The Wall Street Journal real estate blog reports that Federal banking regulators will conduct an examination of MERS, the electronic mortgage and servicing rights data service (hat tip ForeclosureHamlet). As much as scrutiny of MERS is very much in order, it remains an open question as to whether this effort is serious.
One impetus for this review is an article by Chris Peterson, which was very critical of MERS’ inconsistent roles. For instance, the manner in which MERS registers mortgages in local courthouses is problematic:
MERS’s rights vis-à-vis mortgages registered on the MERSCORP database have created a conundrum for courts, borrowers, and foreclosure attorneys. In boilerplate security agreements included in mortgages and deeds of trust around the country, lenders include this clause:
“MERS” is Mortgage Electronic Registration Systems, Inc. MERS is a separate corporation that is acting solely as nominee for Lender and Lender’s successors and assigns. MERS is the mortgagee under this Security Instrument….
On the one hand, MERS purports to be acting as a nominee—a form of an agent. On the other hand, it also is claiming to be an actual mortgagee, which is to say an owner of the real property right to foreclose upon the security interest. It is axiomatic that a company cannot be both an agent and a principal with respect to the same right.19 In litigation all across the country, attorneys representing MERS frequently take inconsistent positions on the legal status of the company, depending on the legal issue at hand.
Both the MERS-as-an-agent and the MERS-as-an-actual mortgagee theories have significant legal problems. If MERS is merely an agent of the actual lender, it is extremely unclear that it has the authority to list itself as a mortgagee or deed of trust beneficiary under state land title recording acts. These statutes do not have provisions authorizing financial institutions to use the name of a shell company, nominee, or some other form of an agent instead of the actual owner of the interest in the land. After all the point of these statutes is to provide a transparent, reliable, record of actual—as opposed to nominal—land ownership.
Conversely, if MERS is actually a mortgagee, then while it may have authority to record mortgages in its own name, both MERS and financial institutions investing in MERS-recorded mortgages run afoul of longstanding precedent on the inseparability of promissory notes and mortgages. Since the 19th century a long and still vital line of cases has held that mortgages and deeds of trust may not be separated from the promissory notes that create the underlying obligation triggering foreclosure rights.2
As troubling is MERS’ lax corporate governance. The parent, MERSCORP, has under 50 employees; the subsidiary MERS, which is the database, has no employees. It instead relies on the peculiar procedure of having employees of MERS members (typically, bank servicing units and foreclosure mills) temporarily become MERS officers for the sole purpose of taking action in MERS’ name:
As a practical matter, the incoherence of MERS’ legal position is exacerbated by a corporate structure that is so unorthodox as to arguably be considered fraudulent. Because MERSCORP is a company of relatively modest size, it does not have the personnel to deal with legal problems created by its purported ownership of millions of home mortgages. To accommodate the massive amount of paperwork and litigation involved with its business model, MERSCORP simply farms out the MERS, Inc. identity to employees of mortgage servicers, originators, debt collectors, and foreclosure law firms.22 Instead, MERS invites financial companies to enter names of their own employees into a MERS webpage which then automatically regurgitates boilerplate “corporate resolutions” that purport to name the employees of other companies as “certifying officers” of MERS.23 These certifying officers also take job titles from MERS stylizing themselves as either assistant secretaries or vice presidents of the MERS, rather than the company that actually employs them. These employees of the servicers, debt collectors, and law firms sign documents pretending to be vice presidents or assistant secretaries of MERS, Inc. even though neither MERSCORP, Inc. nor MERS, Inc. pays any compensation or provides benefits to them. Astonishingly, MERS “vice presidents” are simply paralegals, customer service representatives, and foreclosure attorneys employed by other companies. MERS even sells its corporate seal to non-employees on its internet web page for $25.00 each.24 Ironically, MERS, Inc.—a company that pretends to own 60% of the nation’s residential mortgages—does not have any of its own employees but still purports to have “thousands” of assistant secretaries and vice presidents.
