The mother-of-all MERS fixes

Here’s an, erm, efficient way to solve problems around MERS — the Mortgage Electronic Registration Systems Inc. that’s been making headlines in recent months.

From an unconfirmed report by consumer-advocate Neil Garfield:

After years of negative judicial decisions about the use of a straw-man on mortgages, MERS was about to lose its existence as well as its credibility. But now all of that is set to change as Wall Street money is pouring into the coffers of those who are receptive (i.e., almost everyone in Congress). The legislation is already being drafted under the interstate commerce clause to ratify MERS and everything it did retroactively. It appears that the Obama administration is ready to pardon all the securitization deviants by signing this bill into law. This information is corroborated by several people who are in sensitive positions — persons who would be the first to know such proposals. Fortunately, there are some people in Washington who have a conscience and do not want to see this happen.

As John Carney has already noted — Garfield’s first line is overstated. MERS has had mixed success in lawsuits — though lately the balance seems to have tipped against it.

As a reminder MERS was created in 1997 by banks, partially as a way for financials to get round having to file paperwork and pay fees to county record offices, every time a mortgage switched hands. For context, back in 1999, when MERS was really getting off the ground, these fees ranged from $25 to $50 per loan. Registering a loan with MERS cost a mere $3.50. Multiply those differences by the circa 60m mortgages currently contained in the MERS database and you should get a very basic idea of what savings banks have enjoyed via MERS in recent years.

Blanket-retroactive legislation to ratify MERS across all 50 states could be considered unfair, of course. They have, after all, deprived counties of valuable revenue in their rush to securitise. But given that banks are joint shareholders of MERS, and the US administration probably doesn’t want to see them take a(nother) squillion-dollar hit we can see the reasoning behind such a move.

On that note, AP has some interesting figures:

Assuming each mortgage it tracks had been resold, and re-recorded, just once, MERS would have saved the industry $2.4 billion in recording costs, R.K. Arnold, the firm’s chief executive officer, testified in 2009. It’s not unusual for a mortgage to be resold a dozen times or more.

The California suit alone could cost MERS $60 billion to $120 billion in damages and penalties from unpaid recording fees.

The liabilities are astronomical because, according to laws in California and many other states, penalties between $5,000 and $10,000 can be imposed each time a recording fee went unpaid. Because the suits are filed as false claims, the law stipulates that the penalties can then be tripled.

Next up — that Spitzer-style settlement for the rest of banks’ mortgage problems?

Related links:
MERS, an acronym of mass foreclosure destruction – FT Alphaville