Foreclosure Worries: Mercy with MERS
The mortgage crisis created by mortgage lenders, banks, and financial institutions through the use of subprime lending and mortgage-backed securities is uncovering new possible remedies for the homeowners to save their homes from foreclosure and trustee’s sales, writes Ravdeep Bhasin.
The mortgage crisis and the national U.S. economic crisis as a whole have been devastating to the continued prosperity, growth, and functionality of the economy at large in the United States. The main culprit in the bursting of the housing bubble was a combination of sub-prime lending practices and private mortgage-backed asset securities from banks and financial institutions.
The sub-prime lending, is difficult to define. In simpler terms, if a borrower wants to buy a home with a value of $100,000 but is only planning to spend $5,000 on the down payment, then his loan-to-value ratio would be 95% ($95,000 loan/$100,000 value). This does not even compute the typical costs and expenses of loan origination, as the majority of mortgage loans “roll” the costs of origination, appraisal, title search and insurance, and many other costs incidental to acquiring a mortgage loan into the loan total. This common practice would then boost the hypothetical above to somewhere closer to 97% or 98%.
As one can imagine, there is a certain section of the U.S. populace that fits within the category of those who would have a high to very high loan-to-value ratio.
With mortgage-backed securitization, many mortgage notes purchased from lenders are assigned to a trust. These notes are “packaged” or “pooled” into a collection in this trust. The trust then issues certificates to investors. The securities issued by the trust are usually divided into “tranches” to concentrate high-risk, low-risk, and medium-risk securities, and to divide the expected return into levels that will determine investment buy-in value. There are different varieties of mortgage-backed securities, such as Residential Mortgage-Backed Securities or Commercial Mortgage-Backed Securities.
For much of its existence, MERS went unnoticed and unimpeded on to accomplish its business objective in relative obscurity. So what is its purpose?
MERS was created by the mortgage banking industry to streamline the mortgage process by using electronic commerce to eliminate paper. Its mission, to register every mortgage loan in the United States on the MERS System. Beneficiaries of MERS include mortgage originators, servicers, warehouse lenders, wholesale lenders, retail lenders, document custodians, settlement agents, title companies, insurers, investors, county recorders and consumers.
MERS acts as nominee in the county land records for the lender and servicer. Any loan registered on the MERS System is inoculated against future assignments as MERS remains the mortgagee, no matter how many times servicing is traded. MERS as Original Mortgagee (MOM) is approved by Fannie Mae, Freddie Mac, Ginnie Mae, FHA, VA, California and Utah Housing Finance Agencies, as well as, all of the major Wall Street rating agencies.
MERS has member institutions freely transferring the mortgages on its computer system within the MERS system, and not through the traditional county recording office. Thus, proof of the transfer many times will never show up in the county recording offices and will only be listed and recorded on “MERS” computer system.
MERS holds supposed title to approximately half of the mortgages in the U.S.- roughly 60 million. MERS, though supposedly owning this many mortgages, has a full-time staff of less than 50 employees. MERS “owns” these mortgages as “nominee” in the position traditionally occupied by the mortgage lender.
It then over the course of securitization, assigns the note to several entities until it falls into the ownership of a holding trust that will use the notes as assets. The note and mortgage is many times split physically between the trustee and the servicer. Thus, by the time a borrower defaults, MERS have hypothetically assigned the note many times away from the original lender of the initial home loan.
Likewise, the actual mortgage or deed of trust is transferred or assigned several times as well for the purposes of creating mortgage-backed securities.
MERS, as has come out through several journalistic investigations as well as court cases, employed what has commonly been referred to as “robo-signers,” who sign thousands of documents and notarize them without knowing the actual contents of the mortgage documents.
The foreclosure crises continue to cause more and more hardships to homeowners. In order to save their homes, the homeowners may restore to various alternatives, such as:
- Talk to the mortgage lenders, to reduce their monthly mortgage payments under various Loan modification programs, as well as lowering of interest rates and principal outstanding;
- Talk to mortgage lenders, and work out Short Sale of their properties;
- Talk to the mortgage lenders, and surrender the property for ‘cash-for-keys’;
- To surrender the property and allow its foreclosure and Trustee’s sale;
- To litigate in the State court by filing civil actions, on various causes of actions of predatory lending and unsafe & unsound mortgage practices & fraud;
- To file bankruptcy under chapter 13 plan, seek reorganization of mortgage payments, and to unveil the predator lending and unsafe & unsound mortgage practices & fraud, by filing adversary proceedings;
- To file bankruptcy under chapter 7 plan, and surrender the real properties, and clean up the credit FICO score after a lapse of about 10 years.
The leading banks signed Stipulation and Consent documents with Comptroller of the Currency of the United States in April 2011 admitting their engagements in unsafe and unsound banking practices related to mortgage servicing, initiation and handling of foreclosure proceedings.
In the last month itself, the Federal Housing Finance Agency (FHFA) filed civil action lawsuits against 17 firms and banks to recover losses to Fannie Mae and Freddie Mac.
Attorney Generals of all the 50 States continue to investigate the involvement of these banks in unsound mortgage practices.
The homeowners, to unveil the mortgage and securitization frauds, are filing civil action lawsuits, either in the State courts or adversary complaints in the bankruptcy courts, as the case may be.
Due to the availability of electronic information and courts rulings, various homeowners are becoming more and more aware and filing civil action law suits as self represented / pro-se plaintiffs and there are many success stories to quote.
Homeowners are able to prevent foreclosures and trustee’s sales as most of the times the action parties are mere mortgage servicing companies and they are not the ‘Real Party In Interest,’ and do not own the mortgage notes.