Merscorp Inc., the company of the electronic mortgage-registration system replaced its leadership last week after a breakout of recent controversies over the legalities of its business practices in the foreclosure process.
The privately held company designed the MERS electronic registry to track servicing rights and ownership of mortgage loans that originated in the United States. MERS added value to lenders and consumers as it asserted to be the owner or the owner’s nominee of the mortgage security which was recorded at the county recorder’s office and often resold on the secondary market. By asserting ownership over the mortgage security it reduced the need to file assignments when the mortgage securities were resold and in the process saved both lender and consumer recording fees. The MERS system also added a valuable tracking resource that allowed one to find the current owner of the note to a mortgage and the servicing entity. The MERS platform also facilitated the bundling and selling of mortgage pools.
Since MERS was created to facilitate the transactions of mortgage notes and to serve as an acting agent the MERS entity initiated the foreclosure process on the defaulted home loans for the various lenders it services. Therein lies the problem as many home owners in default received the help of lawyers that advised them to contest the foreclosure since MERS wasn’t the actual holder of the note. WTF Finance finds it amazing how the borrowers that often lied on the loan documents overstating their incomes are now the ones halting foreclosures on technicalities, despite being at fault for having defaulted on their agreed loan obligation.
The Wall Street Journal reported on the court’s opinion:
“The Court recognizes that an adverse ruling regarding MERS’s authority to assign mortgages or act on behalf of its member/lenders could have a significant impact on MERS and upon the lenders which do business with MERS throughout the United States. However, the Court must resolve the instant matter by applying the laws as they exist today. It is up to the legislative branch, if it chooses, to amend the current statutes to confer upon MERS the requisite authority to assign mortgages under its current business practices. MERS and its partners made the decision to create and operate under a business model that was designed in large part to avoid the requirements of the traditional mortgage recording process. This Court does not accept the argument that because MERS may be involved with 50% of all residential mortgages in the country, that is reason enough for this Court to turn a blind eye to the fact that this process does not comply with the law.”
WTF Finance agrees with the court that being involved in 50% of all residential mortgages should not exclude MERS from having to comply with the law. However, MERS does not foreclose on homeowners that aren’t delinquent; it is foreclosing on those that defaulted on their contractual obligation to pay their monthly mortgage payment. We strongly feel that politicians and homeowners are using this technicality to allow the defaulted homeowners to continue living mortgage free in a property they cannot afford in order to keep the U.S. economy artificially propped up.
As already mentioned in our article “The Non-Foreclosure Crisis”, delaying foreclosures through various means is artificially lowering the supply side of the housing market. This is direct price fixing to support Real Estate values above their fundamental values. By not foreclosing and allowing the homeowner in default to continue living mortgage and rent free as has been the case for many months already, the homeowner is able to keep spending elsewhere which is necessary to stimulate the artificial U.S. Economy. This is a major reason why many stocks are trading near their record highs as the consumer consumes at rate that would be impossible if they had to make those monthly housing payments. These events reflect the same economic outcome as the housing bubble since people in both instances could live beyond their means. In this case homeowners can avoid having to make a monthly mortgage payment for years whereas home equity loans gave the homeowner the ability to magically increase descritianary spending just a few years earlier.
Given that MERS has been in business since the 1990s WTF Finance finds it interesting how now the legality of such an institution comes into question. The timing of these foreclosure delays hint at an ulterior motive as real estate values are supported, supply is artificially reduced and controlled, and the continuation of excessive consumerism delays the inevitable collapse of the U.S. Economy.