To be more precise, in Senate testimony earlier this week, MERS president R.K. Arnold said MERS has over 20,000 certifying officers.
To give you an idea of how little control MERS has over the activities of its supposed officers, consider this discussion from a November 11, 2009 deposition of MERSCORP’s William Hultman by Nick Wooten (see page 148):
Q. Is there anyone at MERS who verifies that the acts being undertaken in the name of MERS by its certifying officers are acts which are authorized by this corporate resolution?
A. There’s no one at MERS other than the officers who generally oversee the activities of the certifying officers. However, there are employees of the parent corporation MERSCORP that regularly audit the activities of our members to ensure that they are complying with our rules and procedures in our agreement with them.
Q. Who are those employees?
A. They are the people who work in the law department and the people who work in the products performance division — department.
Q. How many of those people are they?
A. I think there is, there are seven in the law department, and product performance department’s probably, and that — I don’t know off the top of my head because I haven’t looked at the org chart lately, but there’s probably seven or eight or nine people there.
Q. Well, let’s just go with the highest number. Seven in law and nine in product performance. So 16 people out of 47?
A. Give or take, yeah.
Q. And you say those 16 people are involved in auditing the thousands of transactions executed daily by the thousands of certifying officers of MERS?
A. I didn’t say that….
Q. Okay. How much time in a typical day do those 16 people spend auditing the activities of certifying officers?
A. I have no idea.
Q. You are in charge of the law department, aren’t you?
A. No.
Q. You are in charge of what department?
A. I’m in charge of the corporate group or the corporate division.
Q. Does that include the law department?
A. It does.
Q. Who’s in charge of the law department?
A. Sharon Horstkamp.
Q. Does Sharon Horstkamp report to you?
A. She does.
Q. Okay. Do you receive reports on the frequency of audits undertaken by her department?
A. I do not….
Q. Right. And so again my question is there are 16 people designated to look at that issue, and you have thousands of certifying officers; correct?
A. Are you asking me if I have thousands of certifying officers?
Q. Yes.
A. Yes.
Q. You have 16 people who look at their compliance with this resolution?
A. Generally, yes.
Q. And do you have any idea daily how many transactions are taken in the name of MERS by these thousands of corporate certifying officers?
A. Generally, no.
Q. Okay. Is there any way that MERS is able to track every transaction conducted in the name of MERS by a certifying officer?
A. Only to the extent that it’s reported to us either systematically or it’s reported to a certifying officer within the organi- — the servicing organization.
Q. So I mean I guess again my point is there are thousands of transactions on a daily basis that MERS has no record of; right?
A. I don’t know that there are thousands of transactions being taken daily by the certifying officers.
Q. Well, let’s just talk about this affidavit we were discussing with respect to the Harmon Law Offices. Do you have any records in MERS system of the number of affidavits of nonmilitary status executed on a daily basis?
A. In which systems are we speaking?
Q. In MERS system.
A. In the MERS, the computer automated systems?
Q. In any method of storage, retrieval, archiving that is available to you and that you use, do you have any record of the number of affidavits of nonmilitary status executed by a certifying officer on a daily basis in this country?
A. Only to the extent that that information has been reported to another certifying officer of the servicer.
Q. Okay. And how would you obtain that information?
A. I would call the servicer up.
Q. Okay. So that is not a MERS record?
A. Well, to the extent that it’s in the custody of the MERS certifying officer we would consider that a MERS record.
Q. Outside of the servicer’s own system — well, first of all, let me ask it this way. Is the servicer required to report these activities to you on a daily, weekly, monthly basis?
A. Which services?
Q. Affidavits of nonmilitary status.
A. They are not required to report that to us.
Q. Do they report that to you?
A. They do not.
Q. Okay. And on your own systems do you have any records of the number of affidavits of nonmilitary status that are executed on a daily basis?
A. If you’re talking about the MERS system, no.
Q. Okay. What about any other system owned or operated by MERS?
A. Generally, no.
Q. Okay. What about assignments of mortgage or deeds
of trust?
