Securitization of Home Loans -- MERS -- Confounds Borrowers at Foreclosure
Olson, Thomas, Tribune-Review/Pittsburgh Tribune-Review
Ryan and Jaclyn Graft just got a mortgage the old-fashioned way: They closed on it at a community bank, which will hold the loan until the Greensburg couple pays it off.
"Standard Bank wasn't like a big bank, where you're just a number," said Ryan Grant, 29, who obtained a 2 1/2-year second mortgage from Standard Bank on March 14.
The majority of home mortgages, however, get done a newer way: They're originated, sold to other lenders and split into mortgage- backed securities, where homeowners' payments are divided between the investors who bought them.
That securitization process leaves some borrowers wondering who owns their mortgages. The issue is important to people selling or refinancing a home. But it's especially vexing to those trying to modify a troubled mortgage or stave off foreclosure because the mortgage owner or its agent will determine whether the borrower loses his house.
"It used to be you got a mortgage from your local savings and loan, and they kept that loan on its books," said Steve Emery, Pittsburgh office manager for Chicago Title & Trust.
In the mid-1980s, more mortgages started getting written by brokers and sold to lenders. They, in turn, sold them to other lenders. Emery said each time that happened, the lender would file documents at the county courthouse stating the mortgage had been reassigned.
Under mortgage securitization, which took hold in the mid-1990s, a bank might sell 1,000 loans to Fannie Mae, for instance. But making 1,000 courthouse filings and paying a recording fee each time "got to be very burdensome," said Emery. The fee in Allegheny County, for instance, is $63.50.
That's how and why MERS was born. Short for: Mortgage Electronic Registration Systems Inc., the company was created by the banking industry to centralize and economize the filing work.
"If you didn't have MERS, you'd have to invent it because the volume and velocity (of transactions) exceeded the human ability to do these recordings," said Kurt Pfotenhauer, CEO of the American Land Title Association in Washington, D.C., one of the 23 mortgage giants that co-founded the electronic system.
In Allegheny County, for instance, more than one in four mortgages recorded at the real estate department in 2010 was done electronically by MERS, based in Reston, Va.
"MERS only benefits businesses, not the general public," said Valerie McDonald Roberts, manager of the county's real estate department.
"It makes it easier for lenders to buy and sell (mortgage loan) portfolios," but makes it less evident who owns the mortgage, said McDonald Roberts, whose office sometimes hears from residents seeking help in determining who holds their mortgages.
"MERS was created so lending institutions didn't have to pay all the filing fees," said Dan Sullivan, mortgage foreclosure specialist for ACTION-Housing Inc., Downtown, which helps people fight foreclosures.
"It's part of the larger problem where servicers and investors are trying to do everything as quickly as possible without a lot of costs," he said.
When mortgages get securitized, they are assigned to a trust, which becomes the owner of the mortgages pooled into that trust, said Ken Yarsky, a real estate attorney Downtown.
The trust describes the mortgage securities and terms, such as the interest, or "coupon," rate the many investors will be paid from homeowners' payments. They bear long and unfamiliar names such as Homestar Mortgage Acceptance Corp., Asset-backed Pass-through Certificates Series 2004-6, said another local attorney. …