Hoisted from comments:
I am a lawyer who has been involved in corporate finance for over 25 years. First, if you beleive that securitization offers benefits (cost reductions) to consumers then MERS is not per se a bad thing in that it reduces overall transation costs which should in part be passed on to the homeowner borrower. As you note, the problem is more a change in standards (perhaps ethics and morality) in the last ten years in the industry.
The problem is not MERs by itself but how the securitization industry has changed in recent years to the detriment of cosumers and investors in the banks and other companies that have blown up as a result of an important industry being turned into basically a circus. I can share my own expereince as a homeowner to demonstrate how crazy things have become.
I had a mortgage on my home that was originated over 15 years ago at a local bank. The mortgage had been sold (through five intervening transactions)over the years to Washington Mutual. Two years ago I decided to pay the loan off. At the end of a month, I sent in a check for the full balance of principal and interest on the loanand requested a deed release be filed. This was all in accordance with the terms of my promissory note and mortgage the legal agreement governing all parties.
Two weeks later I received my check back in the mail from WMU with a letter stating that the payoff was not in accordance with Washington Mutual policy. No one at Washington Mutual had bothered to read the mortgage agreement (the legal agreement binding the parties). Instead the letter stated that payoffs had to be preceeded by paying $75 for a “payoff quotation” and must be made by wire transfer and other terms which were obviously made to increase the profitablity to WMU which had no basis in the legal agreements.
Since WMU had no legal basis for its demands, I stopped paying my mortgage. Within three months my credit score had been lowered 300 points, all of my credit cards were canceled (I never kept a balance on any card) and I was receiving daily harrassing collection calls. Eventually, I sent a couple of letters to the WMU General Counsel’s office and began to work towards a class action lawsuit. Despite this, it took another three months to get someone’s attention at WMU who could put two and two together and I finally received a call and letter from a senior attorney who agreed to forgive thousands of dollars in interest, put a person full time on reestoring my FICO score etc etc. and fix the problems that never should have occured.
The point is that the securitization industry 5-10 years ago made a collective choice to ignore the terms of contracts, state and local laws and legal convesntions developed over hundreds of years. Why? Because they could. Our legal system and conventions were built on the assumption that most businesses would choose to follow them. Instead, the securitization industry simply developed a cost/benefit approach to following the law and adhering to contracts. It worked quite well becaseu most individuals just aren’t equipped to read and enforce their mortgage agreements or fully understand the law.
This is why the banks are fighting so hard against the Consumer Financil Protection Agency. The CFPA will have the ability to level the playig field and thus change the economics of banks simply ignoring laws, contracts and convention.
Note this mess got resolved only because the consumer in question was an attorney, and he still had to threaten a class action suit to get the servicer’s attention. And even then, it took months to clear matters up, and completely trashed his credit score in the meantime, resulting in the loss of ALL his credit cards.
How many people can afford that? Seriously. For instance, if you need to rent cars or stay in hotels in your line of work, and either your company does not provide you a corporate credit card, or you are self employed (business credit is based on your personal FICO), you’d be stuck. And if you were looking for a job, many employers pull a credit report and will not consider a candidate with a low FICO.
In other words, very few people are able to contest abusive behavior and overbilling by servicers due to the hard costs (attorney’s fees) and soft ones (damage to credit score).
Update 5:20 PM: Another sighting courtesy reader i on the ball patriot:
Bank of America and Countrywide Home Loans destroyed mortgage documents, and “recreate” them by “insert(ing) data as they see fit,” to cover up their own failure to keep records – or their fraud – according to a federal RICO class action.
Article continues here.
Update 9:30 PM: Further detail from the lawyer who provided the comment at the start of the post:
1. I sent WAMU a personal check for the full mortgage balance in accordance with the terms of my Promissory Note.
2. WAMU returned the check -not cashed- becasue I had not paid the additional fees that WAMU had unilaterally imposed as a precondition to paying off the mortgage. I stopped paying because I had a legal right to do so after tendering the correct payoff.
3. Yes, I was in a position that the vast majority of consumers are not – both as an attorney and being able to live without credit of any sort for an extended period. I’m old school and never borrowed except for home mortgages.
I beleive the fallout from the mass assignments (and re-assignments) is just starting from an administrative standpoint. I helped a friend this summer who had sold her house in Boston but was unable to close the sale because an earlier mortgage lender had failed to file a Deed of Release after being paid off with a refinancing a couple of years ago.
The prior lender had flipped the mortgage and had gone bankrupt. The payoff went to a lender three links down the chain and the attorney handling the refi never obtained copies of assignements or the Deed of Release from the parties. The immediate resolution was to close the current sale (a neceesity given the market) and hold all of the sale proceeds in escrow until a Deed of Release could be obtained. I spent two months tracking down a senior executive fromn the bankrupt lender who after weeks of cajoling and ultimately legal threats agreed to sign a Deed of Release which we filed. The ironic part of it is that the executive actually had no legal right to sign the Deed of Release becasue the bankrupt lender had sold the loan and had no right to sign the release.
Sounds like a nightmare right? It was and would have cost my friend probably $25K to get it resolved. I know because I spoke with a couple of attorneys who are are speacilizing in this kind of thing – a very recent specialization caused by the increasing frequency of problems associated with the caviler treatment of assignments by the industry.
Lastly,I would add that the reason for MERs existence is transitory. Electronic signatures are now valid in every state I beleive and deed registrys across the country are adopting electronic filings and records. I estimate 3-5 years before all the filings are done online.