Marci Kaptur’s Anti-MERS Bill Target of Misleading PR by Title Insurance Industry « naked capitalism

Saturday, December 11, 2010

Marci Kaptur’s Anti-MERS Bill Target of Misleading PR by Title Insurance Industry

Rep. Marci Kaptur of Ohio has introduced a short bill, H.R. 6460, which would seriously restrict the operations of MERS by effectively removing Freddie, Fannie and Ginnie as users. The bill would bar the GSEs from guaranteeing or owning any mortgage that is either assigned to MERS or lists MERS as the mortgage of record. Note that those are the two roles typically set forth in the registrations at local courthouses which register mortgage in the name of MERS.

H.R. 6460 Bill Text

Not surprisingly, the pushback started quickly. The Kaptur bill requires that HUD, in conjunction with the Office of the Comptroller of the Currency, undertake a study of land recordation in the US, including the impact of the lack of electronic records, the current state of play in the use of electronic records at the local level, and whether a Federal system could be created that would not interfere with the local recordation system or state laws.

Note this study is just that, a study, and therefore may not come out strongly in favor of a national system. Remember, the main motive for MERS was to save local recording fees. If a national system is merely a database and mortgage assignments need to be recorded locally, the incremental value of a centralized information repository may be very limited.

But the title industry is misrepresenting the bill in its efforts to block it. From Source of Title:

While simple on its face, the bill has engendered immediate opposition and early disfavor from the American Land Title Association (ALTA) which argues that the bill would create a Federal land recordation system similar to the Torrens system.

Surprisingly, opponents of H.R. 6460 wish to drum up support to defeat the bill in its entirety by concentrating on a non-binding feasibility study buried within the thirteen page bill. The feasibility study likely has little chance of bearing fruit to create a Federal Torrens system.

Of course, this salvo may also be a diversionary tactic, given that MERS is the handiwork of the title insurers, along with the GSEs and securitization industry.

12 Comments:

attempter says:

December 11, 2010 at 3:56 am

I’m all for breaking MERS, of course. So let’s just do that. Oh, there’s more?

I know a study’s often just a study. (But of course always pork, always a rent extraction for some crony at a think tank. I guess Kaptur has her posse like everyone else.)

But why in the name of heaven would we even want to study the possibility of a federal land registry? On its face that’s a hideous idea.

Seriously, how could that possibly have anything other than pro-corporate, pro-centralized government, pro-concentration applications?

The justification written there is a solution in search of a problem, if the point is supposed to be to “reform” the system and purge its “abuses”. It’s only the deranged conduct of the FIRE sector which created any problem with the recordation system at all. It’s a problem only for the banks. So exclude the finance sector interest, purge the criminal activities of the banks, and there would no longer be a problem with the land record system as it always existed, would there? The land recording system is fine. It’s the banks and only the banks who create the problem and are the problem.

But here again we have proof, there’s no such thing a reform within this system. No one will simply stop the crimes and purge the criminals. Every increment of “reform” would have to be paid for many times over with another massive entrenchment of the system itself. This bill sounds like another excursion on the same itinerary as the health “reform” bill.

If it’s so trivial yet inflammatory, why’s it in there at all? Kaptur must really want to send that pork along.

vomitparty says:

December 11, 2010 at 4:13 am

MERS is not the handiwork of the title insurers, but that of the GSEs and the TBTFs. – Tx title examiner

Yves Smith says:

December 11, 2010 at 6:04 am

Source of Title, which covers only the title-related matters, disagrees with you on this one. I agree the GSEs were key, but that does not mean the title insurers played no role.

indio007 says:

December 11, 2010 at 6:05 am

This will never pass because this clause

(5) the feasibility of creating a Federal land title recordation system for property
transfers that would maintain all previous records of the land-property without
invalidating, interfering with, or preempting State real property law governing the
transfer and perfection of land title.

The funny thing is MERS has attempted to do this privately via interstate commerce. That automagically gives the FEDs jurisdiction The schmucks may have opened to door to the last haven of state sovereignty.

If the states don’t put a stake through MERS’s black heart now on a local level, it’s over for them.

MinnItMan says:

December 11, 2010 at 10:20 am

“the main motive for MERS was to save local recording fees.”

That’s not completely right. Different sectors of FIRE had different motivations. The “lenders” wanted to save on recording fees, but the title insurers had other concerns. Unrecorded assignments is not a new problem. Securitized lending (or more fundamentally, trading security interests in land – not the same thing) has always been a problematic fit for land records systems. NOTE: it is unfortunate that an aspect of “securitized [mortgage] lending” is the trading of “security” interests in real estate. Although the word is the same, the two uses are entirely different and unrelated, and often lead to hopeless confusion.

