enobosarm
9
Jan

Who Is Mortgage Electronic

   Posted by: chris   in Fish Talk

Growing up in Ireland we had a strange phenomenon called hovering the floor. It conjures up visions of a leprechaun having an out of body experience. In actuality we were vacuuming the floor with a Hover brand vacuum cleaner. Later in Boston as an electrician we wired houses with Romex. Once again a generic term had captured a niche.

A Google search for the term “how to get a mortgage” yields 1,900,000 results

A Google search for the term “how to give a mortgage” yields this reply from Google:

No results found for “how to give a mortgage”.

What this means is that the phrase how to give a mortgage basically doesn’t exist in the vocabulary of the general population, and this in a world where half of the population has given a mortgage at one time or another is very strange indeed.

You don’t get a mortgage, you give a mortgage

Here is how a home loan commonly referred to by the generic term mortgage actually works.

A borrower gets a loan from a financial institution. In return for this loan the borrower signs a Note which is basically an IOU for the amount borrowed.

Now the borrower uses the money borrowed to purchase a home and if nothing else happened the borrower would have an unsecured loan and would own a home free and clear. If the borrower decided to stop making payments on the loan the lender would be up the proverbial creek. But the lender is wise and asks for security for the money lent under the terms of the Note.

A Mortgage is a security instrument signed by a borrower laying out remedies available to the Note Holder in the event that the borrower defaults on the terms of the Note.

The borrower in most home loan scenarios signs a note and a mortgage at a closing. The bank gives the funds to buy the home. The borrower gives the bank a mortgage as security. If the loan is not repaid as per the note the bank can take the home as per the mortgage.

Here is the unbelievable point that we have been leading up to. A note without a mortgage is unsecured debt.

In a recent Kansa Court of Appeals decision in a case brought by Landmark National Bank against Boyd A Kessler   the court found against the lender because the mortgage had been split from the note thereby rendering the note unsecured.

This quote is part of the courts ruling:

“By statute, assignment of the mortgage carries with it the assignment of the debt. . . . Indeed, in the event that a mortgage loan somehow separates interests of the note and the deed of trust, with the deed of trust lying with some independent entity, the mortgage may become unenforceable. The practical effect of splitting the deed of trust from the promissory note is to make it impossible for the holder of the note to foreclose, unless the holder of the deed of trust is the agent of the holder of the note. Without the agency relationship, the person holding only the note lacks the power to foreclose in the event of default. The person holding only the deed of trust will never experience default because only the holder of the note is entitled to payment of the underlying obligation. The mortgage loan becomes ineffectual when the note holder did not also hold the deed of trust.” (emphasis added).

Read Full Ruling here

Now we come to Mortgage Electronic Registration Systems AKA Mers Inc.

Mers is:

  • A privately held company
  • Its membership comprises of all the large lending institutions including Fannie Mae and Freddie Mac. It is interesting to note that the majority owner of both Fannie and Freddie is the US Government.
  • An electronic registry of Mortgages and Notes

 

Mers was set up and is owned by the large banking institutions supposedly to save money on legal fees and paper work by warehousing mortgages and naming Mers as mortgagee. This allows notes to be traded without the need for documentation. In theory regardless of who holds the note Mers holds the power to foreclose in the event of default.

This neat little trick opened up the floodgates that lead to the housing market collapse which almost lead to a meltdown of the financial system and capitalism to boot.

Time was before Mers that both a note and a mortgage would be recorded in the registry of deeds. In most cases the note and the mortgage would be the same document.

However with the founding of Mers only the mortgage needed to be recorded. A note like a check, dollar bill, bond or stock certificate is a negotiable instrument owned by the holder. Being  negotiable instruments notes can be sold and sold they were.

The trick that to the banking world was the equivalent of alchemy was to:

  1. Write a Home Loan.
  2. Name both the Lender and Mers in the Mortgage
  3. Name only the Lender in the Note.
  4. Immediately after closing the Mortgage is recorded in the Registry of Deeds representing a lien against the deed in the chain of title.
  5. The Note is packaged and sold on the secondary market by a hedge fund to the City of Reykjavik in Iceland or the Plumbers Union Pension Fund.
  6. The servicing rights to the loan are assigned to one of Mers members.
  7. In a period of days funds are replenished by the sale of the note to the investor and the process is repeated.

 

This process created enormous profits for the banking institutions enticing them to lower lending standards to a point were most loans at the end of the boom where so called No Doc Loans.

A no doc loan basically required that the borrower had a pulse.

The banks were amassing colossal sums from loan originating fees and even more from servicing fees so it was in their very best interest to see that the party continued. But as with all good parties the hangover is a curse.

The first step in the foreclosure process for a mortgage warehoused by Mers is to assign it to the servicing bank to process the foreclosure. In recent years they have taken to including the wording “assigns the mortgage and note” in the Assignment of Mortgage. This wording is an attempt to head off legal challenges to foreclosure proceedings by a non note holder which is exactly what the servicing bank is.

In a recent case in Springfield Massachusetts US National Bank and Wells Fargo found themselves in a pickle with a bad title on a property they had foreclosed on. So when all else failed the lender went to the Land  Court and petitioned the justice to get them out of the large hold that they had dug themselves into. The Judge said “no” and the bank appealed his ruling. After six months contemplating his ruling the Judge upheld his ruling and told the bank that it had created the problem and that it was up to them to fix it. No doubt lobbyists are in the process of fixing our fearless Congress to write a law or two and fix the problem.

See full ruling here.

Interesting Blog Article

Almost every foreclosure in recent years that involved Mortgage Electronic Registration Systems was processed if not illegally or fraudulently then definitely in a sinister non transparent fashion. And if there is need for secrecy the question must always be asked “why”.

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This entry was posted on Saturday, January 9th, 2010 at 5:45 pm and is filed under Fish Talk. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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