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Comptroller of the Currency Announces MERS Investigation

In the House Financial Services Committee hearing, acting US Comptroller of the Currency John Walsh announced an investigation into MERS, the electronic database used to trade mortgages outside the private property recording system. MERS was devised by the nation’s largest mortgage lenders as a way to get out of paying recording fees. The database allows them to trade and pool mortgages, while the official documents show MERS as the mortgagee, and no subsequent trades get recorded. However, several states have found the legal arguments for MERS as a mortgagee dubious, especially as it claims to be a legal representative of the mortgage owner in some foreclosure cases, and merely an agent in others. For a more extensive explanation of MERS, look here and here.

The examination will asses MERS’ “corporate governance, control systems, and accuracy and timeliness of information,” Walsh said in testimony prepared for delivery Thursday at the House Financial Services Committee.

Walsh also said his agency is also participating in an examination of Jacksonville, Fla.-based Lender Processing Services Inc. (LPS). That probe is being led by the Federal Reserve. LPS makes software used by banks to track home loans and helps process paperwork banks use in court for foreclosures.

Actually, LPS basically invents paperwork that banks then use. They had a document fabrication price sheet on their own website.

I think this is too narrow an investigation into MERS, although there is a limit to what a federal investigation can do with a matter that is governed by state courts. Yves Smith points out that this is about much more than corporate governance or timely information. It’s about whether MERS can legally register mortgages in local recorder offices as the mortgagee. Now, corporate governance is an issue, in the sense that MERS Corp actually hands out Vice-Presidencies and other certifying officer positions with MERS (which has practically no employees) to employees of member companies, for the purposes of allowing them to take action in foreclosure proceedings under the MERS name, when MERS is listed as the mortgagee. That just appears totally fraudulent. Ken Arnold said in his Senate hearing that MERS has 20,000 certifying officers despite having almost no employees. And they have essentially no way to review what the certifying officers are doing.

I think MERS is a total racket and a legal trainwreck, but I’m not sure that this OCC investigation will get to the bottom of it. If it goes as far as Sen. Richard Shelby did with the MERS CEO on Tuesday, however, anything is possible.

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David Dayen

David Dayen