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In middle of foreclosure chaos, local firm keeps popping up

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By Brady Dennis and Ariana Eunjung Cha
Washington Post Staff Writers
Friday, October 8, 2010

As courts across the country face a wave of foreclosures, a name little known to the public has cropped up on thousands of court filings as a stand-in for prominent banks, lenders and mortgage servicers.

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Mortgage Electronic Registration Systems (MERS), headquartered in a nondescript office building in Reston Town Center, has flourished quietly over the past decade, saving financial firms hundreds of millions of dollars by helping them avoid the time and expense of filing mortgage documents and paying fees each time a loan changes hands.

Its motto: "Process loans, not paperwork."

But lawyers throughout the country increasingly are challenging that approach, questioning whether the company has the legal right to foreclose on homes, on the grounds that it doesn't actually own mortgages. And the argument is gaining traction with some judges.

Yet without proper paperwork to establish ownership, banks and other lenders have also faced legal difficulties with seizing homes when borrowers default. The result in some cases has been the use of flawed and fraudulent documents in foreclosure cases.

Concerns about improper paperwork have prompted some of the nation's largest lenders and several states to halt foreclosures until companies can provide proof that they own the mortgages and have a right to seize the homes.

The MERS headquarters is tucked amid chain restaurants and retail stores near Dulles International Airport. But the firm's reach extends far beyond this slice of suburbia.

The company is an integral part of the system that emerged during the global housing boom, when mortgages were created and sold, sliced and diced, packaged and repackaged so quickly that financial firms had neither the time nor the patience to file paperwork in local courthouses as the loans were traded. By using MERS, lenders were able to reassign loans quickly and cheaply. But often the chain of ownership was not accompanied by an official paper trail.

The MERS registry tracks more than 65 million mortgages throughout the country and continues to facilitate rapid-fire transfers that keep the market for mortgage-backed securities humming.

But if courts increasingly begin to nullify the MERS model - different judges have issued differing rulings - this could call into question the legitimacy of millions of mortgages, wreak havoc on the real estate market, spur costly litigation against Wall Street banks and ultimately harm the broader financial system.

Faster, easier

The land title system that went largely unchallenged in the United States for centuries became an obstacle in the 1990s. That's when financial firms began to ramp up a process called securitization, bundling and selling pools of home loans to sell to investors. Each time the loans were reassigned, the new owner had to record the transfers with local clerks.

Several executives in the mortgage industry came up with a faster, easier approach: MERS. The list of MERS shareholders includes an array of banks, lenders and title companies. Among them: Fannie Mae, Freddie Mac, Bank of America, GMAC, Washington Mutual, Wells Fargo and AIG's United Guaranty Corp.


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