A. What about them?
Q. Do you have any idea how many of those are done on a daily basis by MERS certifying officers?
A. I do not.
Q. Do you have access to that through the MERS system or any other system maintained, owned, controlled and operated by MERS?
A. Only to the extent that we ask the servicer they provide that information to us.
Q. So they do not put that information on the MERS system as a matter of course?
A. Put what stuff on?
Q. I’m sorry. Let me try to ask a better question. Assignments of a mortgage or a deed of trust are not generally reported to MERS on a daily basis, are they?
A. Correct.
Q. And MERS has no records of its own about how many mortgage assignments or assignments of deeds of trust are undertaken in its name on a daily basis, does it?
A. Only to the extent that that information is not in the hands of the MERS certifying officer for a particular servicer.
Q. If you wanted to stop this deposition and go call someone at MERS and say how many assignments have been done in our name today of a mortgage or deed of trust, you could not get that information that simply, could you?
A. I could get the information, but it might take some time.
Q. So there’s nothing in your system that catalogs how frequently that occurs?
A. There’s nothing in the MERS system or the automated systems that we operate for our members that has that information readily available.
Q. And you rely on the servicers to keep any records of that if any records are kept?
A. Yes.
Q. How about foreclosure deeds? Do you have any record of how many foreclosure deeds are executed in the name of MERS on a daily basis in this country by certifying officers?
A. No….
Q. — I mean do you have any idea how many endorsements are done in the name of MERS?
A. No, I do not.
Q. Do you have any idea how many proofs of claim are filed in the name of MERS on a daily basis?
A. I do not.
It gets even better. Between this deposition, and an earlier one of MERSCORP president R.K. Arnold by Nick Wooten, one get a more complete picture of how lax MERS’ operational controls are. MERS does keep a record of who its certifying officers are, but it has not record of what actions any particular certifying officer has taken. This would seem to be a fatal shortcoming in conducting any kind of audit. Arnold maintained that MERSCORP did various quality reviews, but was unable to say what they consisted of or even who on his team was responsible for them.
Both depositions make clear that the integrity system rest entirely on timely and accurate entries by MERS members. Since MERSCORP lacks access to any of the underlying records, it is impossible for it to vet accuracy even if it wanted to absent extensive cooperation with the servicer and document custodian.
For those of you who have the patience, below are the depositions.
September 25. 2009 Deposition of R.K. Arnold, MERSCORP
November 11. 2009 Deposition of William Hultman, MERSCORP
The banks are simply not likely to self-correct. Their financial incentives run entirely the wrong way – servicers make money on foreclosures and don’t think they’ll be held to account for faking documents. I’m glad that this investigation, whatever it is, will share information with the 50 state AGs, but let’s keep in mind, Treasury has “held accountable” the servicers for clear violations of the guidelines in HAMP by not imposing one sanction or financial levy on them. And past history suggests that, if the problem is wide enough to present a systemic risk, the likelihood that Treasury moves heaven and earth to shovel the banks money instead of unwinding the largest firms goes way up. I don’t know how they can get that accomplished with a Congress which simply won’t go near bailouts anymore, but nothing in this review process makes me believe that Treasury’s prime directive has shifted away from “protect the banks.”
Salmon did get Barr to say “You should hold us to whether things get better or worse. If a year from now nothing has changed, that would be a reasonable criticism.” I’m sure I can find someone to make it. Yves Smith, for example.
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bench craft company scamIn <b>News</b> Conferences, Obama Shoots at the Buzzer - NYTimes.com
President Obama, as usual, saved his most powerful words for the end of his press conference on taxes and economic policy.
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Follow the latest reaction and fallout as the WikiLeaks founder Julian Assange is denied bail, and the latest leaked cables reveal US plans to defend Poland and Baltic states against Russia.
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bench craft company scamIn <b>News</b> Conferences, Obama Shoots at the Buzzer - NYTimes.com
President Obama, as usual, saved his most powerful words for the end of his press conference on taxes and economic policy.
