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.

MERSCORP Responds:

Mortgage Electronic Registration Systems, Inc. (MERS) takes its role as a mortgagee very seriously. The MERS® System is an important part of the mortgage industry and the MERS business model has been consistently validated in all 50 states. All of the activities of MERSCORP and MERS are in compliance with state and federal laws. We are confident that as people understand more about MERS and the role we play, they will see that MERS adds great value to our nation’s system of housing finance in ways that benefit not just financial institutions, the broader economy and the government, but—most of all—homeowners.

AG Schneiderman Claim #1:
Defendants have improperly brought New York foreclosure proceedings in MERS’ Name

FACT: The right to bring a foreclosure action is determined by the plaintiff’s relationship to the mortgage loan, which is whether the entity bringing the action is the holder of the note or authorized by the holder of the note to bring a foreclosure action. MERS was authorized by the note holder to bring foreclosure actions in its name, and the borrower agreed that MERS may be the entity who may foreclose on the property in the event of a default. That being said, since July 2011 MERS no longer acts as foreclosing entity. In addition, MERSCORP never received a fee or made any money on foreclosures initiated in MERS’ name.

AG Schneiderman Claim #2:
MERS Certifying Officers, including defendant servicers’ employees and agents, have submitted false, deceptive and often legally invalid documents in New York foreclosure proceedings

FACT: When MERS is the mortgagee and is not the entity foreclosing, MERS executes an assignment of a mortgage that transfers all of the interests in the mortgage to the entity that is foreclosing prior to the commencement of the foreclosure. The courts have held that MERS may assign its interests, as a mortgagee, and that such assignments are valid.

AG Schneiderman Claim #3:
The use of MERS certifying officers by defendants has confused and deceived homeowners and the courts.

FACT: It is perfectly proper for MERS, as the mortgagee, in order to fulfill certain acts required of the mortgagee, to appoint signing officers (or agents) to act on MERS’ behalf. To act as a principal for its signing officers is not a deceptive trade practice. There is no requirement under New York law that a principal must disclose whether its agents are employed by another entity. These agents authorized to act on behalf of MERS are not employees of MERS, but employees of the loan servicers or sub-servicing companies. Signing officers are duly authorized to perform their responsibilities on behalf of MERS who is the mortgagee – in compliance with applicable laws – and to sign their own names and to use the titles “vice president” and “assistant secretary” of MERS.

AG Schneiderman Claim #4:
MERS and defendant servicers through their use of MERS have concealed important information from homeowners about their property and the role that MERS plays with respect to their mortgage.

FACT: MERS does not hide ownership or undermine the integrity of land records. Any mortgage holder registered in the MERS® System can easily access information related to their mortgage on our website or through a toll-free number. Federal law provides that consumers are notified for changes in investors or servicing status. In addition, county land records were not intended to identify the servicer of a mortgage or the current note holder; they are intended to provide notice to purchasers of property that there is a lien on the property and when that lien was perfected.

You can see a list of all comments on MND by clicking the 'Read the Latest Comments' option under the 'Community' menu.

View the original article here

The Mortgage Bankers Association (MBA) provided its annual assessment of The State of the Mortgage Industry in a press conference Wednesday afternoon.  Michael Young, MBA Chairman said that the states that have been hardest hit by the housing crisis are and will continue to deal with the aftermath but there are signs that in much of the nation 2012 will bring a recovering market.

One bright spot, Young said, is that the turmoil in the single family market has actually helped the multi-family sector; the rental market has tightened and more lenders have moved into the sector, especially life insurance companies.  In the residential market, he said, the one topic that is discussed everywhere is the lack of financing and what can be done about it.

