"I have a document in front of me that has this ?Mortgage Electronic thing’ on it. What is this, and what does it mean?"
This is a question often asked by title agents encountering their first MERS document. Now that more and more lenders are using the MERS System, MERS is becoming visible in the title industry.
This "Mortgage Electronic thing" is a company called MERSCORP, Inc. It is a Delaware Corporation that is owned by a broad base of organizations in the mortgage industry. The name that you have seen or will see on mortgages, deeds of trust, assignments, lien releases and other related documents, (if you haven’t already) is its wholly-owned subsidiary: Mortgage Electronic Registration Systems, Inc. (MERS). The subsidiary was created to be bankruptcy remote and is named as the mortgagee of record in a nominee capacity on all mortgages that are registered on the MERS System by MERS members.
The appointment of MERS as the mortgagee of record eliminates the need for any future assignments when servicing rights are sold from one MERS member to another. Instead of preparing a paper assignment, such as traditionally has been used to track the changes in servicing rights in the county land records, all subsequent transfers can now be tracked electronically on the MERS System because MERS always remains the mortgagee of record for the servicer. There is no need to create assignments once a loan is registered.
Who are MERS members? They are organizations in the mortgage industry that fund, acquire, lend or service mortgage loans including investors (Fannie Mae and Freddie Mac) as well as organizations that are primarily engaged in providing services to the mortgage industry. Membership includes American Land Title Association® (ALTA®), who also has a seat on our Board of Directors. First American Title and Stewart Title are also members and shareholders.
What is the MERS System?
The MERS System is an electronic database that was built by our technology partner, Electronic Data Systems Corporation, Inc. (EDS). It is through this database that changes in servicing rights and beneficial ownership interests are tracked electronically. It operates on software that allows MERS members access to a central database. It is a secured network. Members can access information only on loans that are identified as belonging to them. There are three levels of identity validation that must be entered in order for a member to access the System: organizational number, operator identification, and the operator’s password.
Having a First-Time MERS Encounter
There are two ways that you will encounter MERS as the mortgagee of record. One is on a mortgage or deed of trust for a newly originated loan on which you may be asked to write a title policy. The other is on an assignment of mortgage. The latter is usually associated with a bulk transfer of servicing.
The appearance of MERS on these documents will allow you to perform your job more efficiently because it will be much easier to perform title searches, and just as importantly, you can access needed information quickly. It is now possible for the chain of title to the mortgage to start and stop with MERS. No more paper chase!
Let’s talk about what you need to know if you see MERS on a mortgage or deed of trust. First, why is MERS on the mortgage or deed of trust? Second, is MERS a lender now that it appears on this document?
MERS appears on the mortgage or deed of trust for the sole purpose of holding title to the mortgage or deed of trust as a nominee for a MERS member. Specific language appears on the security instrument that allows MERS to be the mortgagee as nominee for the lender, its successors and assigns (this is called "MOM", which stands for MERS as Original Mortgagee).
In the Fall of 1997, Fannie Mae, Freddie Mac, Ginnie Mae, FHA, and VA all approved the use of MERS on the security instrument for loans sold to them and registered on the MERS System. In early 1998, Fannie and Freddie authorized changes to be made to the uniform security instrument to accommodate the addition of MERS as nominee for the lender. The four major Wall Street rating agencies, Moody’s, Standard & Poor’s, Fitch, and Duff & Phelps have approved the use of MOM as well.
Recently, Fannie Mae and Freddie Mac have revised their uniform instruments, including slight revisions to the 1998 MOM language. There will be approximately a one-year time period during which some lenders may be using the old MOM document and others are beginning to use the new revised MOM document. However, the substantive content of both versions is the same.
One new change to the uniform instrument is to define MERS on each of the state definition sections. Each state has its own form of security instrument, so there may be a slight variation in the MERS definition from state to state. An example of representative language is: "MERS" is Mortgage Electronic Registration Systems, Inc. MERS is a separate corporation that is acting solely as a nominee for Lender and Lender’s successors and assigns. MERS is the mortgagee under this Security Instrument. MERS is organized and existing under the laws of Delaware, and is located at P. O. Box 2026, Flint, MI 48501-2026, tel. (888) 679-MERS.
The instruments make it clear that the originating lender is still defined as the Lender. MERS is not lending any money and will not be collecting any money. Additional language is added so that the Borrower understands and agrees that MERS holds only legal title to the interests granted by Borrower in the Security Instrument, but, if necessary to comply with law or custom, MERS (as nominee for Lender and Lender’s successors and assigns) has the right: to exercise any or all of those interests, including, but not limited to, the right to foreclose and sell the Property; and to take any action required of Lender including, but not limited to, releasing and canceling the Security Instrument.
How MOM Impacts the Issuance of a Title Policy
When MERS was in the process of gaining approval of MOM by the Agencies (Fannie Mae and Freddie Mac), it contacted major title companies to make sure that lenders would not have problems obtaining title insurance on a MOM mortgage. Joseph C. Bonita, Chief Underwriting Counsel of Chicago Title wrote, "Chicago Title and its subsidiaries issue the standard ALTA® Loan Policies, whether in the full version or in the Short Form which is commonly used in residential transactions. These policies insure against, among other things, loss from the invalidity or unenforceability of the ?insured mortgage,’ which in this case would be the mortgage or deed of trust running to MERS as nominee. The insured in these forms is both the named insured and the owner of the indebtedness secured by the insured mortgage, and each successor in ownership of such indebtedness." Mr. Bonita stated that in their present form, these policies provide full coverage to purchasers of the debt secured by mortgages made to MERS as the nominee of the original lender.
