Mortgage Electronic Registration Systems, Inc. (MERS) is an American privately held corporation. MERS is a separate and distinct corporation that serves as a nominee on mortgages after the turn of the century and is owned by holding company MERSCORP Holdings, Inc., which owns and operates an electronic registry known as the MERS system, which is designed to track servicing rights and ownership of mortgages in the United States. According to the Department of the Treasury, the Board of Governors of the Federal Reserve, The Federal Deposit Insurance Corporation and the Federal Housing Finance Agency, MERS is an agent for lenders without any reference to MERS as a principal. On October 5, 2018, Intercontinental Exchange (NYSE: ICE) and MERS announced that ICE had acquired all of MERS.
History The current Mortgage Electronic Registration Systems, Inc. is the third generationthird generation of companies with the same name established as of 1/1/1999. The original "MERS" was simply the acronym of Mortgage Electronic Registration Systems, Inc., in 1995. In 1997, Mortgage Electronic Registration Systems, Inc. registered "MERS" as a service mark with the United States Patent and Trademark Office (USPTO) for its mortgage loan eRegistry system. The original corporation has since merged with other entities created by its executives and board of directors.
Although the 1995 Mortgage Electronic Registration Systems, Inc. (version #1) created the MERS service mark and system, it no longer existed after the name change to MERSCORP, Inc. as of 1/1/1999 and then again to MERSCORP Holdings, Inc. on 2/27/2012 which is the owner and operator of the eRegistry but is not disclosed in mortgages.
Real estate law and real estate transactions in the US are subject to state regulations and county level recordation requirements. That made it quite cumbersome for financial companies to develop a smooth operation of a market based on mortgages in the early 1980s. This is because every time a financial instrument containing mortgages is sold, various state laws may require that the sale of each such mortgage (or deed of trust) be recorded in the local county courts in order to preserve certain rights (e.g., the right to foreclose non-judicially), which triggers an obligation to pay corresponding recording fees. So, the financial industry, eager to trade in mortgage-backed securities, needed to find a way around these recordation requirements, and this is how the MERS system was born to replace public recordation with a private one. Nevertheless, MERS describes its activities as complementing public land recording systems. "The MERS® System is the only national database that provides free public access to servicer information for registered home mortgages, complementing public land recording systems that have their origins in centuries old real property laws." By 2007, MERSCORP Holdings, Inc. registered some two-thirds of all the home loans in the US.
Mortgage Electronic Registration Systems, Inc. (#3 1999 version) is the owner of record (or the owner's nominee) of the security interest arising from mortgages extended by lenders, investors and their loan servicers and recorded in county land records. By using MERS, the lenders and investors who are the real parties in interest avoid the need to file assignments in county land records, which lowers costs for lenders and, they claim, consumers by reducing county recording fee expenses resulting from real estate transfers and provides a central source of information and tracking for mortgage loans. MERSCORP Holdings, Inc.'s role in facilitating mortgage trading was relatively uncontroversial in its early days, but continued fallout from the subprime mortgage crisis has placed the firm at the center of several legal challenges disputing the company's right to initiate foreclosures. Should these challenges succeed, the US banking industry could face a renewed need for capitalization.
The issue of the ownership of the MERS system is blurred between the entities to the point that courts tend to confuse the eRegistry system with the nominee because they use the same "MERS" acronym. The MERS system is purported to have fulfilled the “Safe Harbor” requirements in the state-led Uniform Electronic Transactions Act (UETA) and E-SIGN (Electronic Signatures in Global and National Commerce Act of 2000) adopted by Congress in the documents filed by MERSCORP, Inc. nka MERSCORP Holdings, Inc. with the United States Trademark and Patent Office. However, it is unclear how the MERS system obtains the documents from Mortgage Electronic Registration Systems, Inc. (#3 1999 version).
MERSCORP Holdings, Inc.'s MERS System Mortgage Electronic Registration Systems, Inc. began as a project in October 1993 when Fannie Mae, Freddie Mac, and Ginnie Mae produced a White Paper (with assistance from law firm Covington & Burling) about the need for an electronic mortgage registration system. The MERS acronym was coined soon thereafter. The Mortgage Bankers Association got involved and MERS was incorporated in October 1995. MERS awarded a contract to Electronic Data Systems (EDS) to develop and service the technology systems, and MERS was officially launched in April 1997.
Mortgage Electronic Registration Systems, Inc. was intended to serve as a nominee for real estate transactions in a way strongly analogous to how Cede & Co. serves as the nominee owner of record (i.e., the "street name" owner) for all securities held in trust by the Depository Trust & Clearing Corporation. In the late 1960s and early 1970s, the American securities industry was drowning in paper because of the sheer complexity of physically exchanging thousands of stock certificates every day. By "immobilizing" physical stock certificates and later replacing them altogether with book entries, DTCC enabled the development of the modern computerized securities industry.
