202-TNG Radio - R.K. Arnold 11-27-10
This week Bruce is joined by R.K. Arnold. Arnold serves as the president of MERS. He joined MERS at its inception in 1996, and served as senior vice president and general counsel until his promotion to president in 1998. He is a member of the MERS board of directors. His team has built MERS into the central electronic registry for the mortgage finance industry.
Currently, there are over 31 million active loans in the MERS system. 66 million loans have been registered through MERS since its inception. Bruce doesn’t think that the MERS problem sneaked up on the system. MERS started in 1997, and it must have been developed because it offered a valuable service. When MERS first started, it had a flow of about 50 loans per day. That number eventually reached 36,000 loans per day.
When MERS began to grow and take on the business of major lenders, it had to go through the filters of certain legal departments.
MERS operates a nationwide database in which members can keep track of loans being serviced. To make this system accurate, MERS is labeled in the land records as the mortgagee. This means that all the legal mail involving the property is sent to MERS. You can think of it as being a trustee of a trust. MERS then turns the mail into an electronic form through high speed scanners. These scanners are then used to email the documents to the companies involved.
MERS also keeps track of who owns a loan. That part of MERS has been open to the public for 18 months now. If someone wants to negotiate a loan modification, a private individual can access MERS and discover who the last owner of the note is. That part of the MERS system is not as standardized as the servicing part. You may discover that a note is held by a trustee, or that it is in a numbered trust. Those are one in the same, except that in one way it is reflected in the name of the trust, and in the other, it is reflected in the name of the trustee. There is an additional person involved in this process known as a custodian. If someone wants to know where the note is being physically held, it is probably with the custodian. So this can become very complicated. On the other hand, the servicing is very straight forward and accurate. When a servicer changes, the old servicer does not want to receive mail anymore, because they will not be paid for it, and the new servicer will want to get that mail.
Recently, a large servicer named Taylor, Bean & Whitaker went out of business. Once the FDIC found the successor to that company, that information could be changed on the MERS system, and the mail will go to the new servicer instantly. In the past, that mail may have never gotten to the right location. MERS is a big benefit to homeowners, financial institutions and regulators.
Part of the concern relating to MERS is that there are two worlds in which things are recorded. It would be similar to having ownership records kept at the county recorders and at a company similar to MERS.
Right now, MERS has no competitors. Part of the reason why MERS has no competitor is because it would not be very useful to have competitors for this service.
When MERS is tracking who services a loan, and when the loan is sold, the system is different from what most people are accustomed to. MERS is in the land records as the common agent for all 3,000 of it’s members. On the mortgage, MERS is labeled as the mortgagee, and there is an 18 digit number with a telephone number. Using that number along with your personal identification, you can log into MERS and discover who the current servicer is. There are no assignments; MERS is always the mortgagee. Before MERS, those assignments frequently had mistakes. Some assignments were recorded in the wrong number, and sometime there was no assignment at all with no intent to record them. This was not a problem with the county recorder, it was the problem with the industry. The industry’s attempt to solve that was to put one company on the land records on behalf of all of them. MERS is the mortgagee, not the servicer. If you look at a mortgage on the MERS system, you can find a clause stating, “MERS is the mortgagee as nominee for the lender and the lender’s successor.” MERS keeps track of where a note is as well as who is servicing the note.
Title companies are involved in all foreclosure processes. Foreclosures are performed by law firms. When the mortgage is recorded in the land records, there is a legal paragraph stating that MERS can foreclose. Less than 10% of mortgages are foreclosed in MERS name. MERS has more strict rules regarding foreclosure than many states. If a loan is to be foreclosed in MERS’ name, the promissory note must be presented in the foreclosure. A last note affidavit will not provide an exception to this rule. If they do not wish to present the note, then they must sign it away from MERS. At that point, it would leave the MERS system, and there would be an assignment recorded in the county land records verifying that they are signing it to themselves.
The raw legal title is reflected in the land records. That title makes sure that no one can prime that in the land records. There is a conveyance of real property in the public land records.
Some attorneys have convinced their clients that they will win the right to a free and clear house. Arnold has not seen this happen yet.
The vast majority of all people who are currently being foreclosed on have not made their payments. People seem to have forgotten that there are rights attached to being a lender.
If MERS was declared to have improperly dealt with title issues, Bruce wonders what the consequences would be. Surely that problem cannot exist. Arnold does not believe there is any question that we have secure loans. The lender and the borrower signed a mortgage or a deed of trust. The money was lent as one transaction. The deed of trust was recorded in the land records. Arnold thinks people are panicking over the idea that robo-signers are signing documents without reading them, but that doesn’t have anything to do with the security of the property.
Lenders have acknowledged that there are some flaws in the process, and that those flaws can be changed. Lawyers are hoping that foreclosures can’t be corrected, which would prevent foreclosures from occurring. If those problems couldn’t be fixed, Bruce and Arnold believe bad things would happen to lending. Lenders will not loan money without having security. Fortunately, Arnold doesn’t see any way to get around the land records.
MERS strongly believes that the note should be produced at the time of foreclosure. MERS does not make any money on a foreclosure, and the decision to foreclose is made by the servicer. Arnold is disappointed that there has been sloppiness in the process, but people are working to fix that problem.
MERS website can be found at www.mersinc.org A copy of Arnold’s testimony can be found there.
For more information about The Norris Group's California hard money loans or our California Trust Deed investments, visit the website or call our office at 951-780-5856 for more information. For upcoming California real estate investor training and events, visit The Norris Group website and our California investor calendar. You'll also find our award-winning real estate radio show on KTIE 590am at 6pm on Saturdays or you can listen to over 170 podcasts in our free investor radio archive.