It doesn’t take much before chains of title for security interests break. Each time there is a transfer, there is a brand new opportunity to introduce a defective document. Think the guy with the mullet and the flames on his hat. Also, think Countrywide Home Loans, Inc. dba Full Spectrum Lending, Countrywide Bank, fsb, Countrywide Home Loan Servicing, LLC, Bank of America, fsb, BAC Home Loan Services, LP, etc. and the likelihood this documentation is going to be executed properly.

Title insurers wanted MERS, among other reasons, because in the RTC clean-up, it was obvious that the error rate for subsequent documentation of security interests (the real estate interest) was way too high and couldn’t be brought down to an acceptable level. Add the boom and bust cycle of securitized lending and the multiple subsidiaries, spinoffs, takeovers etc. and it could be extremely expensive to fix errors that were endemic to the system. For example, a security interest that should have been assigned by ABC Lending, Inc., was instead executed by ABC Home Loan Services, LLC. And this was 3 or 4 transfers back. This wasn’t just about saving recording fees for the title insurers (who probably could pass the charge on anyway). For a title company to insure a new transaction, it had to: 1) go back and get a correct assignment from ABC Lending, Inc. (good luck finding an officer – although, ITT Lending – when “subprime” was known as “B-C lending” – was a rare example of a company that did properly back-end this job and had a single person sitting in an office here locally who could fix old problems like this); 2) blow off the problem and hope nobody says boo! or 3) get an indemnity from another insurer who may be on the hook for insuring over this problem and its consequences (for example, whoever executed a release of that security interest, has a chain of title issue because ABC Home Loan Services, LLC’s assignment from ABC Lending, Inc. is missing. In other words, ultimate purported assignee LMN Portfolio Solutions, LP’s release is not, strictly speaking, worth a shit. Needless to say, option 1 (ignore the allusion to the early implodee) was not an economically feasible route – for anybody.

This is a pretty simple scenario for the sake of discussion, but in practice, it gets much uglier, as each transfer introduces a new guy with a mullet and flames on his hat into the documentation, or more accurately, his know-it-all boss who has been tasked with reducing back-end cost while getting the job done. One local mortgage company that imploded spectacularly in 2004 (!!!! – whocouldanode?) insisted upon executing its assignments as “a mortgage banker,” as opposed to a corporation, LLC, individual or whatever. The “mortgage banker” designation has no legal significance, and so its assignments (and subsequent releases of security interests) were all void.

I got a twenty year blizzard going on outside here, so I got to cut off my post. I have no stake in MERS and could care less whether it lives or dies. That said, MERS is/was an attempt to deal some difficult problems that were much bigger than a $46 recording fee.

davidgmills says:

December 11, 2010 at 12:13 pm

Maybe Title Insurance Companies just should have not written the insurance. I have a hard time crying for them. The MERS system took a public, transparent and open recording system and turned it into a private, secretive one. Maybe the title insurance companies wanted a secretive private system of total confusion and fraud.

But for the property owner, as some attorney recently said on TV, probably no title acquired after about 1995 is worth a damn.

When you have a strawman as lienholder, as in the MERS liens, how the hell do you know whether the real noteholder has been paid and whether any release of a lien is valid. You don’t. It’s a trust me world. It becomes a system of men not of laws.

Doris Loh says:

December 11, 2010 at 1:20 pm

I read throught the text of the bill. I’m a lay person and have a question:
‘(B) After the expiration of the period under subparagraph (C), MERS shall not be the named mortgagee or mortgagee of record on any mortgage owned, guaranteed, or securitized by the corporation. Not later than the expiration of such period, the corporation shall require that all mortgage loans owned, guaranteed, or securitized at such time by the corporation and on which MERS is the named mortgagee or mortgagee of record shall be assigned to the servicer, holder, or creditor, as defined by the guidelines of the corporation….

Does this mean that after 6 months (can be extended to 12 months, at the most), EVERYTHING on the books of Fannie, Freddie and Ginnie must be rid of MERS?

If this is correct, then how will it be possible for MERS to cure the broken chain of titles when a lot of the original documentation is supposedly destroyed or lost?

If MERS cannot address the assignment issue, then will this be a mega staging area for the GSEs to putback the loans?

leapfrog says:

December 11, 2010 at 1:54 pm

The MERS spin doctor trolls are working overtime on major newspaper reader comments sections. Are they a bit worried about something?

MinnItMan says:

December 11, 2010 at 5:06 pm

Being snowbound, I have plenty of time – my teenage boys are up now at the crack of 1pm and have been assigned snow removal duties.

