MERS, Banks Sued by New York State; MERSCORP Responds

Three major banks and Virginia-based
MERSCORP, Inc. and its subsidiary Mortgage Electronic Registrations Systems
(MERS) were sued Friday by the state of New York.  The suit, filed by the state’s Attorney
General Eric T. Schneiderman
, charges that the creation and use of a privately
national electronic registration system, MERS, “has resulted in a wide range of deceptive and fraudulent foreclosure
filings in New York state and federal courts, harming homeowners and
undermining the integrity of the judicial foreclosure process.”  Further, the lawsuit charges that the
employees and agents of the three banks, Bank of America, J.P. Morgan Chase,
and Wells Fargo
, acting as “MERS certifying officers,” have
repeatedly submitted court documents containing false and misleading information
that made it appear that the foreclosing party had the authority to bring a
case when in fact it may not have.  The
suit also names additional defendants for some of the charges including loan
servicing subsidiaries of the three banks.

The
lawsuit, filed in the Supreme Court of the State of New York, Kings County levies
the following charges:   

  • MERS was created to allow financial
    institutions to evade country recording fees, avoid the need to publicly record
    mortgage transfers and facilitate the rapid sale and securitization of
    mortgages. MERS members log all of their
    transfers in a private electronic registry rather than in the local county
    clerk’s office.
     
  • MERS is a shell company with no
    economic interest in any mortgage loan.
    It is the nominal “mortgagee” of the loan in the public records and
    remains as such regardless of how often the loan is sold or transferred among
    its members.
     
  • MERS has few or no employees but
    serves as the mortgagee for tens of millions of mortgages. It has indiscriminately designated over
    20,000 MERS member employees as MERS “certifying officers” expressly
    authorizing them to assign MERS mortgages and execute paperwork to foreclose on
    properties and submit claims in bankruptcy proceedings while failing to
    adequately screen, train, or monitor their activities. Assignments were often automatically
    generated and “robo-signed” by individuals who did not review the
    underlying property ownership records, confirm the documents’ accuracy, or even
    read the documents. MERS certifying
    officers have regularly executed and submitted in court mortgage assignments
    and other legal documents on behalf of MERS without disclosing that they are
    not MERS employees, but instead are employed by other entities, such as the
    mortgage servicer filing the case or its counsel.
     
  • Use of the private database to
    record property transfers has eliminated homeowners’ and the public’s ability
    to track them through the traditional public records system. This data base is plagued with inaccuracies
    and errors which make it difficult to verify the chain of title or the current
    note-holder. In addition, as a result of these
    inaccuracies, MERS has filed mortgage satisfactions against the wrong property.
     
  • This “bizarre and complex end-around
    of the traditional recording system” has saved banks more than $2 billion in
    recording fees and allowed the banks to securitize and sell millions of loans, “often
    misrepresenting the quality and nature of the mortgages being transferred.”
     
  • The creation and use of the MERS
    System by the Defendant Servicers and other financial institutions has resulted
    in a wide range of deceptive and illegal practices, particularly with respect
    to the filing of New York foreclosure proceedings in state courts and federal
    bankruptcy proceedings.

The lawsuit estimates that MERS
members have brought over 13,000 foreclosures against New York homeowners
naming MERS as the foreclosing property when in many cases MERS lacks the
standing to foreclosure.  Even when
foreclosures were not initiated in MERS name, proceedings related to their
registered loans often included deceptive information.

The lawsuit seeks a declaration that
the alleged practices violate the law, as well as injunctive relief, damages
for harmed homeowners, and civil penalties. The lawsuit also seeks a court
order requiring defendants to take all actions necessary to cure any title
defects and clear any improper liens resulting from their fraudulent and
deceptive acts and practices.

On January 24 the U.S. Court of
Appeals for the 11th Judicial Court upheld an appeal from MERS that
contended a lower court had erred in finding that a homeowner had been
improperly foreclosed on by MERS on the grounds that:

1).   The assignment of the security deed was
invalid because MERS, as nominee of a defunct lender could not assign the
documents of its own volition.

2.
    The “splitting” of the mortgage and
the note rendered the mortgage null and void and therefore notices of
foreclosure were invalid as not coming from a secured creditor.

The New York suit differs slightly from
the facts in Smith V. Saxon Mortgage,
but if Schneiderman wins his case, it could be that the legitimacy of MERS will
ultimately have to be decided by the U.S. Supreme Court.

…(read more)

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Good Riddance 30-Year Fixed Mortgage? Not So Fast…

Peter
J. Wallison’s recent article in the Wall Street Journal on government support
of the residential housing market (“What’s So Special About the 30-Year
Mortgage?
“) is an interesting academic exercise but it has no relevance to
the reality of the U.S. housing market.

While
it is true that, for many years over the life of a 30-year loan, most of the
payments go to interest and not principle, if we were to remove the tax
deductibility of the interest paid
(regardless of the term of amortization) as
some have suggested, we would remove another 33% of value from the American homeowner,
based on the marginal rate at the Federal level of 28% and the average State
and local tax rate of 5%.

 

…(read more)

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On Foreclosures, Uncle Sam Courts Investors

On Wednesday, a U.S. housing regulator invited investors to submit initial applications to bid on pools of foreclosed properties owned by Fannie Mae, the government-controlled mortgage finance company, as part of a new pilot program.

The goal is to help stabilize the troubled housing market by turning properties into rental units. Similar programs are expected to be launched by Fannie Mae’s sibling company, Freddie Mac, and the Federal Housing Administration, the government-controlled mortgage insurer.

That pilot program would be limited to properties that Fannie has already leased through a program that allows tenants to rent homes when their landlords go into foreclosure. It involves real estate with an estimated value of at least $250 million in six areas: Southern California, Las Vegas, Chicago, Phoenix, Atlanta, and parts of Florida.

There are many more foreclosures that could be pooled into packages and sold to investors. More than 83,000 foreclosures were listed for sale by Fannie, Freddie or the Federal Housing Administration as of late December, with the largest concentrations in California, Georgia, Michigan and Florida. (View map.)

The idea of packaging these properties and selling them to investors has been kicking around in policy circles for quite a while now and has been seriously discussed by Obama administration, Federal Reserve officials and regulators since at least last summer.

“We’re working to turn more foreclosed homes into rental housing, because as we know and a lot of families know, that empty house or ‘for sale’ sign down the block can bring down the price of homes across the neighborhood,” President Barack Obama said in a speech Wednesday in Virginia.

The FHFA is setting up this pre-qualification process to make sure investors in such properties have strong enough finances and enough experience to handle the process. Investors would be required to rent out the foreclosures for several years.

Regulators selected Fannie Mae to run the pilot program rather than Freddie Mac because it has a larger inventory of foreclosures — more than 55,000 were listed for sale as of late December — and because it was easier to launch a pilot initiative with only one of the federally controlled mortgage giants.

–Nick Timiraos contributed to this report.

Follow Alan @alanzibel

HUD SECRETARY ANNOUNCES DISASTER ASSISTANCE FOR UTAH STORM VICTIMS

WASHINGTON-U.S. Housing and Urban Development Secretary Shaun Donovan today announced HUD will speed federal disaster assistance to the State of Utah and provide support to homeowners and low-income renters forced from their homes following severe storms in November and December.

HUD SECRETARY ANNOUNCES DISASTER ASSISTANCE FOR ALABAMA STORM VICTIMS

WASHINGTON-U.S. Housing and Urban Development Secretary Shaun Donovan today announced HUD will speed federal disaster assistance to the State of Alabama and provide support to homeowners and low-income renters forced from their homes following severe storms, straight-line winds and flooding last month.