[Ed. Note: For more analysis of the MERS decision, see this post by Cynthia Kouril.]
The usual political wrangling has accompanied the Treasury Department’s white paper on Fannie Mae and Freddie Mac. But this is yet another issue happening in a vacuum, divorced from actual circumstances. If you want to talk about reform of the secondary mortgage market, fine. But it’s almost impossible to do so without recognizing the total breakdown in that market and what that has done to housing as a whole.
I submit a few things for the record. First, you have foreclosure mills filing fraudulent documents to cover for the fact that they lost or otherwise bungled mortgage assignments for millions of loans when they securitized them over the past decade. These are the same private actors who would be responsible for the entire securitization market under a plan that phases out Fannie and Freddie.
Although this “original” Note and Mortgage is an “original,” it has nothing to do with the subject property of this action. This note and mortgage belongs to borrower named Elena Gonzalez, with a property address of 4217 24th Street SW, Lehigh Acres, Florida 33971. However, this document was not only filed but the Notice of Filing was signed by a representative of Ben-Ezra and Katz, Plaintiff’s Counsel, wherein it was certified that it was the Original Note and Mortgage of this subject action.
Additionally, the Assignment of Mortgage is a complete sham. Upon closer inspection by this Court, pursuant to Defendant’s Motion, the Court notes that this Assignment attempts to transfer an interest in a Mortgage from Argent Mortgage Company, LLC to the Plaintiff that “was effective on September 1, 2009.”
However, said assignment is “signed” by an alleged representative of Argent Mortgage Company on January 6, 2008. The notary on the Assignment is crossed out, and states “see attached.” The attached page is a “CALIFORNIA ALL-PURPOSE ACKNOWLEDGEMENT” allegedly notarized on January 20, 2009; more than a year after the alleged assignment took place.
The broken securitization market is the original driver in this persistent fraud from foreclosure mills and servicers. And the mechanism used by the private market to facilitate their securitizations, namely MERS, was not legal in any way. Yet they continued to use it in violation of state property law:
The Court recognizes that an adverse ruling regarding MERS’s authority to assign mortgages or act on behalf of its member/lenders could have a significant impact on MERS and upon the lenders which do business with MERS throughout the United States. However, the Court must resolve the instant matter by applying the laws as they exist today. It is up to the legislative branch, if it chooses, to amend the current statutes to confer upon MERS the requisite authority to assign mortgages under its current business practices. MERS and its partners made the decision to create and operate under a business model that was designed in large part to avoid the requirements of the traditional mortgage recording process. This Court does not accept the argument that because MERS may be involved with 50% of all residential mortgages in the country, that is reason enough for this Court to turn a blind eye to the fact that this process does not comply with the law […]
By MERS’s own account, it took no part in the assignment of the Note in this case, but merely provided a database which allowed its members to electronically self-report transfers of the Note. MERS does not confirm that the Note was properly transferred or in fact whether anyone including agents of MERS had or have physical possession of the Note. What remains undisputed is that MERS did not have any rights with respect to the Note and other than as described above, MERS played no role in the transfer of the Note.
MERS is listed as the mortgagee in millions of foreclosure cases, and yet cannot prove accurate transfer of the mortgage and the note into the proper trust, because it’s a database and it never saw or held the note. MERS’ argument, literally, is that you have to bless their process because it governs over half of the mortgages in the country.
Furthermore, you would be turning the securitization business entirely over to a private market that engaged in violations of federal securities law:
The Securities and Exchange Commission charged three top executives of failed mortgage giant IndyMac on Friday with misleading investors as the firm was faltering during the financial crisis.
According to the SEC, former chief executive Michael Perry and former chief financial officers Scott Keys and Blair Abernathy knew that the lender was running short of the cash it needed to offset risky loans in 2007 and 2008 but failed to inform shareholders. The FDIC took control of IndyMac in July 2008, and it filed for bankruptcy months later.
“Federal securities laws do not become optional when the news is negative,” Lorin L. Reisner, deputy director of the SEC’s division of enforcement, said in a statement.
So the question must become, why are we having this debate now? Set aside for a second that the housing market continues to crash all over the country because people simply don’t have the money to pay for housing, demand therefore suffers, and increased foreclosures add to supply. The government supports are clearly propping up the housing market right now. But set that aside. We’re engaged in a debate over the future of securitization in the midst of a systematic fraud in the private securitization market. One would think the more prudent path forward is to arrest and try those responsible and then have that conversation.