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Posted at 10:20 AM ET, 11/19/2010

Aggressive lobbying defends mortgage-trading system

By Ariana Eunjung Cha and Brady Dennis

From today's print edition:

The financial services industry has launched an aggressive campaign on Capitol Hill to bolster the legality of the way companies have turned mortgages into securities and traded them across the globe in recent years.

The companies have opened wide their wallets for lobbying and are flying top executives to Washington for one-on-one meetings with lawmakers. They are holding briefings for key staffers, including an event last week that drew more than 60 aides. And they are blanketing Congress with white papers, memos and other documents that lay out their arguments.

The focal point of their efforts is Mortgage Electronic Registration Systems, or MERS, the controversial, privately run electronic database that is used by practically every lending institution and investment company to track the transfer of the ownership of mortgages as they are packaged into securities and traded at lightning speed around the globe.

But MERS does more than just track the trading of loans. In the vast majority of mortgage documents at local courts and offices across the country, it is listed as the holder of the loans. That allows the financial industry to trade mortgages as much as it wishes without spending the time and money to refile the paperwork.

The industry is seeking legislation that would effectively affirm MERS's legality and block any bill that would call into question what MERS does. MERS has spent more than $1 million in lobbying since fall 2008, when lower courts around the country began to rule against it. But MERS had kept its name under the radar until the recent uproar over foreclosures revealed broad problems in mortgage paperwork.

If successful on Capitol Hill, the industry could in one quick swoop make all lawsuits related to MERS across the country moot and remove one of the key uncertainties dangling over the mortgage industry. On the flip side, lawmakers could create a new federal registry, effectively killing MERS's business and forcing the industry to submit to greater oversight.

In recent years, MERS has become the target of numerous legal challenges from homeowners in foreclosure who allege that mortgage transfers made through the system are invalid because they bypass local recording laws. MERS, the lawsuits contend, does not have standing to foreclose because it is only a database and not the actual holder of the mortgage.

The liabilities could be astronomical for MERS. One lawsuit in California alone is seeking recording fees that could cost the company from $60 billion to $120 billion. But the consequences for the financial industry are even greater, as challenges to the validity of transfers done by MERS call into question the entire process of how loans were securitized and could render the 66 million mortgages in its system foreclosure-proof.

In the wake of such controversies, lobbyists for Reston-based Merscorp, which runs MERS, have been floating the idea of legislation that would establish the firm as the national registry to track the transfer of mortgages.

The MERS database "is a powerful tool that can be harnessed by the Congress and the industry to improve the mortgage finance system," R.K. Arnold, Merscorp chief executive, told members of the Senate banking committee this week.

Tom Deutsch, deputy executive director of the American Securitization Forum, an industry group that defended the validity of MERS in a recent paper being circulated on Capitol Hill, said establishing a centralized tracking system would resolve much of the confusion resulting from the patchwork of local laws governing mortgages and their transfer.

"There's a lot of validity in the idea of a national mortgage registry that is complete and unambiguous about legal title to loans across all 50 states," he said in an interview.

In its paper, the forum argued that although there have been "several minority decisions" in the courts that have taken issue with MERS, "not one of these decisions has challenged MERS' ability to act as a central system to track changes in the ownership."

Consumer advocates say such legislation would retroactively bless all mortgage transfers made through MERS - and eliminate one of the strongest legal arguments that homeowners in foreclosure are using to challenge their cases. There's also concern among state officials that such a bill might permanently remove some of their power over property law and place it within federal jurisdiction.

Some of the advocates are referring to the idea as the "great MERS whitewash bill."

"Fixing MERS on a federal level to give them a free pass from complying with what we have known as the law for many years because the banks screwed up is really a bad precedent," said Ira Rheingold, executive director of the National Association of Consumer Advocates.

The industry is also facing skepticism from Democrats such as Rep. Marcy Kaptur (Ohio), who is known for her strong opposition to the federal government's bailout of Wall Street.

Kaptur plans to introduce legislation that would prohibit government-controlled mortgage financiers Fannie Mae and Freddie Mac from buying new mortgages that are in the MERS system. "It was invented by the most powerful financial players in the country while regulators were asleep at the wheel," Kaptur said in an interview.

