I would like the following points regarding MERS to be clear to all:
1) It’s not a PAPERWORK issue – it’s an OWNERSHIP issue. Whenever we see the word ‘paperwork’ describing the MERS scam, we should know that the correct word is ‘ownership’.
‘Paperwork’ is defined as: written or clerical work, as records or reports, forming a necessary but often a routine and secondary part of some work or job.
That is not the issue with MERS. The issue is one of fundamental ownership – which is determined by signed and recorded paper.
2) The most significant and basic nature of the MERS scam has not been discussed. It is, quite simply, that the obfuscatory nature of the MERS system allows the originating lender to sell the initial mortgage MORE THAN ONE TIME. I will demonstrate the implications with a simple example.
Now, it may never be possible to prove that the same mortgages were sold repeatedly. In fact, because of the very nature of MERS, it is likely that it would not be possible to show clear evidence. The point is, however, that by flaunting the existing, centuries-old state property laws, MERS allows for this to happen. It does not guarantee that it happened but it allows for it to happen. It may well be the real reason the chain of titles were broken and the ‘paperwork’ has all gone missing.
An example of the situation MERS allows and the financial implications:
Consider a pre-MERS/pre-securitization scenario for a real estate loan. Bank A originates a $500,000 loan. The $500,000 is used to pay the seller of the house. In exchange, Bank A will receive monthly payments for the next 30 years at (for example) 6 percent. If Bank A decides that it does not want to collect small amounts each month, then it may sell the rights to the bank that will pay them the highest price, Bank B. For whatever reason (its own belief on what constitutes a ‘good interest rate’) – Bank B may pay $525,000 for this loan. The assignment of the loan is done based on the stable, ancient property laws of the state, and Bank A has then made $25,000 profit on this transaction. Bank B then owns the loan and there is no ambiguity.
It would be hard to imagine Bank A being tempted to then sell the exact same loan to Bank C. The reason is that there is very clear evidence at the county recorder’s office that the loan was already sold to Bank B.
Now consider the same situation with the MERS system in place.
Bank A makes the same original loan for $500,000 which is used to pay the seller of the house. Now, when it is interested in selling this loan to the highest bidder, Bank A realizes that because the way things operate now (regardless of state laws), it will not be selling the loan directly to another bank (Bank B above). Instead, it has become customary for Bank A to ‘bundle’ hundreds of loans together and sell them all to ‘investors’ who are probably made up of entities such as mutual funds, city governments, foreign governments, etc. Each of these entities likely represents many people’s money – none of whom really have any idea of which individual loans they are purchasing.
Well, after all the bundling and selling to entities and stuff, it may turn out that, on average, Bank A gets $525,000 for each loan – and so in that way it made the same profit.
In this scenario it is not at all hard to imagine Bank A being tempted to sell this same loan again. Unlike before, when there was ‘Bank B’ and ‘Bank C’ and very clear records at the county recorder’s office, there is no ‘Bank B’ but only a mish-mash of bundled loans sold to investors/entities who do not know which loans they have bought — and by the way — the documents have been ‘lost’. In this scenario, it is all too tempting to sell this same loan to the securitized version of ‘Bank C’ – which is the same loan bundled with hundreds of other loans – sold to vague entities who do not know what they have really bought.
Comparing the two scenarios, one might think that Bank A has just doubled its profit. It has just sold the loan twice after all. Wrong! In the second scenario, Bank A has made more than 20 times its profit. In the original scenario, Bank A’s profit is ($525,000 – $500,000) = $25,000. Of course, if the loan is fraudulently sold a second time, then all of the $525,000 from that sale would be (illegal) profit because there would be no transfer of $500,000 to the original seller of the house, as was done with the initial loan. Therefore, Bank A’s profit would be ($25,000 + $525,000) = $550,000.
Bank A has increased its profit by 22 times simply by bundling/schmundling. Is that possible to prove? Probably not, given the destruction of so many documents and the entire system of banks/lawyers/politiicans/lobbyists, etc. But it is not necessary to prove any of this. It is only necessary to realize that the system allows for this, it encourages it, and it is likely the key driving dynamic to all we are seeing unfold. It is far more likely than the latest explanations in the media that banks “wanted to evade fees at the county recorders’ offices”.
It explains why we are where we are. The remedy, of course, is to adhere strictly to the state property laws which have been the same for centuries. These laws require clear, recorded, signed documents which do not allow the above confusion to exist. The courts must simply enforce these laws and let the chips fall where they may. If past foreclosures need to be voided, then so be it.
Fred Smith
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