Tracking Loans Through a Firm That Holds Millions: MERS

Kevin P. Casey for The New York Times: Darlene and Robert Blendheim of Seattle are struggling to keep their home after their subprime lender went out of business.

By MIKE McINTIRE NYTimes
Published: April 23, 2009

Judge Walt Logan had seen enough. As a county judge in Florida, he had 28 cases pending in which an entity called MERS wanted to foreclose on homeowners even though it had never lent them any money.

Into the Mortgage NetherworldGraphicInto the Mortgage Netherworld

MERS, a tiny data-management company, claimed the right to foreclose, but would not explain how it came to possess the mortgage notes originally issued by banks. Judge Logan summoned a MERS lawyer to the Pinellas County courthouse and insisted that that fundamental question be answered before he permitted the drastic step of seizing someone’s home.

Daniel Rosenbaum for The New York Times R. K. Arnold, MERS president, said the company helped reduce mortgage fraud and imposed order on the industry.

“You don’t think that’s reasonable?” the judge asked.

“I don’t,” the lawyer replied. “And in fact, not only do I think it’s not reasonable, often that’s going to be impossible.”

Judge Logan had entered the murky realm of MERS. Although the average person has never heard of it, MERS — short for Mortgage Electronic Registration Systems — holds 60 million mortgages on American homes, through a legal maneuver that has saved banks more than $1 billion over the last decade but made life maddeningly difficult for some troubled homeowners.

Created by lenders seeking to save millions of dollars on paperwork and public recording fees every time a loan changes hands, MERS is a confidential computer registry for trading mortgage loans. From an office in the Washington suburbs, it played an integral, if unsung, role in the proliferation of mortgage-backed securities that fueled the housing boom. But with the collapse of the housing market, the name of MERS has been popping up on foreclosure notices and on court dockets across the country, raising many questions about the way this controversial but legal process obscures the tortuous paths of mortgage ownership.

If MERS began as a convenience, it has, in effect, become a corporate cloak: no matter how many times a mortgage is bundled, sliced up or resold, the public record often begins and ends with MERS. In the last few years, banks have initiated tens of thousands of foreclosures in the name of MERS — about 13,000 in the New York region alone since 2005 — confounding homeowners seeking relief directly from lenders and judges trying to help borrowers untangle loan ownership. What is more, the way MERS obscures loan ownership makes it difficult for communities to identify predatory lenders whose practices led to the high foreclosure rates that have blighted some neighborhoods.

In Brooklyn, an elderly homeowner pursuing fraud claims had to go to court to learn the identity of the bank holding his mortgage note, which was concealed in the MERS system. In distressed neighborhoods of Atlanta, where MERS appeared as the most frequent filer of foreclosures, advocates wanting to engage lenders “face a challenge even finding someone with whom to begin the conversation,” according to a report by NeighborWorks America, a community development group.

To a number of critics, MERS has served to cushion banks from the fallout of their reckless lending practices.

“I’m convinced that part of the scheme here is to exhaust the resources of consumers and their advocates,” said Marie McDonnell, a mortgage analyst in Orleans, Mass., who is a consultant for lawyers suing lenders. “This system removes transparency over what’s happening to these mortgage obligations and sows confusion, which can only benefit the banks.”

A recent visitor to the MERS offices in Reston, Va., found the receptionist answering a telephone call from a befuddled borrower: “I’m sorry, ma’am, we can’t help you with your loan.” MERS officials say they frequently get such calls, and they offer a phone line and Web page where homeowners can look up the actual servicer of their mortgage.

In an interview, the president of MERS, R. K. Arnold, said that his company had benefited not only banks, but also millions of borrowers who could not have obtained loans without the money-saving efficiencies it brought to the mortgage trade. He said that far from posing a hurdle for homeowners, MERS had helped reduce mortgage fraud and imposed order on a sprawling industry where, in the past, lenders might have gone out of business and left no contact information for borrowers seeking assistance.

“We’re not this big bad animal,” Mr. Arnold said. “This crisis that we’ve had in the mortgage business would have been a lot worse without MERS.”

