Fannie Mae has a lot of responsibility for our current foreclosure and mortgage crisis, although it has not been reported on much. That’s changing.
Last weekend, the Detroit Free Press reported that Fannie’s pushing foreclosures in violation of its own rules. In the Free Press article Fannie Mae, unsurprisingly, denies the charges. When I contacted Fannie Mae spokeswoman Amy Bonitatibus, she wouldn’t discuss the Free Press article on the record. However she was willing to confirm Fannie Mae’s well known role in launching MERS. And perhaps Fannie Mae’s most far-reaching foreclosure and mortgage mess impacts stem from MERS.
Fannie Mae and MERS
Fannie Mae was instrumental in the creation and legitimation of MERS, the mortgage registration “system” that has wreaked massive damage to our property records and land titles (at pg. 1370). Fannie Mae was a founding MERS member and initially one of only two entities that used MERS. The other was Freddie Mac. After a few years, the private securitization market started using MERS mortgages. But helping midwife MERS and legitimize its use are not Fannie Mae’s only contributions to the MERS mess.
Fannie Mae’s current servicing guidelines prop up fictions about MERS, like a co-conspirator helping to corroborate a cover story. For example, Fannie Mae’s guidelines talk of MERS as if it was a single, coherent company, reinforcing a false image of MERS.
“Fannie Mae notifies MERS…”, (p. 104-30, second paragraph)
“In addition, MERS’ failure to perform any obligation…” (p. 104-30 last paragraph)
“(MERS will notify Fannie Mae…” (page 104-31, Section 408.1)
The imagery of those phrases would be accurate if “MERS” were replaced with “MERSCORP”, the parent company of MERS. MERSCORP is the kind of company most people think of when they think of mortgage industry corporations: a hierarchical entity comprised of employees and management, grouped together in an office building. But MERSCORP employees are not significantly involved in the operation of the MERS registry. And MERS is nothing like MERSCORP. MERS isn’t the kind of company people intuit it to be.
MERS has no employees and no management. MERS is a database and some 20,000 “certifying officers.” Certifying officers of MERS are employees of other companies in the mortgage and foreclosure industry who have ostensibly been given the power to sign documents in MERS’s name. For example, John Kennerty is or was a Wells Fargo employee who signed as a MERS officer in many cases. Employees of Lender Processing Services and Nationwide Title Clearing have signed in MERS’s name. Lawyers at foreclosure firms have signed in MERS’s name.
Is Wearing A MERS Hat Enough to Make MERS Real?
No one at MERS—remember, MERS has no employees—no one “at MERS” manages the certifying officers. No one “at MERS” reviews their work, and MERS does not pay its certifying officers. MERS is not a company that anyone would recognize as such.
Instead of “MERS’ failure to perform”, the Fannie Mae Servicing guidelines could more accurately say “the servicer fails to cause MERS to perform.” Clearer still: what really happens when MERS “performs” is the servicer tells its employee, or the servicer’s vendor tells its employee, to sign a piece of paper and stamp her MERS title beneath her signature. In fact, Fannie Mae’s servicing guidelines make this reality explicit on page 102-60 where Fannie explains that sometimes it might need a MERS assignment, and if so, Fannie requires “the transferor servicer to prepare an assignment of the mortgage loan from MERS to the transferee servicer and have it executed.”
MERS Doesn’t Track Mortgages, Servicing Rights, or Anything Else
Fannie Mae’s help in perpetuating the MERS-is-a-normal-company misunderstanding is not trivial because key judicial decisions display this type of misunderstanding of MERS. The most common misconception is that “MERS tracks mortgages.”
MERS has no employees. MERS does not enter any data. MERS does not update any data. MERS does not control the quality of the data. Employees of servicers or their vendors do these tasks, to the extent that they are done at all. (For example, information about who owns the loan can be voluntarily disclosed but doesn’t have to be.)
Are the servicers’ employees wearing ball caps that say “MERS” as they sit in front of their computers, typing? If so, is their wearing of MERS hats enough to make it true that “MERS tracks”? It doesn’t convince me, but there’s no accounting for some judges and their anti-debtor bias.
Fannie Mae’s role in MERS is important to understand and hold Fannie accountable for because the MERS problem is vast and deep. Approximately half of today’s mortgages—all mortgages, not just those in default—are MERS loans. And many completed foreclosures are legally flawed because they were improperly conducted in MERS’s name, or involved problematic MERS assignments. Legally flawed foreclosures create clouded titles. Finally, MERS’s involvement can complicate and lengthen foreclosure litigation, worsening the status quo.