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Currently, there are over 31 million active loans in the MERS system. 66 million loans have been registered through MERS since its inception. Bruce doesn’t think that the MERS problem sneaked up on the system. MERS started in 1997, and it must have been developed because it offered a valuable service. When MERS first started, it had a flow of about 50 loans per day. That number eventually reached 36,000 loans per day.
When MERS began to grow and take on the business of major lenders, it had to go through the filters of certain legal departments.
MERS operates a nationwide database in which members can keep track of loans being serviced. To make this system accurate, MERS is labeled in the land records as the mortgagee. This means that all the legal mail involving the property is sent to MERS. You can think of it as being a trustee of a trust. MERS then turns the mail into an electronic form through high speed scanners. These scanners are then used to email the documents to the companies involved.
MERS also keeps track of who owns a loan. That part of MERS has been open to the public for 18 months now. If someone wants to negotiate a loan modification, a private individual can access MERS and discover who the last owner of the note is. That part of the MERS system is not as standardized as the servicing part. You may discover that a note is held by a trustee, or that it is in a numbered trust. Those are one in the same, except that in one way it is reflected in the name of the trust, and in the other, it is reflected in the name of the trustee. There is an additional person involved in this process known as a custodian. If someone wants to know where the note is being physically held, it is probably with the custodian. So this can become very complicated. On the other hand, the servicing is very straight forward and accurate. When a servicer changes, the old servicer does not want to receive mail anymore, because they will not be paid for it, and the new servicer will want to get that mail.
Recently, a large servicer named Taylor, Bean & Whitaker went out of business. Once the FDIC found the successor to that company, that information could be changed on the MERS system, and the mail will go to the new servicer instantly. In the past, that mail may have never gotten to the right location. MERS is a big benefit to homeowners, financial institutions and regulators.
Part of the concern relating to MERS is that there are two worlds in which things are recorded. It would be similar to having ownership records kept at the county recorders and at a company similar to MERS.
Right now, MERS has no competitors. Part of the reason why MERS has no competitor is because it would not be very useful to have competitors for this service.
When MERS is tracking who services a loan, and when the loan is sold, the system is different from what most people are accustomed to. MERS is in the land records as the common agent for all 3,000 of it’s members. On the mortgage, MERS is labeled as the mortgagee, and there is an 18 digit number with a telephone number. Using that number along with your personal identification, you can log into MERS and discover who the current servicer is. There are no assignments; MERS is always the mortgagee. Before MERS, those assignments frequently had mistakes. Some assignments were recorded in the wrong number, and sometime there was no assignment at all with no intent to record them. This was not a problem with the county recorder, it was the problem with the industry. The industry’s attempt to solve that was to put one company on the land records on behalf of all of them. MERS is the mortgagee, not the servicer. If you look at a mortgage on the MERS system, you can find a clause stating, “MERS is the mortgagee as nominee for the lender and the lender’s successor.” MERS keeps track of where a note is as well as who is servicing the note.
Title companies are involved in all foreclosure processes. Foreclosures are performed by law firms. When the mortgage is recorded in the land records, there is a legal paragraph stating that MERS can foreclose. Less than 10% of mortgages are foreclosed in MERS name. MERS has more strict rules regarding foreclosure than many states. If a loan is to be foreclosed in MERS’ name, the promissory note must be presented in the foreclosure. A last note affidavit will not provide an exception to this rule. If they do not wish to present the note, then they must sign it away from MERS. At that point, it would leave the MERS system, and there would be an assignment recorded in the county land records verifying that they are signing it to themselves.
The raw legal title is reflected in the land records. That title makes sure that no one can prime that in the land records. There is a conveyance of real property in the public land records.
Some attorneys have convinced their clients that they will win the right to a free and clear house. Arnold has not seen this happen yet.
The vast majority of all people who are currently being foreclosed on have not made their payments. People seem to have forgotten that there are rights attached to being a lender.
If MERS was declared to have improperly dealt with title issues, Bruce wonders what the consequences would be. Surely that problem cannot exist. Arnold does not believe there is any question that we have secure loans. The lender and the borrower signed a mortgage or a deed of trust. The money was lent as one transaction. The deed of trust was recorded in the land records. Arnold thinks people are panicking over the idea that robo-signers are signing documents without reading them, but that doesn’t have anything to do with the security of the property.
Lenders have acknowledged that there are some flaws in the process, and that those flaws can be changed. Lawyers are hoping that foreclosures can’t be corrected, which would prevent foreclosures from occurring. If those problems couldn’t be fixed, Bruce and Arnold believe bad things would happen to lending. Lenders will not loan money without having security. Fortunately, Arnold doesn’t see any way to get around the land records.
MERS strongly believes that the note should be produced at the time of foreclosure. MERS does not make any money on a foreclosure, and the decision to foreclose is made by the servicer. Arnold is disappointed that there has been sloppiness in the process, but people are working to fix that problem.
MERS website can be found at www.mersinc.org A copy of Arnold’s testimony can be found there.
For more information about The Norris Group's California hard money loans or our California Trust Deed investments, visit the website or call our office at 951-780-5856 for more information. For upcoming California real estate investor training and events, visit The Norris Group website and our California investor calendar. You'll also find our award-winning real estate radio show on KTIE 590am at 6pm on Saturdays or you can listen to over 170 podcasts in our free investor radio archive.
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