MERS – Who’s to blame?

The New York Times lays part of the blame for the mortgage collapse at the feed of the Mortgage Electronic Registration System, Inc., we all know as MERS. In a report headlined “MERS? It May Have Swallowed Your Loan” By Michael Powell and Gretchen Morgenson.

“Never heard of MERS? That’s fine with the mortgage banking industry—as MERS is starting to overheat and sputter. If its many detractors are correct, this private corporation, with a full-time staff of fewer than 50 employees, could turn out to be a very public problem for the mortgage industry.”

“Judges, lawmakers, lawyers and housing experts are raising piercing questions about MERS, which stands for Mortgage Electronic Registration Systems, whose private mortgage registry has all but replaced the nation’s public land ownership records. Most questions boil down to this:

“How can MERS claim title to those mortgages, and foreclose on homeowners, when it has not invested a dollar in a single loan?

“And, more fundamentally: Given the evidence that many banks have cut corners and made colossal foreclosure mistakes, does anyone know who owns what or owes what to whom anymore?”

As courts have stepped in to protect defaulting homeowners from the specter of foreclosure, every angle to stick it to the banking industry (and thereby the rest of the consuming public.)

We in the title industry were introduced to MERS as a convenient way to insert a nominee in the chain of title to a mortgage. Gone would be the days of lost assignments of mortgage and deeds of trust—something that gave us many a nightmare.

Instead, this admitted convenience to lenders and the real estate industry has now jumped up and bit the banking industry in the butt.

Examples:

“The Arkansas Supreme Court ruled last year that MERS could no longer file foreclosure proceedings there, because it does not actually make or service any loans. Last month in Utah, a local judge made the no-less-striking decision to let a homeowner rip up his mortgage and walk away debt-free. MERS had claimed ownership of the mortgage, but the judge did not recognize its legal standing.”

“And, on Long Island, a federal bankruptcy judge ruled in February that MERS could no longer act as an “agent” for the owners of mortgage notes. He acknowledged that his decision could erode the foundation of the mortgage business.”

MERS was designed to streamline the ownership system in the days of mortgage securitization “but critics say the MERS system made it far more difficult for homeowners to contest foreclosures, as ownership was harder to ascertain.”

Challenges to MERS were raised by county clerks around the country. After all, they would be cut out of a lucrative source of income raised from recording assignments of mortgage, but they lost in light of the nation’s desire to speed up the mortgage process.

“We lost our revenue stream, and Americans lost the ability to immediately know who owned a piece of property,” said Mark Monacelli, the St. Louis County recorder in Duluth, Minn.” (Oh please.)

“Some experts in corporate governance say the legal furor over MERS is overstated. Others describe it as a useful corporation nearly drowning in a flood tide of mortgage foreclosures. But not even the mortgage giant Fannie Mae, an investor in MERS, depends on it these days.”

In any event, MERS is being made the whipping post for a larger problem—greed of lenders and borrowers.

Read the full article at MERS? It May Have Swallowed Your Loan

For your next title order or

if you have questions about what you see here, contact

Stephen M. Flatow, Esq.

Vested Title Inc.

165 Passaic Avenue, Suite 101

Fairfield, NJ 07004

Tel 973-808-6130 - Fax 201-656-4506

E-mail vti@vested.com - www.vested.com

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The next generation: Imagining Life without Fannie and Freddie

From the New York Times’ Gretchen Morgenson.

KUDOS to Treasury and the Department of Housing and Urban Development for some straight talk about the nation’s broken mortgage system.

A report to Congress from those departments, published on Friday, provided some long-awaited analysis by the Obama administration about what went wrong in housing finance — and how to fix it.

 The report, entitled “Reforming America’s Housing Finance Market,” zeros in on the perverse incentives created by the nation’s mortgage complex during the years leading up to the panic of 2008. The Treasury’s recommendation that we wind down Fannie Mae and Freddie Mac and let the private mortgage market step in is spot on.

So what’s next?

Still, it is not clear that such moves, sensible though they are, will be enough to prevent taxpayers from having to bail out institutions that back mortgages in the future. That is because the debate over how to put the Treasury’s ideas into effect will soon become a brawl. Powerful participants are already working overtime to keep taxpayers on the hook.

The opponents to reform: the Mortgage Bankers Association, the Financial Services Roundtable and the Center for American Progress. They are urging the creation of a new federally-related entity.

Taxpayers surely do not want to create new government-sponsored enterprises that may later fail. So why not work toward a system where the government is solely the home lender of last resort? That way, the private market could operate in good times; the government would step in only if the market froze up.

Friday’s report seems to be leading in this direction. But it supplies no road map to a government system that provides a catastrophic insurance program only for those times when the private market is not working.

There is much to hash out if we are to build an effective housing finance system in America. Being truthful about what went wrong in the past, the report paves the way for a meaningful discussion. But we must also be sure that the solutions do not bring us back to where we began. That is where the real fight will be fought.

Read the full article.   What do you think?

For your next title order or

if you have questions about what you see here, contact

Stephen M. Flatow, Esq.