About 3,000 financial services firms pay annual fees for access to MERS, which has 44 employees and is owned by two dozen of the nation’s largest lenders, including Citigroup, JPMorgan Chase and Wells Fargo. It was the brainchild of the Mortgage Bankers Association, along with Fannie MaeFreddie Mac and Ginnie Mae, the mortgage finance giants, who produced a white paper in 1993 on the need to modernize the trading of mortgages.

At the time, the secondary market was gaining momentum, and Wall Street banks and institutional investors were making millions of dollars from the creative bundling and reselling of loans. But unlike common stocks, whose ownership has traditionally been hidden, mortgage-backed securities are based on loans whose details were long available in public land records kept by county clerks, who collect fees for each filing. The “tyranny of these forms,” the white paper said, was costing the industry $164 million a year.

“Before MERS,” said John A. Courson, president of the Mortgage Bankers Association, “the problem was that every time those documents or a file changed hands, you had to file a paper assignment, and that becomes terribly debilitating.”

Although several courts have raised questions over the years about the secrecy afforded mortgage owners by MERS, the legality has ultimately been upheld. The issue has surfaced again because so many homeowners facing foreclosure are dealing with MERS.

Advocates for borrowers complain that the system’s secrecy makes it impossible to seek help from the unidentified investors who own their loans. Avi Shenkar, whose company, the GMA Modification Corporation in North Miami Beach, Fla., helps homeowners renegotiate mortgages, said loan servicers frequently argued that “investor guidelines” prevented them from modifying loan terms.

“But when you ask what those guidelines are, or who the investor is so you can talk to them directly, you can’t find out,” he said.

MERS has considered making information about secondary ownership of mortgages available to borrowers, Mr. Arnold said, but he expressed doubts that it would be useful. Banks appoint a servicer to manage individual mortgages so “investors are not in the business of dealing with borrowers,” he said. “It seems like anything that bypasses the servicer is counterproductive,” he added.

When foreclosures do occur, MERS becomes responsible for initiating them as the mortgage holder of record. But because MERS occupies that role in name only, the bank actually servicing the loan deputizes its employees to act for MERS and has its lawyers file foreclosures in the name of MERS.

The potential for confusion is multiplied when the high-tech MERS system collides with the paper-driven foreclosure process. Banks using MERS to consummate mortgage trades with “electronic handshakes” must later prove their legal standing to foreclose. But without the chain of title that MERS removed from the public record, banks sometimes recreate paper assignments long after the fact or try to replace mortgage notes lost in the securitization process.

This maneuvering has been attacked by judges, who say it reflects a cavalier attitude toward legal safeguards for property owners, and exploited by borrowers hoping to delay foreclosure. Judge Logan in Florida, among the first to raise questions about the role of MERS, stopped accepting MERS foreclosures in 2005 after his colloquy with the company lawyer. MERS appealed and won two years later, although it has asked banks not to foreclose in its name in Florida because of lingering concerns.

Last February, a State Supreme Court justice in Brooklyn, Arthur M. Schack, rejected a foreclosure based on a document in which a Bank of New York executive identified herself as a vice president of MERS. Calling her “a milliner’s delight by virtue of the number of hats she wears,” Judge Schack wondered if the banker was “engaged in a subterfuge.”

In Seattle, Ms. McDonnell has raised similar questions about bankers with dual identities and sloppily prepared documents, helping to delay foreclosure on the home of Darlene and Robert Blendheim, whose subprime lender went out of business and left a confusing paper trail.

“I had never heard of MERS until this happened,” Mrs. Blendheim said. “It became an issue with us, because the bank didn’t have the paperwork to prove they owned the mortgage and basically recreated what they needed.”

The avalanche of foreclosures — three million last year, up 81 percent from 2007 — has also caused unforeseen problems for the people who run MERS, who take obvious pride in their unheralded role as a fulcrum of the American mortgage industry.

In Delaware, MERS is facing a class-action lawsuit by homeowners who contend it should be held accountable for fraudulent fees charged by banks that foreclose in MERS’s name.