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Follow the latest reaction and fallout as the WikiLeaks founder Julian Assange is denied bail, and the latest leaked cables reveal US plans to defend Poland and Baltic states against Russia.
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bench craft company scamIn <b>News</b> Conferences, Obama Shoots at the Buzzer - NYTimes.com
President Obama, as usual, saved his most powerful words for the end of his press conference on taxes and economic policy.
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Follow the latest reaction and fallout as the WikiLeaks founder Julian Assange is denied bail, and the latest leaked cables reveal US plans to defend Poland and Baltic states against Russia.
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bench craft company scamIn <b>News</b> Conferences, Obama Shoots at the Buzzer - NYTimes.com
President Obama, as usual, saved his most powerful words for the end of his press conference on taxes and economic policy.
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Follow the latest reaction and fallout as the WikiLeaks founder Julian Assange is denied bail, and the latest leaked cables reveal US plans to defend Poland and Baltic states against Russia.
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bench craft company scamIn <b>News</b> Conferences, Obama Shoots at the Buzzer - NYTimes.com
President Obama, as usual, saved his most powerful words for the end of his press conference on taxes and economic policy.
The arrest of Julian Assange: as it happened | <b>News</b> | guardian.co.uk
Follow the latest reaction and fallout as the WikiLeaks founder Julian Assange is denied bail, and the latest leaked cables reveal US plans to defend Poland and Baltic states against Russia.
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bench craft company scamIn <b>News</b> Conferences, Obama Shoots at the Buzzer - NYTimes.com
President Obama, as usual, saved his most powerful words for the end of his press conference on taxes and economic policy.
The arrest of Julian Assange: as it happened | <b>News</b> | guardian.co.uk
Follow the latest reaction and fallout as the WikiLeaks founder Julian Assange is denied bail, and the latest leaked cables reveal US plans to defend Poland and Baltic states against Russia.
Good <b>News</b>/Bad <b>News</b>: Kansas City Chiefs - Bolts From The Blue
Looking at the Kansas City Chiefs' record this year on the road and against common opponents to the Chargers.
bench craft company scamIn <b>News</b> Conferences, Obama Shoots at the Buzzer - NYTimes.com
President Obama, as usual, saved his most powerful words for the end of his press conference on taxes and economic policy.
The arrest of Julian Assange: as it happened | <b>News</b> | guardian.co.uk
Follow the latest reaction and fallout as the WikiLeaks founder Julian Assange is denied bail, and the latest leaked cables reveal US plans to defend Poland and Baltic states against Russia.
Good <b>News</b>/Bad <b>News</b>: Kansas City Chiefs - Bolts From The Blue
Looking at the Kansas City Chiefs' record this year on the road and against common opponents to the Chargers.
bench craft company scamIn <b>News</b> Conferences, Obama Shoots at the Buzzer - NYTimes.com
President Obama, as usual, saved his most powerful words for the end of his press conference on taxes and economic policy.
The arrest of Julian Assange: as it happened | <b>News</b> | guardian.co.uk
Follow the latest reaction and fallout as the WikiLeaks founder Julian Assange is denied bail, and the latest leaked cables reveal US plans to defend Poland and Baltic states against Russia.
Good <b>News</b>/Bad <b>News</b>: Kansas City Chiefs - Bolts From The Blue
Looking at the Kansas City Chiefs' record this year on the road and against common opponents to the Chargers.
bench craft company scamIn <b>News</b> Conferences, Obama Shoots at the Buzzer - NYTimes.com
President Obama, as usual, saved his most powerful words for the end of his press conference on taxes and economic policy.
The arrest of Julian Assange: as it happened | <b>News</b> | guardian.co.uk
Follow the latest reaction and fallout as the WikiLeaks founder Julian Assange is denied bail, and the latest leaked cables reveal US plans to defend Poland and Baltic states against Russia.
