The mortgage service industry has commenced an aggressive campaign to bolster the legality of securitized mortgages. When a mortgage is securitized it is bundled and sold to investors on the stock markets. Securitized mortgages are currently a grey area of the law because there is much confusion as to who is actually the holder of the mortgage with the right to foreclose on a homeowner in default.
The main focus of this increased lobbying effort in Washington is Mortgage Electronic Registration Systems (MERS). MERS is a private database used by almost every lender to map out the chain of ownership of mortgages as the mortgages are securitized and traded around the world. This allows the industry to buy and sell mortgages as often as they wish without having to spend the money to record the mortgages or file the necessary paper work.
However, MERS is not merely a mortgage tracking service. MERS is listed as the holder of the mortgage in many of the foreclosure cases currently pending in Florida and around the country. Recently, there have been many legal challenges to MERS serving in this capacity because MERS is only a database and, therefore, theoretically, cannot be the holder of the mortgage.
Lobbyists for the lending industry are seeking legislation that would validate the legality of MERS. If the lobbyists were successful, all of the suits in which MERS is a defendant would immediately become moot. This would effectively end the lawsuit pending in California against MERS in which the State of California is seeking between $60 billion and $120 billion from MERS for unpaid recording fees. This legislation would also prohibit any other state from filing a similar suit. Additionally, the lobbyists are also encouraging a proposal that would make MERS a national registry to track the transfer of mortgages nationally.
