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Homeowners on Bottom in Mortgage Noteholder Scheme

shawlawtexas.comMar 12, 2012

by Carl Shaw

A large contribution to the home mortgage melt down is “Securitization.” The vehicle by which securitization begins is Mortgage Electronic Registration Systems Inc. (MERS.) MERS is an entity with few assets and few employees.

MERS sits as a gatekeeper at the DOOR of our nation’s complex mortgage finance industry.

60 % of the nation’s mortgages name MERS as a nominee in the deed of trust/mortgages rather than the bank or original lender. This represents 4 out of 5 Mortgages and a total market size of 13.7 trillion.

So just who is MERS?

To avoid paying county recording fees, in 1993 mortgage bankers formed a plan to create one shell company in Delaware and called it Mortgage Electronic registrations systems Inc.

The business model is that MERS is an electronic paperless database tracking ownership interests in residential mortgages. The system records the assignments of securitized notes from MERS members. Charter Member include GMAC, Norwest Mortgage, now Wells Fargo, GE credit, FNMA and Freddie. By naming MERS in the deeds and mortgages MERS would pretend to own all the mortgages in the country—that way, the mortgage bankers would never have to record assignments since the same company would always “own” all the mortgages. At the rollout in 1997 Mark Fleming, vice president of strategic partnership development at Freddie Mac and the agency’s representative to MERS. projected savings are at between $77 million to $200 million annually.

Five major companies that have MERS-registered loans in their securitizations are Lehman Brothers, Bank of America, Norwest,(now Wells Fargo) Residential Funding Corporation [RFC] and Countrywide. The originators of these mortgages, invoke MERS’ name at the beginning of millions of subprime and exotic mortgage loan transactions. MERS is also the name that is used in the attempt to end so many of these same loans through foreclosure.

Fitch Ratings Recent has recently placed operational risk down grades on various mega-servicers of securitized residential mortgage loans. It is interesting to note that Lehmans is now out of business. There is a rumor that Rescap may be forced out of business by Ally, and Bryan Moynihan has continued to seek a solution to Countrywide; bankruptcy is not ruled out.
Where there is error there must be truth. Former MERS Chief Executive Officer, R. K. Arnold, has admitted in an article he wrote that appeared in the September/October 2010 issue of Probate and Property that the note was bifurcated (split) from the deed, as it was necessary to securitize it in the mortgage pools. When asked whether MERS expects financial institutions to update the MERS database regarding changes in loan ownership, the company’s CEO replied, “not so much.” Since MERS does not own the actual loan, doing so violates a long line of precedents that bar the separation of the note from the deed of trust

What implications does this have for 13.7 trillion securitizations? Once a note and deed of trust are split and become unsecured, they cannot be reattached. The only way to reattach them is through a fraud. Again the person at the bottom of the pyramid suffers. The foreclosure sales transfer the note to the purported original lender who may not be the lender at all. There is a total inability to enforce payment in any meaningful way…i.e. the court process is so stalled and flawed that it will never be the stick that makes people pay.

What seems apparent is that the chain of title in these mortgages is rife with defects. There are some shortcuts taken by the banks to cure the issue have led to the settlements, but the fraud in this area of the securities market is just now coming to light.

Examples include Attorney General Beau Biden in Delaware has filed suit against MERS for failing to record perfected chain of title. Included in this petition are allegations that MERS has avoided by fraud and deception paying for recordation fees, which is estimated in his state alone to run into 100?s of millions of dollars. Similar suits have been filed in Texas and Ohio. JPMorgan Chase & Co., UBS AG and Deutsche Bank AG are being investigated by New York Attorney General Eric Schneiderman into mortgage securitization. Goldman Sachs Group Inc., Bank of America Corp. and Morgan Stanley and Royal Bank of Scotland have also been served.

MBIA is suing banks for allegedly breaching representations and warranties on loans that are pooled into those securities.

One of four of the original MERS private label offerors is bankrupt, with another 2 in some stage of extremis. CLEARLY THERE IS A SERIOUS ISSUE WITH The collateralized Debts, bonds and other securities that have been sold into the market rely on the notes and deeds of trust operating together for a secured interest in the underlying assets. Without such a secured interest it is a violation of the representations and warranty in the offering documents. Man question what is going to be the end result? Eventually there will be massive defaults and these defaults will send shock waves up through the top of the pyramid then reverberate back down….classic ponzi fallout. With the people who are getting burned, the investors homeowners, on the bottom.

Back to March 2012 Archive

CFLA was founded by the Nation's Leading Foreclosure Defense Attorneys back in 2007 to serve the Foreclosure Defense Industry and fight pervasive Bank Fraud. Since opening our virtual doors, CFLA has rapidly expanded to become the premier online legal destination for small businesses and consumers. But as the company continues to grow, we're careful to hold true to our original vision. For us, putting the law within reach of millions of people is more than just a novel idea—it's the founding principle, just ask Andrew P. Lehman, J.D.. With convenient locations in Houston and Los Angeles, you can contact Our National Account Specialist and General Manager / Member Damion W. Emholtz at 888-758-2352 for a free Mortgage Fraud Analysis or to obtain samples of work product, including cutting edge Bloomberg Securitization Audits, Litigation Support, Quiet Title Packages, and for more information about our Nationally Accredited and U.S. Department of Education Approved "Mortgage Securitization Analyst Training Certification" Classes (3 days) 24 hours for approved CLE & MCLE Credit (Now Available Online).

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