Good <b>News</b>/Bad <b>News</b>: Kansas City Chiefs - Bolts From The Blue
Looking at the Kansas City Chiefs' record this year on the road and against common opponents to the Chargers.
bench craft company scamIn <b>News</b> Conferences, Obama Shoots at the Buzzer - NYTimes.com
President Obama, as usual, saved his most powerful words for the end of his press conference on taxes and economic policy.
The arrest of Julian Assange: as it happened | <b>News</b> | guardian.co.uk
Follow the latest reaction and fallout as the WikiLeaks founder Julian Assange is denied bail, and the latest leaked cables reveal US plans to defend Poland and Baltic states against Russia.
Good <b>News</b>/Bad <b>News</b>: Kansas City Chiefs - Bolts From The Blue
Looking at the Kansas City Chiefs' record this year on the road and against common opponents to the Chargers.
bench craft company scamIn <b>News</b> Conferences, Obama Shoots at the Buzzer - NYTimes.com
President Obama, as usual, saved his most powerful words for the end of his press conference on taxes and economic policy.
The arrest of Julian Assange: as it happened | <b>News</b> | guardian.co.uk
Follow the latest reaction and fallout as the WikiLeaks founder Julian Assange is denied bail, and the latest leaked cables reveal US plans to defend Poland and Baltic states against Russia.
Good <b>News</b>/Bad <b>News</b>: Kansas City Chiefs - Bolts From The Blue
Looking at the Kansas City Chiefs' record this year on the road and against common opponents to the Chargers.
bench craft company scamIn <b>News</b> Conferences, Obama Shoots at the Buzzer - NYTimes.com
President Obama, as usual, saved his most powerful words for the end of his press conference on taxes and economic policy.
The arrest of Julian Assange: as it happened | <b>News</b> | guardian.co.uk
Follow the latest reaction and fallout as the WikiLeaks founder Julian Assange is denied bail, and the latest leaked cables reveal US plans to defend Poland and Baltic states against Russia.
Good <b>News</b>/Bad <b>News</b>: Kansas City Chiefs - Bolts From The Blue
Looking at the Kansas City Chiefs' record this year on the road and against common opponents to the Chargers.
bench craft company scamIn <b>News</b> Conferences, Obama Shoots at the Buzzer - NYTimes.com
President Obama, as usual, saved his most powerful words for the end of his press conference on taxes and economic policy.
The arrest of Julian Assange: as it happened | <b>News</b> | guardian.co.uk
Follow the latest reaction and fallout as the WikiLeaks founder Julian Assange is denied bail, and the latest leaked cables reveal US plans to defend Poland and Baltic states against Russia.
Good <b>News</b>/Bad <b>News</b>: Kansas City Chiefs - Bolts From The Blue
Looking at the Kansas City Chiefs' record this year on the road and against common opponents to the Chargers.
bench craft company scamIn <b>News</b> Conferences, Obama Shoots at the Buzzer - NYTimes.com
President Obama, as usual, saved his most powerful words for the end of his press conference on taxes and economic policy.
The arrest of Julian Assange: as it happened | <b>News</b> | guardian.co.uk
Follow the latest reaction and fallout as the WikiLeaks founder Julian Assange is denied bail, and the latest leaked cables reveal US plans to defend Poland and Baltic states against Russia.
Good <b>News</b>/Bad <b>News</b>: Kansas City Chiefs - Bolts From The Blue
Looking at the Kansas City Chiefs' record this year on the road and against common opponents to the Chargers.
bench craft company scamIn <b>News</b> Conferences, Obama Shoots at the Buzzer - NYTimes.com
President Obama, as usual, saved his most powerful words for the end of his press conference on taxes and economic policy.
The arrest of Julian Assange: as it happened | <b>News</b> | guardian.co.uk
Follow the latest reaction and fallout as the WikiLeaks founder Julian Assange is denied bail, and the latest leaked cables reveal US plans to defend Poland and Baltic states against Russia.
Good <b>News</b>/Bad <b>News</b>: Kansas City Chiefs - Bolts From The Blue
Looking at the Kansas City Chiefs' record this year on the road and against common opponents to the Chargers.
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