A strange thing happened to the real estate market with the formation of “MERS” or Mortgage Electronic Registration Systems. Not only did it bring about the housing market collapse that started to show its teeth in 2008 but it was also responsible for the stock market collapse which brought the financial sector to its knees.
Who or what is “Mers”.
Mers is a mortgage warehousing entity set up by the giants in the home mortgage industry including but not limited to Fannie Mae, Freddie Mac, Chase, Bear Stearns, Merrill Lynch, Lehman Brothers, etc,etc. The trick behind Mers and it really is an amazing feat of financial magic is to split the mortgage package into a Note and a Mortgage.
There was a time when conventional mortgage lenders loaned a homeowner the funds to buy a home and then made a profit off the interest payments made by the homeowner over the twenty year span of the loan. Those days however are long gone for the banking industry found that it was far more profitable to get paid up front in the form of originating fees commonly called points and then to profit further by pocketing a percentage of the mortgage payments in the form of a servicing fee for the life of the mortgage.
When a borrower takes out a loan to buy a home they will sign two important documents at the closing.
A mortgage.
A note.
A mortgage is a security instrument which contains the remedies available to the note holder if the borrower defaults. On its own the Mortgage is waste paper. It only has power in relation to the Note which it was written to protect. The Mortgage is the document that gives the Note holder the right to foreclose.
A Note is an IOU. The Note states that the borrower owes the lender $xxx and will make monthly payments of principle and interest at xx% over xx years. It also states that if the borrower fails to abide by the terms of the Note that the Note holder can resort to any of the remedies available in the mortgage.
Almost all home loans issued in the last ten years were issued under Mers guidelines and control.
When the borrower of a Mers loan package signes the documents at the closing he/she signes a note which stated that the borrower is “Joe Doe” and the Lender is “Whatever Bank”. Basically and this is the important part the Note contains a Single Named Lender.
However the Mortgage document would state that the borrower is “Joe Doe” and the Lender is “Whatever Bank” and “Mers”. With this small twist the seeds are sown for the collapse of the world’s financial system and the collapse of the US housing market.
This is how it goes down after the closing.
The originating lender will almost immediately after the closing assign the mortgage to Mers who will warehouse it.
The Note which contains no mention of Mers will be blank endorsed by the originating lender. This blank endorsement allows it to be packaged with hundreds of similar Notes and placed in a mortgage backed security instrument and sold off to investors and hedge funds.
The Note is endorsed in the same fashion as you would endorse a check. On the back is written: Pay to the order of ___________________ and signed by an officer of the originating lender. Because it is blank endorsed, in theory blank or no one owns it.
The mortgage which is warehoused by Mers is assigned to one of its members to service. The homeowner will invariably receives a letter shortly after the closing informing them that their mortgage is now held by xxBank and that further payments should be directed to the servicing bank.
All is good in the financial empire that is Capitalism. The homeowner has the dream house, the originating lender has its points, the Mers member has a servicing agreement, and the investor has a nice return on his /her investment. Remember that the investor who now holds the Note in the form of a mortgage backed security is probably some town in Iceland, the Chinese Government or the Plumbers Union Pension Fund.
All would be good except this fairytale did not end in happy ever after. The stupid homeowner had to go and default causing a collapse of mammoth proportions. When this load hit the fan it obliterated the American Dream and put a Nightmare in its place.
But like every cloud there is a silver lining, for the homeowner anyway.
The homeowner has defaulted and the servicing bank initiates foreclosure proceeding as per the stipulations of the mortgage. Depending on the foreclosure laws in the state the home is located in the bank will proceed in slightly different ways. However the first thing that the servicing bank will do is register an assignment of Mortgage from Mers to the servicing bank in the local registry of deeds.
This assignment will state that the lender is now the mortgage holder. But as previously stated a mortgage without a Note is worth less than the paper it is written on. The problem for most home owners who find themselves in foreclosure is that they do nothing and the bank pushes an illegal foreclosure through the courts.
Ask the foreclosing bank to Produce The Note. They don’t have it. They might produce a copy of it with a blank endorsement which means that blank should be filing for foreclosure against the homeowner. If they produce an endorsed copy with someone other than them named as holder then that party should be the foreclosing party. If they produce a Note showing them as the legal holder of the note it is most probably a forgery and you should petition the court to have them record it before allowing the foreclosure to proceed.
The reality of almost every foreclosure in the last 10 years is that it was performed illegally, but this wrongdoing was allowed to occur by the homeowners who decided to passively allow the foreclosure to run its course and a legislature who is only interested in being reelected.
I am sure that in the near future the Government of our great country will enact legislation written by the banks to make it legal for a mortgage holder to foreclose because after all the congress and senate is owned by the banks. If you don’t believe me ask your local lobbyist.
However in the meantime if you find yourself at the wrong end of a foreclosure case ask the bank to Produce The Note to prove that they do actually have the legal right to be proceeding against you at all.
Let the battle cry of the foreclosure classed be Show ME The Note.