Sometimes, banks have held title to foreclosed homes in the name of MERS, rather than their own. When local officials call and complain about vacant properties falling into disrepair, MERS tries to track down the lender for them, and has also created a registry to locate property managers responsible for foreclosed homes.

“But at the end of the day,” said Mr. Arnold, president of MERS, “if that lawn is not getting mowed and we cannot find the party who’s responsible for that, I have to get out there and mow that lawn.”

After foreclosure: How long until you can buy again? CNNMoney

Again, FAIR ISAAC CORPORATION aka FICO: Now Worthless……It’s another scam taken over by wallstreet/mba to make us *think* we are worth a number!

By Les Christie, staff writerMay 28, 2010: 7:58 AM ET

NEW YORK (CNNMoney.com) — Walking away from a mortgage you can still afford to pay has consequences; everyone knows that. Your credit score is shot and it can be impossible to get credit.

Some homeowners, no doubt, believe that the credit score hit is worth getting out from a deeply underwater mortgage. They may owe, say, $500,000 when their house value is only valued at $350,000. And, they figure, there’s no way it will ever be worth what they owe so it’s better to get out from underneath the burden.

After default, they reason, they can raise their FICO scores by paying all their bills on time and eventually finance another home purchase.

Don’t count on it.

While homeowners who default due to economic hardship, such as a job loss or divorce, normally must wait two to five years before buying a home again, walkaways may face double that time.

“It could be well over seven or eight years before [walkaways] are able to obtain a mortgage to buy a home again,” said Jay Brinkmann, chief economist for the Mortgage Bankers Association.

How foreclosure impacts your credit score
“Credit scores are only one component of a complete credit decision,” Brinkmann said. “[In these cases] credit scores are not a good indicator of their willingness to continue to pay their mortgage.”

But future underwriters will scrutinize their records very closely, and if they find no precipitating factors leading to the defaults — no job loss, no health issues –the repaired credit score won’t overshadow the black mark of a walkaway.

“If you made a strategic decision to default on paying your mortgage, it will work against you,” said Bill Merrell of the National Association of Review Appraisers and Mortgage Underwriters.

Merrell, who teaches underwriting, said banks are looking at several factors in determining whether to grant mortgages: the amount of money borrowers have in the bank; employment histories; payment history.

However, banks may be far more lenient if the default resulted from factors somewhat beyond the borrower’s control, such as from local economic problems. “They’ll give you more consideration if it’s job related,” he said. But, he added, banks look at strategic defaults “very negatively.”

That said, it’s not impossible to get a loan. Banks still want to make interest payments, so they might be willing to gamble with a walkaway.

“It might be a little more difficult for them to borrow, but [banks’] drive for market share — to profit from making loans — will trump that caution,” said Keith Gumbinger, of the mortgage information publisher HSH Associates. “I don’t think we’ll see a full denial.”

It’s hard to foresee the state of mortgage lending six or seven months from now, let alone seven or eight years into the future. So lenders may look at applications from one-time strategic defaulters and say, “Yes, they walked away but it’s a whole different market now,” according to Gumbinger.

Even so, lenders may require more from borrowers who walked away than those who didn’t.

“To the extent they could get a mortgage,” said Brinkmann, “they can count on needing a heavy down payment.”

The lenders may ask for 30% down or more. That would provide enough collateral cushion that the bank could get all or most of its money back in a foreclosure.

Strategic defaulters might also be charged higher interest rates, even above the levels other borrowers with similar credit scores would receive.

Poor Risk Management, Unrealistic Optimism Collapsed Housing: MBA

The originators/warehouse lenders knew *exactly* what they were doing.  That’s why they were immediately assigned!

And look at the bonuses the instigators received as *rewards* for their actions.

And then they lied about AAA ratings to sucker in US and foreign investors, including municipalities and state governments that are now in critical economic positions, as well.

BY: CARRIE BAY DsNEWS.com

It’s hard to pinpoint just what brought the nation’s thriving residential real estate market to its knees. Everyone’s got an opinion, but trying to nail down the exact trigger in order to prevent a sequel is a difficult task. The Mortgage Bankers Association (MBA) is attempting to do just that.