As mortgage-backed securities grew in volume during the 1980s, it became self-evident that a similar mechanism was needed for the mortgages placed into those securities. The underlying problem is that a mortgage loan transferred into an MBS (Mortgage-Backed Security) must become "bankruptcy remote" from the originating lender. That is, in the event the originating lender collapsed (as ultimately happened during the 2008 financial crisis to many such lenders), MBS investors demanded some kind of protection to ensure that the lender's own creditors could not "avoid" (in bankruptcy terms, rollback) the transfer of the loans into the MBS as fraudulent conveyances and suck them back into the lender's bankruptcy estate. The easiest way to create such protection is to simply convey the loan for consideration through three or four entities before it reaches the MBS issuing entity. As noted above, each of those conveyances had to be recorded with the relevant recorder or land registry. With each loan requiring three or four assignments, and hundreds of mortgage loans going into each MBS, the result was that recorders were flooded with assignments, and investment banks found themselves choking on paperwork and recorders' fees. MERS system fixed this problem in that most standard loan documents were changed to name MERS as the nominal beneficiary or mortgagee of record. This enabled lenders and investors to transfer mortgages without recording assignments in local recorders' offices and in turn avoided having to pay recording fees.
Ideally, assuming a loan is properly paid back on time, a MERS loan needs only two documents to be recorded: the original mortgage or deed of trust naming Mortgage Electronic Registration Systems, Inc., and a reconveyance of the mortgage or deed of trust back to the borrower (thus merging legal and equitable title). If all entities along the way are MERSCORP Holdings, Inc. members, then all intermediate transfers between those points are tracked only on the MERS system, and the entity who holds the loan at the end merely records the reconveyance as an agent for MERSCORP Holdings, Inc. (Notice how MERS is both (1) an agent for the original lender, and then (2) the final lender acts as an agent for MERSCORP Holdings, Inc.; this is why MERS' critics frequently attack it as "two-faced.") If the borrower defaults, the loan servicer will record an assignment on behalf of Mortgage Electronic Registration Systems, Inc. to the real party in interest (i.e., an investment bank in its capacity as trustee for a MBS) and initiate foreclosure. Whereas before the MERS system that last assignment would always have been recorded at the time the MBS was created, the MERS system enabled banks to avoid having to record it unless and until (1) foreclosure became necessary or (2) the loan was sold by the MBS trustee to an entity outside of the MERS system owned by MERSCORP Holdings, Inc. If the loan performs to the very end, the assignment never needs to be recorded.
MERS system serves several other purposes. It enables consumers, title companies and other real estate professionals to easily identify the current holders of registered mortgages and obtain discharges despite any transfers of the mortgages or mergers or acquisitions of the lenders and investors in interest that may otherwise make it difficult to trace ownership, if it is accurately maintained by the MERSCORP Holdings, Inc. membership. Information contained in the MERS system can help to identify possible mortgage fraud involving the identity of a prospective buyer and owner-occupancy issues. The centralized database of MERS system can also help detect property flipping schemes and purchases, again if it is accurately maintained, a common criticism of the MERS system scheme.
Mortgage identification number Originated by MERSCORP Holdings, Inc.'s MERS system, the mortgage identification number (MIN) is a unique 18-digit number used to track a mortgage loan throughout its life, from origination to securitization to payoff or foreclosure. In general, the first 7 digits uniquely identify the loan servicer, and the remaining 11 digits are used internally by the servicer, typically as the loan number.
ServicerID Through MERS system ServicerID, homeowners can search for their mortgage servicer, regardless of whether the mortgage has changed hands since the loan was originated. By identifying the loan servicer, homeowners may seek to identify their lender to initiate negotiations for revised mortgage terms and take actions that can avoid foreclosure.
The MERSCORP Holdings, Inc. MERS system eRegistry The MERS system eRegistry is a system of record that identifies the owner (Controller) and custodian (Location) for registered eNotes. The owner is also described as the Investor. "Investor -- As it pertains to the MERS® eRegistry, the entity that is the owner of the Mortgage Loan represented by the eNote." Built by MERSCORP Holdings, Inc. with the endorsement of the Mortgage Bankers Association (MBA) and launched in 2004, the MERS system eRegistry allegedly satisfies the "safe harbor" requirements of E-SIGN and UETA legislation. Both Fannie Mae and Freddie Mac require the registration of eNotes on the MERS system eRegistry before they are eligible for purchase.
MISMO and MERS In February 2009, MERSCORP Holdings, Inc.'s MERS system was selected to manage the day-to-day operations of the Mortgage Industry Standards Maintenance Organization (MISMO), although the MBA was to continue its full control over MISMO.
2010 foreclosure crisis
Litigation and major legal decisions The blur of the actual identities of the "MERS" related entities has led to confusion within the court system and foreclosure process.
Mortgage Electronic Registration Systems, Inc. v. Lisa Marie Chong, et al. (United States District Court, District of Nevada)