Kaptur is not opposed to a national system for tracking mortgages. She's asking the Department of Housing and Urban Development to study how a federal land title system could operate in a way that would protect states' rights. But she said there needs to be more transparency and regulatory oversight over such a system.

John Taylor, head of the National Community Reinvestment Coalition, said he, too, supports the idea of a national tracking system because it could force the industry to be accountable for mortgage paperwork. But he doubted whether MERS could fill this role.

"MERS was the personification of the darkest period of American finance, where Wall Street dictated to people in the real estate world the fact that they didn't really care about underwriting standards anymore," he said.

Lobbyists working for MERS include people who were prominent legislators or federal officials: former U.S. representative Bob Livingston and his former chief of staff, Allen Martin; John M. Duncan, assistant secretary of the Treasury for legislative affairs in the George W. Bush administration; and Arnold Havens, a former general counsel at Treasury.

MERS is also under scrutiny by the Office of the Comptroller of the Currency, which oversees national banks. The OCC is taking the lead in an interagency examination of MERS and the accuracy of the information in its database. The agency is also sending personnel to look at the foreclosure process at large mortgage servicers and how they use MERS.

By Ariana Eunjung Cha and Brady Dennis  | November 19, 2010; 10:20 AM ET
Categories:  Congress, Housing  
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Everybody knows that America is being Bamboozled by the Financial Sector...mainly with it's own money.

Have to agree with Mr. Ira Rheingold and his "free pass from complying" comments.

America must Demand that this Travesty is allowed to "play out."

It is probably obvious to everyone that the "Banks" willfully and intentionally
attempted to withhold transfer fees from Counties that each suffered losses effecting Schools, roads and other Services.

There has been Intentional Non-Disclosure to Investors, State and Federal laws ignored, illegal property transfers covered up by intentional Fraud and Forgery.

So, sure...the "Banks" send in Lobbyists to try to clean up the mess...but when Fraud has been committed on the Local, County, State and Federal levels, as well as certain Securities Violations...that is a pretty BIG mess to cleanup and Cover-up!

Is this really any huge secret that the "Banks" would like swift Federal blessing so that they can effectively pull the rug out from under the all of the investigations taking place now?

The "Banks" want to break multiple Consumer Protections and State and Federal Laws and, when caught, just turn back the clock and get a "do-over" of the entire Scamming of America, starting with MERS.

The American people are now looking to see if all the laws that apply to them will apply to the Financial Sector.

Time to see who the State's Attorneys General really protect...and the SEC.

Is your Senator working for the people who elected him or her?

Do Consumer Agencies really have any Power to Protect the People?

Who sits at the Top of the United States Government? President Obama or the CEO of Bank of America?

The "Banks" have already, basically, given you "the Finger" Mr. President on your Home Loan Modification program! And hasn't the Treasury been impressive on THAT front!

Will the Government give the American People their rights to due process or waive off about five years of Illegal Abuses that has been perpetrated for Profits and Bonuses, running over the American people like they were tied to the Railroad tracks?

America will be Watching.

Posted by: Anonymous | November 20, 2010 3:26 AM | Report abuse

who is "blanketing" the Hill with white papers, meetings, receptions on behalf of....typical homeowners??
who speaks on behalf of the tens of thousands of county and municipal recording offices, which were robbed of millions in fees and disenfranchised from effective oversight of paperwork by an aggressive for-profit company that essentially did away with correct title lineage?

Posted by: FloridaChick | November 20, 2010 9:15 AM | Report abuse

It is interesting to see how the GOP's dedication to "states' rights" sort of disappears whenever the bankers want it to.

Posted by: Anonymous | November 20, 2010 10:46 AM | Report abuse

Has everyone managed to conveniently forget that LOCAL (County) Records are the basis of the Chains of Title that have allowed us (until now) to know WHO OWNS (and did own) property in the United States. MERS should be required to unravel and correct what it has done.

Roger Powers
Real Estate Broker

Posted by: Anonymous | November 21, 2010 8:20 PM | Report abuse

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