According to a study released Wednesday by the trade group, poor risk management habits, including insufficient data and incomplete performance metrics, coupled with a short-term focus and unrealistic optimism among senior business managers were all factors that contributed to the collapse of the U.S. housing and mortgage markets.

The study entitled, Anatomy of Risk Management Practices in the Mortgage Industry was conducted by Professor Cliff Rossi of the University of Maryland and sponsored by MBA’s Research Institute for Housing America (RIHA). It analyzes the risk management processes employed by mortgage lenders leading up to the housing crisis and discusses lessons learned for future risk managers.

Professor Rossi, who has more than 20 years’ experience within the mortgage industry and at regulatory agencies, says that as home prices increased, lenders were pressured to offer innovative products that could help borrowers afford a home. He found that the increase and expansion of risk layering that resulted, along with changes in borrower behaviors, left risk managers unable to offer reliable risk estimates.

“According to some empirical analysis, when market conditions changed, mortgage performance models proved unstable, with loans originated in 2006 defaulting at four times the rate of what a model prior to 2004 would have predicted,” Rossi explained. “Moving forward, it will be essential for the industry to develop early warning measures of the level of risk in new originations and less reliance on imprecise historical performance of new loan products.”

Rossi says that in addition to limited information available for proper risk assessment, corporate culture and cognitive biases also strongly influenced decision-making during the boom. He argues that one of the biggest black eyes to come out of the prosperous years leading up to the bust was the decline in senior management’s loss aversion, thanks to a lengthy period of strong home prices and low defaults, which in turn led to relaxed underwriting and again, higher levels of risk layering.

“The combination of informational limitations on risk managers and a governance structure and culture that may have tipped decisions in favor of business-driven strategies is central to explaining the increase in risk-taking that took place throughout the industry,” Rossi said. “As the industry is now compensating for the resulting losses through tighter underwriting standards and a lower appetite for risk, it will be vital for executive management to instill a culture where all employees are on guard for risks that exceed the risk appetite of the company.”

Key findings from the study include:

  • Subprime loan underwriting criteria along several risk attributes expanded between 1999 and 2006. In particular, combined loan-to-value ratios (LTVs) increased over time as the percentage of loans with silent second liens attached to the property also increased. At the same time, the percentage of loans with full documentation declined.
  • The relative lack of geographic and product diversification by a number of the largest mortgage lenders was rationalized by investment opportunity costs and relative value.
  • A false sense of security with new products originated prior to 2007 occurred as a result of better than average economic conditions coupled with a lack of information regarding subtle but real changes in borrower and counterparty behavior.
  • Cognitive bias toward risk management may have combined with management views on loss-taking to view risk managers as overly conservative and inefficient, which would explain senior management’s actions that ultimately placed their firms at risk.

Michael Fratantoni, MBA’s VP of research and economics, commented, “Today’s mortgage industry is operating under vastly different guidelines than just a few years ago and the survivors in the industry today are clearly the companies that did things right. There is room for debate on how best to proceed, but certainly building a stronger risk management framework around the mortgage industry will be critical.”

Calling on MERS “In fact, all the paper in the process is gone”.: Scott Cooley

Calling on MERS

VIENNA, VIRGINIA–BASED MERS IS A great example of how technological solutions can work for the betterment of our industry. MERS’story is more typical, though, in terms of how long it took the company’s solution to become mainstream.

I’ve found that typically new technologies or new technology firms take five to seven years to become successful in this industry. Of course, it is difficult for startup companies to last that long, which is one of the main reasons there is such a high failure rate among these firms. From the start, MERS had widespread support from the Mortgage Bankers Association(MBA) and all the major mortgage companies. Originally, MERS wasn’t well-funded ($5.2 million), but in 1998 it was recapitalized with significant contributions from MBA, FannieMae and Freddie Mac—mostly interms of a line of credit. Still, it took five to seven years until MERS wash and handling millions of loans. Today, it has handled more than 30 million loans and just launched it’s next endeavor, called the MERS® eRegistry. It’s a great success story overall.