David H. Stevens, MBA President and CEO said that lack of financing can be traced to a single factor, market uncertainty.  Part of it is uncertainty about international markets and how they might ultimately impact the domestic situation but there is also a tremendous amount of uncertainty about regulation.  Dodd-Frank, he said, has 300 regulations that have yet to be fully promulgated and the new Consumer Financial Protection Bureau (CFPB) and other regulators all have or are considering regulations about how loans can be provided and serviced.  There is uncertainty surrounding repurchases as well and while MBA believes lenders should be held accountable for their mistakes, they should not be held accountable for the loans performance if it failed solely due to changing economic circumstances.  For that reason MBA supports a time limit on the repurchase obligation.

Addressing three areas in particular, he said, would decrease a lot of the insecurity.  New regulations regarding Qualified Mortgages (QM) and Qualified Residential Mortgages (QRM) are eminent and QM will in effect, define what loans get made.  Mortgages which do not meet QM as laid out by CRPB will simply not get made because lenders will feel there is too much liability involved.   MBA supports certain parts of the QM such as the requirement for full documentation but other parts such as the point and fee cap lack flexibility and will disproportionately affect the pricing of small loans.  

Most of all, he said, the proposed regulations are too general.  There needs to be specificity in the underwriting standards such as in the definition of what constitutions "ability to repay."  Without a bright line in the regulations that enable a safe harbor for lenders, he said, any lending is going to be restricted on the margins and any loans that fall into the gap between QM and QRM will see significant price adjustments to reflect the liability.

While MBA also supports risk retention and much of the intent of the QRM such as eliminating no-docs and interest only and other exotic loans, regulators are going beyond the intent of Congress by adding debt to income and loan-to-value ratios.  The requirement for a 20 percent down payment will create a dual class system under QRM, with lower income borrowers, unable to amass the down payment; forced into FHA loans while there will be a private market for upper income borrowers.  Stevens said MBA will be "very aggressive" in making sure these changes to QRM are pulled back.

Another area of uncertainty is the 50-state settlement with servicers.  Borrowers don't care about their servicers until they get into trouble with their mortgages but then the multiple state and federal laws that govern servicing cause stress for the borrowers and for servicers and investors as well.  The settlement may provide a framework for national standards which would remove some of the uncertainty in this area.  In the same vein, Stevens said that President Obama's new fraud task force must be careful to avoid redundancy with other investigations and carefully measure how it impacts borrowers or it could create trepidation among lenders and further reluctance to lend.  

The present structure of the mortgage market with 90 percent of lending having some government involvement through the GSEs or FHA is simply unsustainable, Stevens said.  The private sector must be brought back into the market and the major players in the industry are close to agreement on what the future of the secondary market should look like.  This is very close to a model proposed by MBA some years ago which would have the following characteristics:

Transactions would be funded with private capital from a broad range of sources.The federal government should have a role in promoting stability and liquidity in the core mortgage market. This role should be in the form of an explicit credit guarantee on a class of mortgage-backed securities and the guarantee would be paid for by risk-based fees.Taxpayers and the system itself should be protected through limits on the mortgage products covered, the types of activities undertaken, strong risk-based capital requirement, and actuarially fair payments into a federal insurance fund.

In answer to a reporter's question about the chances of President Obama's streamlined refinancing program being approved, Stevens said it would be an uphill climb.  FHA is legislatively limited to loans with a maximum LTV of 97.5 percent so to go as high as 140 percent which Steven's said he expected the legislation to attempt will require full approval of Congress.

Jay Brinkmann, Senior Vice President and Chief Economists said he expects jobs to be created at about a 150,000 per month pace in 2012 but this will be uneven by location and dependent on an individual's education.  The length of unemployment hit a record high in November and persons with a high school education or less are remaining unemployed longer than those with a college degree.

According to Brinkmann, mortgage originations will drop from $1.26 trillion in 2011 to $992 billion in 2012 with most of the loss coming in refinancing.  The purchase market will be largely unchanged or will rise slightly.  This does not, however, reflect any changes that might be made in the HARP program or any unforeseen outside events.

You can see a list of all comments on MND by clicking the 'Read the Latest Comments' option under the 'Community' menu.

View the original article here