Vested Title Inc.

165 Passaic Avenue, Suite 101

Fairfield, NJ 07004

Tel 973-808-6130 - Fax 201-656-4506

E-mail vti@vested.com - www.vested.com

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Not only borrowers were hurt by sloppy mortgage servicing.

In her Sunday Times Fair Game column, Opening the Bag of Mortgage Tricks, Gretchen Morgenson writes about an untold story of sloppy mortgage servicing practices—the impact on mortgage investors.

“[B]orrowers aren’t the only ones concerned about potential mischief. Investors who hold mortgage securities are increasingly worried that servicers may be putting their interests ahead of those who own the loans.

“A servicer might, for example, deny a loan modification to a borrower because it also owns a second mortgage on the same property and doesn’t want to write down that asset, as required in a modification. Levying outsize default fees is another tactic — the fees typically go to the servicer, not the lender, but they can still propel a property into foreclosure more quickly. And foreclosures aren’t a good outcome for investors. “

The result in once such case was a federal jury’s award to investors of several millions of dollars in punitive damages.

How did it happen?

After a mortgage servicing company collapsed, a “small firm called Compass Partners bought the servicing rights to these assets for $8 million. A short time later, Silar Advisors, a company overseen by Robert Leeds, a former Goldman Sachs executive, got involved by financing Compass. Compass/Silar began servicing the loans for the investors.”

“Almost immediately, the plaintiffs in the suit contended, Compass/Silar started siphoning off money owed to investors holding the loans. Among the servicer’s tactics, the plaintiffs said, were improperly charging default interest, late fees and loan origination fees that reduced amounts due to investors.”

In addition, when borrowers tried to renegotiate or pay-off defaulted loans, the servicing company refused to negotiate. “In other cases when Compass/Silar urged the investors to modify troubled mortgages, the servicer reaped undisclosed fees in the deals.”

“A Silar spokesman said the firm was pleased that the jury awarded only $79,000 in compensatory damages to the plaintiffs but was disappointed by the punitive-damages assessment. “The jurors are to be commended for their careful consideration of the facts in a very lengthy trial,” the spokesman said. He declined to comment as to whether Silar was currently servicing any loans.”

“It is obvious that we are in the litigation stage of the financial debacle of 2008. That usually means shining the light on dark corners and watching what scurries away. The view may not be pretty, but at least in this case, investors got some recompense in addition to an education.”

A former employer gave me this saying about the business place - In some markets the bulls eat, in some the bears eat, but the pigs always get the garbage.

What do you think?

Read the full column, Opening the Bag of Mortgage Tricks.

For your next title order or

if you have questions about what you see here, contact

Stephen M. Flatow, Esq.

Vested Title Inc.

165 Passaic Avenue, Suite 101

Fairfield, NJ 07004

Tel 973-808-6130 - Fax 201-656-4506

E-mail vti@vested.com - www.vested.com

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Foreclosure mess ignores one thing-the borrowers

From the New York Times’ Gretchen Morgenson’s column,

“LAWYERS representing delinquent homeowners have been shouting for years about documentation problems in residential mortgages. Now that their complaints have gained traction with investors, attorneys general and some state court officials, the question of consequences looms large.

“Is the banks’ sloppy paperwork a matter of simple technicalities that are relatively easy to cure, as the banks contend? Or are there more far-reaching consequences for banks and the institutions that bought mortgage-backed securities during the mania?

“Oddly enough, the answer to both questions may be yes.”

All through this new crisis, one comment has been missing. The homeowners (and the hundreds, if not thousands, of sham owners) who borrowed money in a rising economy have simply stopped paying their mortgages.

Some defaults are legitimate. People lose jobs, catastrophic illness brings medical bills. But these reasons have always been there. Others plan to lose their home as some sort of leverage to get the lender to reduce the rate of interest, the principal amount or both. Others just want to move away. These so-called “strategic defaults” demonstrate the feckless nature of America’s homeowners.

There’s no doubt in my mind that there are violations of Truth-in-Lending and other consumer protection laws that address wrongs from the time of loan origination. But the lawyers I know wouldn’t know the underpinnings of the Federal “right to cancel” and what a violation of its rules could mean to a homeowner.

The bottom line is that the problem should not be placed solely at the feet of the mortgage servicers, Fannie Mae or Freddie Mac. It started at the very highest reaches of the Clinton administration and continued through the Bush administration. The bottom line is that loans were extended by hook or by crook through the efforts of dishonest mortgage brokers and bankers to people who had no right to buy a home and those loans were bought by Fannie and Freddie.

Problem loans are here, and they’re in foreclosure. Let the market do what it has to do…fall or rise. All lawyers will do is increase the cost and make it harder for deserving borrowers to get the loan they truly qualify for.

That's what I think.

For your next title order or

if you have questions about what you see here, contact

Stephen M. Flatow, Esq.

Vested Title Inc.

165 Passaic Avenue, Suite 101

Fairfield, NJ 07004

Tel 973-808-6130 - Fax 201-656-4506

E-mail vti@vested.com - www.vested.com

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