MERS’ eRegistry for eNotes was started in March 2003 (see http://www.mersinc.org for details). Its purpose is to provide a“pointer” to the location of the eNote, and it holds the legal identity of the controller. Any lender can then find the vault where the eNote is stored, as well as who controls it.

MERS provides the very valuable solution of tracking the eNote’s location without trying to compete with the private industry for all of the other actions that occur around an eNote, such as storage in a vault. By MERS’ own admission, this solution will take years before it becomes mainstream.

R.K. Arnold, MERS’ president and chief executive officer, stated at the time of the eRegistry’s launch, “Although it will take many years for the industry to fully adopt this system, it will become widely used because the market place is demanding a move toward less paper in the home-buying process.” As you might guess, I’ll say it will take five to seven years.

I applaud MERS in taking this step and for building the eRegistry in short order. Still, I’m calling on MERS to take it to the next level. In its current form, I expect the eRegistry might save the industry a few dollars per loan. Yet, MERS is so close to providing the one key component of a solution that I believe will save the industry hundreds of dollars per loan. This solution is what I call the virtual loan folder (VLF), and I consider it the holy grail of mortgage technology.

VLF is the use of an electronic vault where the entire loan file is stored—not just the note but every document from all the various parties. MERS would be the pointer so the industry’s computer systems will know where to look to post, retrieve or just view a document. Every person involved in the loan process would use the VLF. A few examples follow.

■ Realtor: The Realtor would post a purchase agreement and other supporting documents, and might also view the Good Faith Estimate to know about the terms of the loan.

■ Loan Officer: The loan officer would post the loan application and other supporting origination documents. He or she would also retrieve documents such as the appraisal, preliminary title and credit report.

■ Borrower: The borrower could view his or her predisclosure and closing documents, and could post documents such as a copy of a W-2.

■ Appraiser: The appraiser could view the loan application and would post the entire appraisal.

■ Loan Underwriter: The underwriter could view all of the documents and post a list of conditions.

■ Loan Closer: The closer could view the upfront disclosures and post the entire closing package.

■ Loan Servicer: The servicer could view all of the documents, even while talking on the phone with the borrower, at any time during the life of the loan.

Today, most of the aforementioned parties are shipping the documents at great cost through carriers such as Federal Express. With VLF, all such shipping and the manual handling of the traditional loan folder is eliminated. In fact, all the paper in the process is gone. Yes, this is a form of imaging that some mortgage companies are using today. However, it goes much further, in that it would be used by all parties involved with each loan. In addition, it would also store the electronic data file of the loan and do so in a Mortgage Industry Standards Maintenance Organization Inc . (MISMO) format.

All of the software systems in use by our industry would need to be modified to support the VLF system. Each system (such as title plant software, Realtor systems, appraiser software, loan origination systems, etc.) wouldinterface to the VLF to store and retrieve the documents and the data.

MERS is an important piece because it contributes to marketplace competition and adds validity to the system. The known problem with the VLF system is that if the vault is owned by a single entity, the power of that entity would become enormous (generating almost unlimited profits).

There have been reports that the government-sponsored enterprises (GSEs) have considered promoting the development of a VLF system for the industry, and they would then own the vault. However, it’s better if we have many vaults that would each compete on price and service. MERS would simply provide the pointer for every VLF. The vault would charge fees for posting and retrieving documents. Having many vaults would keep such transaction fees to a bare minimum. If MERS adopts a VLF solution, I believe the industry would move faster to adoption. MERS would certainly add validity to the concept, and it would push others to build the needed technological pieces.

Another significant contribution that MERS provides is the industry-standard MERS Identification Number (MIN). The MIN is more crucial than it might otherwise seem, because it’s the only way to uniquely assign an identification number for every new loan originated. Without the MIN, it would be almost impossible for all the computer systems to correctly identify each loan for such circumstances as a borrower applying for the same home loan with two different mortgage companies at the same time.

