Origins
MERS was incorporated in 1995 as a joint venture among the nation’s largest financial institutions, including the Mortgage Bankers Association, Fannie Mae, and Freddie Mac. The organization was created to solve a specific friction in the securitization machine: the cost and delay associated with recording mortgage transfers in local county government offices.
Under the traditional Statute of Frauds, every transfer of a mortgage had to be recorded in writing and filed with a county clerk, a process that cost roughly $25 to $50 per transfer. Because securitization involved multiple transfers of the same loan to create “bankruptcy-remote” trusts, these fees represented a significant drain on banking profits. MERS allowed banks to bypass this three-hundred-year-old system by recording themselves as the “mortgagee of record” once and then trading the loans internally in a private database.
Structure & Function
MERS functioned as a shell company with almost no actual employees—only about sixty at its headquarters—yet it appeared as the “mortgagee of record” for over sixty million American loans. The system functions by selling its corporate seal and granting signing authority to thousands of low-level workers at mortgage servicers and foreclosure law firms.
These surrogate workers were appointed as “vice presidents” of MERS, despite never working for or being paid by the company. This allowed them to execute the mortgage assignments necessary for foreclosures on a “production line,” with some individuals signing up to 10,000 documents a week without any personal knowledge of the records they were verifying. This structure effectively outsourced three centuries of public property recording to a private, error-prone database.
Historical Significance
The historical impact of MERS was the systematic corruption of the “chain of title” for millions of American homes. By bypassing public records, the banking industry created a “ghost” system where the true owner of a home’s debt was often impossible to track or verify. This “failed securitization” was later covered up through robo-signing and the fabrication of legal evidence.
The legal challenges to MERS resulted in landmark rulings in states like Kansas and Arkansas, where courts found that MERS had no legal interest in properties and could not foreclose. This exposed a fundamental systemic risk: millions of Americans could be evicted from their homes based on fabricated evidence generated by a shell company that never properly held the note. The revelations about MERS contributed to the National Mortgage Settlement of 2012, though critics argue the settlement largely immunized banks for their abuses.
Key Developments
- 1993: A white paper by the Mortgage Bankers Association first suggests a private electronic registry.
- 1995: Incorporation of MERS.
- late 1990s: MERS becomes the industry standard for both GSE and private-label mortgage securities.
- 2007: As foreclosures rise, the legal validity of MERS’s “nominee” status begins to be challenged in court.
- 2009: The Kansas Supreme Court rules that MERS has no legal interest in property, a major blow to the industry’s legal standing.
- c. 2009: Whistleblowers discover that robo-signers are representing MERS on behalf of multiple, often defunct, banks simultaneously.
- 2010: Revelations about fabricated mortgage assignments uncover thousands of forged documents in public records.
- 2010: MERS is included in a federal enforcement action for “critical deficiencies” in its document preparation practices.
- 2011: 60 Minutes exposes the “robo-signing” epidemic, showing MERS as a central figure in the chaos.
- 2012: The National Mortgage Settlement requires new standards for document execution but largely immunizes banks for past MERS-related fraud.