocates for housing fairness" - working from the Department of Redundancy Department, no doubt.

[Funny]

Whether it's a mortgage or a payday loan, any loan can be 'foreclosed' on. You have a legal agreement that must be honored or face legal action by the lender.
loans are loans are loans.

[James]

Funny. I had no idea that being Repetitiveness was considered that.. haha
Well, Borrowers should and generally are held accountable for their debts. Not always, but in most cases with larger loans (eg. mortgages) the legal documentation is very strong. As you move down the loan feeding chain to payday loans, you start to get lesser legal issues for consumers.

regardless, not paying back a debt is a civil matter - not a criminal one. And, as such the penalties are only as allowed by law.