The step MERS has taken with eRegistry is a good one, but it’s just a baby step in terms of what needs to be done. I challenge MERS to announce a broader initiative with the hope of having something tangible in a year or so. From that  point in time, I know it’ll be five to seven years before the industry will be operating far more efficiently, and originating loans for about half the cost of what it takes today, in my opinion.

Scott Cooley is an independent mortgage technology consultant, analyst and author based in Los Gatos, California. He  can be reached at scooley@scooley.com.

M O R T G A G E B A N K I N G . J U L Y 2 0 0 5

R E P R I N T E D  W I T H  P E R M I S S I O N  F R O M  T H E  M O R T G A G E  B A N K E R S  A S S O C I A T I O N  ( M B A )

Tapped Out: When Water Bills Force Foreclosure

Some may recall the post I did about DISTURBING BEHAVIOR in FLORIDA: The $67K Water Lien! Revoked Homestead!

I guess this isn’t that rare. Take a look what a $3,000 unpaid water bill can do if you DO NOT HAVE ANY MORTGAGE.

One raw day in early February, Vicki Valentine stood by helplessly as real estate investors snatched her West Baltimore home over what began with an unpaid city water bill of $362. Valentine lost the property after the city sold her debt to investors through a contentious and byzantine legal process called a tax sale. This little-known type of foreclosure can enrich investors as growing numbers of property owners struggle to pay their bills.

Foreclosure Law Update Mills Warning about “The Good, The Bad and The Ugly”

“”Le Bon, la Brute et le Truand””

DISTURBING BEHAVIOR in FLORIDA: The $67K Water Lien! Revoked Homestead!

Individual does not want to disclose their name. I have authenticated this to be true.

I have spoke to others and this has happened to them …but without ANY violations.

Could this be the way that the MBA might get around to allow banks to foreclose on “Non-Homestead” properties?? Just CURIOUS?

“DISTURBING BEHAVIOR”

1. Non-Creditor places a Lis Pendens

2. County/City revokes your HOMESTEAD

3. County/City issues code violations

4. County/City places a lien on the subject property

5. County files a Foreclosure Notice for unpaid Code Violations (ie: not getting a $2-3K sewer connected that turns into $67K FASTand growing …while in Lis Pendens)

6. County sends you a letter letting you know that they CANNOT foreclose on a homestead residence.

GUESS WHAT? They revoked it! So now they can foreclose and get in first place of the bank(s) foreclosing… Kick you to the CURB!

Bank now pays the “County/ City” off. It can be any violation…Did you clean your pool? mow the lawn? ANYTHING!

“DISTURBING BEHAVIOR”

But why you ask…

It’s the only property you own!

It’s the only “Primary” residence you have!

It’s the only mortgage in the Country….So why is this not your Homestead property?

Good thing they weren’t working on a “Loan Mod”.

“DISTURBING BEHAVIOR”

Don’t believe me see for yourself…

Related Stories:

mortgage-banking-the-mers-alternative-to-vacant-property-registration-ordinances

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Mortgage Banking – The MERS Alternative to Vacant-Property Registration Ordinances

Wouldn’t it just be easier to work with the homeowner than go this route?  Does this make any sense at all? I mean you foreclose and try to sell the property for less than half in many instances when not sold you leave it “vacant”…I mean really M&M? Do any of you smell a SCAM?

Wednesday, 09 September 2009

Robert Klein, CEO of Safeguard Properties, contributed an article to Mortgage Banking magazine about the impact that the Mortgage Electronic Registration System (MERS) is having on the management of REO and bank-owned vacant properties across the country. 

The MERS Alternative to Vacant-Property Registration Ordinances

The hopeful news of 2009 is that many indicators point to the likelihood that the U.S. economy may finally have scraped bottom and could be heading upward.

The stock market has seen fairly steady gains since it hit its early-March low. The Wall Street Journal reported that the number of workers filing state unemployment claims at the beginning of June fell by its largest amount since November 2001. And RealtyTrac Inc., Irvine, California, reported that in May, foreclosure filings decreased by 6 percent from the previous month.

