In the dark corners of suburban Washington D.C., a little known company called MERS (Mortgage Electronic Registration Systems) has been quietly bundling mortgages into securities and helping to get them off the books of Big Banks since 1997. What most of the public doesn’t know is that this company was created by several large banks, lenders, and title companies. This new entity allowed the banks to funnel millions of mortgages through the MERS system at greatly accelerated rates. With the snap of a finger, the Big Banks removed any predatory and high risk loans that they had issued immediately off their books.
According to a recent Wall Street Journal article, the creation of MERS essentially changed the way the ownership of mortgages were transferred and in doing so, they kept local county recorders offices out of the loop. The funny part is that they didn’t get permission to do this… they just did it without asking. Now lawsuits are popping up all over the country against MERS and the banks it services. For example, several states and counties are suing MERS for not paying recording fees (to the tune of billions of dollars). In addition, multiple class action lawsuits have sprung up from consumers claiming that MERS doesn’t have the right to start foreclosure proceedings on the consumer because they don’t legally own the loans any longer.
In Kentucky, attorney Heather Boone McKeever recently filed a state class-action suit and a federal civil-racketeering suit, both naming MERS. She argued in one filing that banks and lenders used MERS to facilitate “illegal mortgage registration, transfer and wrongful foreclosures” and that MERS “was created for the unlawful purpose of hiding and insulating the brokers and originators of predatory toxic loans from accountability and liability.”
What does all this mean? Well for one, it’s created a dirty, slimy black hole from which the banks may have a hard time crawling out. At a minimum, their fingers are going to be awfully dirty for a while! One doesn’t have to look very far to see the effects of the problems inherent with the MERS business model: Bank of America (one of the creators of MERS) announced today that they are temporarily halting foreclosures in all 50 states so they can investigate the mistakes that they have made and the possible fraud that occurred within their organization while processing foreclosures.
The darkness that is the foreclosure nightmare is now shining brightly on the lenders who blindly issued these loans. The fallout is just beginning…