MERS, the Mortgage Electronic Registry System, is a legal fiction that—on paper—owns about half the mortgages in the United States. It was created in 1995 as a solution to the problem of slow-moving county property records offices. Banks and investors needed mortgages to move faster, so they registered once with the county in the name of MERS . . . and then basically lost track of the paperwork.
The New York Times explains why, but here’s the gist of it.
This is how one mortgage—the mortgage of the creator of this chart—was securitized. It’s simple, really. Or not. Here’s the big-enough-to-read version, if you think that will help.
Don’t miss the black hole:
Rescission is the right to undo a fraudulent loan—usually a mortgage. The bank gives back the interest and fees, the borrower pays back what remains of the original amount of the loan—and keeps the house—and everybody pretends the loan never happened. Bringing a claim of rescission also terminates a bank’s right to foreclose.
Rescission is a powerful tool in the fight against fraud, and a powerful incentive for banks to avoid it.
In recent years, the Office of the Comptroller of the Currency (OCC)– the main federal regulator of the nation’s biggest banks – has seemed concerned with consumer protection only when it was acting aggressively to protect “its” banks from the prospect of being sued by state attorneys general for their predatory practices. The OCC pursued this anti-consumer agenda so aggressively that even conservative Justice Antonin Scalia, in a blistering Supreme Court opinion issued earlier this week, felt compelled to denounce their over-reaching.
In a little-noticed speech (pdf) on July 8, however, Comptroller John Dugan – perhaps trying to repair his agency’s tattered reputation – came across as a born-again consumer protector.
The government and the banks say consumers are getting mortgage modifications, while the numbers and consumer advocate say otherwise. Minnesota business lawyer Nathan Brandenburg took a stab at unraveling the confusion which may be part of the reason why consumers are not getting the modifications they want.
He points out two important features of the loan modification options: (1) they are need-based; and (2) they will not reduce the loan principal.
Need-based means that consumers can obtain a mortgage loan modification only if they can prove they cannot afford their current payments. I am guessing the banks take an expansive view of the term “afford,” which counts out a lot of people.
More importantly, only terms of the loan like interest rates, fixed v. adjustable rate, and length of the loan will be modified. For consumers stuck with homes valued at far less than the loan, this is bad news. If the bank cannot make the loan payments affordable without reducing the principal, they may simply proceed with foreclosure, even though everyone would probably come out ahead if the bank simply reduced the principal on the loan.
But hey, I don’t think anyone believes that banks are rational actors in the economy, anymore.
Mortgage Modification Confusion | Skjold Barthel, P.A.
Why would bankers oppose legislation that would save millions of homes and $300,000,000,000 of their money? They hate America. This is the only conclusion I can come to.
The “cramdown” legislation would have enabled bankruptcy judges to modify home mortgages, which they used to be able to do, anyway. In doing so, millions of homeowners would be able to stay in their homes and continue making payments—to the banks.
Without that ability, all those millions of homes will go into foreclosure, and those banks will lose hundreds of billions of dollars. That is exactly how our economy tanked in the first place!
Banks Beat Homeowners: Foreclosure Bill Killed In Senate | The Huffington Post
The word from AFFIL’s Partners in Washington is that the Senate will vote on Thursday on judicial loan modifications. Lifting the ban on these court-supervised modifications would save 1.7 million homes and $300 billion in home equity for neighbors of families facing foreclosure. (For background info on judicial loan mods, see this previous post by Sam, or this one on the AFFIL blog.)
Even though this measure would be incredibly helpful and effective in fighting foreclosures, it’s not certain that 60 Senators will vote for it. (It’s already been approved by the House.) Without 60 votes to get around a filibuster, the measure won’t pass.
You can use this link to contact your Senators and make sure they support judicial loan modifications.
Senator Durbin’s office put together this useful table showing how many homes and how much home equity would be saved in each state by lifting the ban. Even the numbers at the state level are huge – for example, 25,000 homes could be saved in Minnesota, 43,000 in Ohio, and a whopping 206,000 in Florida.
When you contact your Senators, make sure they know just how many homes a “no” vote on Thursday will cost your state. Keep reading
Chase announced a plan Friday to rework up to $70 billion in mortgages for borrowers who are already behind, but also for those who may soon be behind.
The move by the New York bank will cover as many as 400,000 borrowers. They’ll be moved into loans carrying lower interest rates, smaller principal amounts or other more-affordable terms.
It’s about time. The only people benefitting from the rising foreclosures are loan servicers. Just like when the loans were made, one party (then: mortgage brokers; now: mortgage loan servicers) stands to gain at the expense of borrowers and lenders.
Massive Effort to Save Mortgages | Wall Street Journal