Now for the more sobering news. The Wall Street Journal reported that new jobless claims increased slightly from May to June. In June, Standard & Poor’s (S&P), New York, downgraded ratings for 22 banks nationwide, expecting loan losses to worsen before they improve. And the Mortgage Bankers Association (MBA) reported in late May that the level of foreclosures started in the first quarter of 2009 hit a record high.

What does this all mean? Even though the economy is showing some glimmers of recovery, high rates of default and foreclosure are likely to continue for the foreseeable future. As a result, cities around the country will continue to struggle with the challenges that vacant properties pose in their communities.

A proliferation of vacant-property registration ordinances

To address the problems associated with vacant properties — from vandalism and crime to safety and maintenance issues — cities across the country have been considering or enacting vacant-property registration ordinances.

From the municipality’s perspective, the goal in enacting ordinances is to have the ability to track down a contact to serve notice when code violations occur and to hold that party responsible when violations go unresolved for periods of time.

In part, registration ordinances attempt to fix a problem with property records across the country. In many cases those records are not up-to-date, and usually they don’t identify a property-preservation contact within the lender or servicer organization responsible for a vacant property. As a result, when cities issue code-violation notices based on public records, the notices go unheeded for long periods of time because they either fail to reach the right person or take a long time getting there.

From a servicer’s perspective, the basic notion of vacant-property registration ordinances is positive — by registering vacant properties, lenders and servicers are more likely to receive prompt notification when issues arise with properties. This allows them to address problems quickly, preserve the value of their collateral asset, and avoid both negative community backlash and potentially expensive fines for failure to comply with code requirements.

The concern with vacant-property ordinances among ser-vicers is the administrative challenge of complying with potentially thousands of different municipal ordinances around the country. The more ordinances — and more individual nuances — the more resources will be needed and the greater the risk of fees and penalties for failing to comply.

Finding common ground

Municipalities and servicers share common interests with regard to vacant properties. Both have an interest in ensuring that properties are well maintained, safe and secure. Both benefit when cities have accurate and updated contact infor-mation to serve notice when issues arise.

A few years ago, MBA took an important first step in providing contact information to cities when it posted property-preservation contacts for major mortgage servicers on its Web site for code-enforcement officials to access. While that was helpful, not enough cities were aware of the resource, and both city code-enforcement officials and servicers recognized a need to do more.

In 2008, MBA convened a Vacant Property Registration (VPR) Committee, comprised of lenders, mortgage servicers and the field servicers who represent them. The committee met by phone on a weekly basis for nearly a year, and also met with mayors and other officials in cities that were considering vacant-property legislation.

The committee listened carefully to the cities’ concerns, and offered insights regarding the challenges they face to inspect, secure and maintain growing numbers of vacant properties throughout the country.

In 2008, representatives from MBA and the VPR Committee were invited to address the U.S. Conference of Mayors, describing the challenges of securing and maintaining vacant properties in cities across the country, and listening to the feedback of mayors.

At the June 2009 U.S. Conference of Mayors’ Annual Meeting, MBA and VPR Committee representatives were again invited and had the opportunity to update mayors on their efforts.

The mayors received a briefing on the committee’s solution — now referred to as “The MERS Initiative.” This initiative is a collaboration between MBA and the Mortgage Electronic Registration System (MERS), Reston, Virginia. Working with MBA, MERS developed a process by which government entities across the country can have access to the MERS system, which contains information on more than 60 million loans through more than 2,500 lenders that use the system. The MERS system was enhanced to store property-preservation contact information for the properties registered on the system.

MERS implementation under way nationally

In the fall of 2008, the committee enlisted five municipalities to serve as pilots for the program: Chula Vista, Sacramento County and Stockton in California; Boston; and St. Louis.

Code-enforcement officials who used the system reported that they were impressed with quality and quantity of data available to them. The pilot was deemed a success and the MERS Initiative was officially launched in late spring. To date, hundreds of cities have signed on to the program.