Don’t believe me if you want, but I have no interest in whether MERS or title insurers go down. Well, not exactly. It is far better for me if they do fail. I’m a renter (and a solo real estate attorney), and a big fail will be great for renters (and real estate attorneys who don’t do bank-side business).

Last time I looked, no title insurer has more than $1B in reserves to pay claims. The insurers, like most monolines, are the weak sister of FIRE.

The problem I see with Rep. Kaptur’s proposal is that it begs the question of whether MERS’ conveyances out are worth anything. If they are, then there is no problem. If they aren’t, then nothing gets fixed for the GSE’s. In other words, if there is no legislative fix for MERS’ inability to convey (by not owning the note and not having enforcement rights), demanding that the GSE’s require divestment fixes what?

As for Mr. Mills, I disagree that MERS made things less transparent. Before MERS, the only way to really track who claimed to be the right party owning the security interest was credit reporting. The mortgagee of record in the mid-90s was infrequently the right party, for example, for ordering a mortgage payoff.

There was also the problem of inexcusable back-logs by county recorders. Up here in blizzard-land, back-logs also know as “gap periods” routinely exceeded 60 days, and in a few cases, more than 180 days. Most definitely, the insurers could have refused to insure the gap – and they probably should have. Instead, they lobbied for increasing the recording fees by more than double, so the counties could hire the staff they said they needed to process things more timely. On the other hand, gap periods were not always what they appeared. If you did a public search, the gap might be 60 days, but proprietary title plants (usually owned by a large insurer) always seemed to be more current, like 25 days, for a wafer-thin fee. Hmmm.

Sandy says:

December 11, 2010 at 5:24 pm

I’m confused. In most states, “mortgagee” is defined as one who lends money, which MERS does not, nor has it ever claimed it did. How then, as Kaptur proposes, can MERS legally assign anything to the servicer if it doesn’t even meet the simplest definition of mortgagee? Wouldn’t any assignment to the servicer be mere fluff? Or is this a means to remove the MERS name from the record? I keep thinking everyone, including Kaptur, is missing the fact that MERS has nothing, therefore it can assign nothing.

Maybe I’m just not thinking this through, but it’s much the same as saying banks have no standing to foreclose in all of this mess, yet the solution mentioned often is for the banks to modify the loan. If the bank can’t prove it owns the note so it can foreclose, then how can it (legally) modify the note? Aren’t the borrowers walking into another trap with a loan modification?

I reviewed a recent case where the borrower was challenging MERS’ assignment. The court held that it was impossible to bifurcate a note and mortgage, because a mortgage always follows the note, therefore any MERS’assignment was simply of no effect, useless action. I guess that’s a different take on the 1873 Supreme Court case (Carpenter) calling the assignment of mortgage without the note a nullity–not that the mortgage itself was no longer valid, rather the assignment was of no effect, useless. If that’s the case, it begs the question why the state forces payment of a fee to uselessly record a mortgage assignment at all. This judge also stated that as long as the servicer had the original note in its possession, it owned the note and had the right to foreclose.

Not only are we wading through bad information from trolls for MERS, we are also wading through bad case law. One bad court decision probably needs ten opposing decisions to overcome it. I hope we don’t add bad bills to the mix. I like Kaptur and I’m glad she’s standing strong, but I question some of the specifics in this bill.

That aside, it sure seems to me that the poor experience with MERS’ electronic records is enough to convince us that a federal electronic registry would allow similar problems. Electronic medical records are going to be the same mess one day.

dejavuagain says:

December 11, 2010 at 7:12 pm

Good points –
Do you have a cite to the note following the mortgage.

I keep reading that in 45 states the mortgage follows the note, but have never seen the citation.

Some things to remember about the Carpenter case you mention.

1.Both the mortgage and note were assigned, thus the cited statement is dicta.
2.The case is really a holder in due course case.
3.The mortgagor-borrower had partially paid the original mortgagee.
4.The Sup. Court said tough look to the borrower, even thought the assignment was not recorded.
2.The US Supreme Court was sitting as an Article IV (of the US Constitution) Court as a court for the Territory of Colorado.

The lesson from that case is what??

dejavuagain says:

December 11, 2010 at 7:18 pm

Information on a third of 357,000 planes inacurate-FAA
http://www.reuters.com/article/idUSN1028971620101210

The FAA cannot keep up with airplane ownership records.
http://www.faa.gov/licenses_certificates/aircraft_certification/aircraft_registry/record_security_agreement/

Note: t is possible to record a lien against the engines of an airplane, on FAA ecor

Whenever a client buys a plane, we check the engine numbers – frequently the engines came off another plane and are subject to a mortgage not created by the seller of the plane.

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