In many cases, the cities signing on are utilizing the MERS system and their vacant-property registration ordinances in tandem. Those cities will consider a loan servicer compliant with their vacant-property ordinances if their properties are registered on the MERS system. The vacant-property ordinances remain in place for properties that are not registered on the system — primarily those in the hands of property “flippers” and non-responsive property owners who fail to act responsibly.

Even though a majority of loan servicers are members of MERS, not all of their loans are currently on the system. To motivate servicers to register all of their loans, MERS has developed special registration products and incentives for servicers to register their full portfolios on the system.

A valuable resource for cities

The MERS system is proving to be a valuable tool for resource-challenged cities, especially those with the highest volumes of vacant and abandoned properties.

With access to MERS, cities don’t have to create a registration system from the ground up. They have free access to an existing system and receive free training for their users. They have a system that is proven and uniform across the country. That uniformity helps to ensure that servicers can more readily comply with registration requirements. And the system reduces administration and paperwork, because cities can exempt the vast majority of MERS-registered lenders and servicers from additional registration requirements and target their resources to address the most challenging issues.

Those familiar with the Pareto principle recognize that 20 percent of an organization’s most challenging needs consume 80 percent of its resources, while the other 80 percent require only 20 percent of its resources. This is the advantage of resource allocation that the MERS system provides to cities.

No one expects the MERS system alone will address all of the challenges regarding vacant and abandoned properties for municipalities and servicers. But the initiative is a tremendous example of what can be accomplished when interested parties come together in a spirit of collaboration to solve a problem.

In this case, success was built on three proven strategies:

  • Engaging in dialogue and identifying mutual interests. MBA took the initiative to form a Vacant Property Registration Committee that reached out to cities and code-enforcement officials to understand their concerns. In turn, the cities were open to better understanding the challenges faced by servicers.
  • Building on proven success. Instead of building individual registration processes from the ground up, cities have immediate and free access to a proven system that will allow them to address vacant-property issues more immediately and effectively.
  • Maximizing limited resources. By offering cities an efficient process to track properties that are being managed responsibly, code-enforcement officials can focus their attention on the properties that are the most challenging to them.

No one knows when the current housing crisis will subside, but until it does, municipalities and servicers have demonstrated their willingness and commitment to face the challenges together. As an industry, we are especially grateful to the code-enforcement community for its partnership and collaboration in producing the MERS initiative.

No to noncourt Foreclosures- Proposal good for banks, Bad for homeowners

BY ERIC ENRIQUE •
As an attorney who defends homeowners in foreclosure, I nearly fell out of my chair when I read Sunday’s guest column, “Time for noncourt foreclosures” by Alex Sanchez, chief executive officer of the Florida Bankers Association.
After selling risky loans for quick profits, and then taking billions in taxpayer money, the attempt by bankers to steal Floridians’ due process rights is shameful. Mr. Sanchez claims banks want to keep people in their homes and they work with them for months to modify their loan. The truth is the banks are not making reasonable efforts to work with homeowners to modify their loan because it is not profitable for them to do so. To find out just how unwilling the banks are, ask anyone who has tried to obtain a loan modification. They will tell you they have spent countless hours on the phone, only to have their call mysteriously disconnected, and have had to repeatedly submit the same financial documentation.
After months of frustration, most applicants are either denied, or given a paltry temporary payment reduction with a loan term extended up to 40 years, making homeownership even more expensive. When home values have fallen to less than half of what a homeowner may still owe on their home, is it any wonder homeowners are rejecting these offers?
If the banks really want to solve the housing crisis, they should offer permanent interest-rate and principal reductions to reflect the home’s current value. Instead, the banks would rather litigate, foreclose and sell the home at the current value. The reason is because many of the foreclosing banks do not own the loan and are loan servicers that collect loan payments on behalf of investors. As loan servicers, the banks can charge their investors higher fees when a loan is in default.
The numbers support the banks’ unwillingness to offer reasonable loan modifications. According to Hope Now, an alliance of leaders in the housing industry, in Florida’s third quarter of 2009, there were 278,189 delinquent loans, 80,327 new foreclosure actions, but only 13,205 loan modifications.

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