Out of the handful of calls that we have received from title agents, many arose out of confusion over the lender’s instructions given to the title agent when a broker originated the mortgage for the lender. For example, a title agent received instructions to name the lender, i.e., the MERS member, on the policy, but this member did not appear on the mortgage. Instead, a broker’s name was on the mortgage. The process followed by this lender and broker before converting to MOM mortgages was to deliver an assignment from the broker to the lender was executed concurrently with the mortgage. The title policy listed the broker and made a reference of the assignment to the lender.
However, this process changes when a MOM mortgage document is used. If MERS is named as the nominee for the broker, there will not be an assignment from the broker to the lender. That is one of the advantages of originating mortgages naming MERS as the nominee; the assignment from the broker to the lender is eliminated. If the lender who uses a broker sends the same instructions to the title agent to name the lender on the policy, it causes confusion because there will not be an assignment from the broker. In this case, the title agent called looking for an assignment to the lender because they could not name the lender on the policy without that assignment from the broker to the lender. The title agent was correct. What caused the confusion was the lender not changing their instructions to reflect the use of a MOM document. The outcome was that the title policy would name the broker, its successors, and assigns. The lender also was instructed to change future instructions to their title agents.
Naming the broker as the insured does not impact the coverage of the lender. What lenders often overlook is that it is perfectly acceptable that they are not named specifically on the policy by their company name. When the broker sells the loan to the lender, the promissory note is endorsed to the lender making the lender the owner of the indebtedness. As Joe Bonita points out, the owner of the note, the lender in this case, will be covered under the policy by the virtue of its ownership.
Therefore, if lenders are originating loans in a broker’s name using MERS as the nominee for the broker, the policy should list Mortgage Electronic Registration Systems, Inc. as the nominee for the broker, its successors, and assigns. This should not cause an increase in the premium.
Are You Lost Without Assignments?
The answer is, "no." Instead, you should celebrate your good fortune! No more wild goose chases tracking down a missing assignment. Fine, you say, that’s great in theory, but then how do I know that the loan has been sold to a new servicer if there is not an assignment recorded in the land records?
Here is the part where the title industry really sees the benefits of using the MERS System. The MERS System has the unique ability to provide that information to you instantaneously through a Voice Response Unit (VRU) which is a toll-free number 1(888) 679-MERS. The VRU provides the name and telephone number of the current servicer of a mortgage loan that is registered on the MERS System. Every mortgage that uses MOM language and every assignment to MERS will be recorded in the respective county land records. All documents will have a Mortgage Identification Number (MIN) on it. This is an 18-digit number that is unique to a particular mortgage loan.
Anyone can dial up the toll-free number and put in the MIN. There is no fee to use the System. Instantaneously, the database is searched and the current servicer’s name and telephone number are provided. Don’t worry if for whatever reason the MIN is omitted, or you can’t read it. You can also access the same information by using the borrower’s name, property address, or Social Security number. This information can also be faxed to you by inputting your fax number when the system prompts you for it.
Once you access this information, the servicer is contacted for payoff information or for other information regarding the loan. No more wondering if the assignment recorded in the land records is the most current one, and then finding to your chagrin that it is not, forcing you to go on the all too familiar paper chase.
Plus, don’t worry that it will be impossible to get through to the MERS System. The average time it takes for a search of the MERS System is 8.0 seconds. MERS monitors the response time on a monthly basis and will make appropriate changes if needed for timely responses. Also, MERS is developing a member-only side to our current web-site that can access the MERS System through the internet. This will be a big benefit to the title industry when the volume of loans on the MERS System has substantially increased. This would allow a title agent to find the servicer information on a number of loans by Internet access instead of by inputting the MIN on a telephone keypad.
What Happens When the Loan Pays Off?
MERS is not the servicer of the loan, and cannot provide payoff information. What MERS does provide is easy access to the name and telephone number of the current servicer. This is an improvement over the current process where up to date assignments are frequently missing.
Out of the 500,000 loans that have been registered on the MERS System, approximately 35,000 loans have been paid off. Occasionally I receive a phone call asking to explain why if MERS is the mortgagee of record, is the check made payable to another entity. The explanation is that MERS is the mortgagee in a nominee capacity for the beneficial owner. MERS is not servicing the loan and therefore not collecting payments. It is the servicer who processes the payment and prepares the necessary documentation for payoff. Out of the 35,000 loans paid off, only about 40 times have I been requested to send a written letter assuring the title company that upon payoff to the servicer, a lien release will be executed by MERS.
Once the servicer receives the pay-off funds, the lien release is prepared, executed by an officer of MERS, and recorded. The mortgage is then de-activated off of the MERS System. If the VRU is called for information on an already paid-off loan, you will be told 1) that the loan was de-activated on whatever date it was de-activated, due to a pay-off; 2) the name and telephone number of the last servicer. The MIN for this loan will not be used again.
What the Title Industry is Doing to Get Ready for MERS
ALTA® is actively working to get the word out to all their members. The MERS monthly newsletter is reproduced in every issue of Title News. Some state land title associations have invited MERS to speak at meetings and conferences. The word on MERS is spreading, but a lot of title agents still need to be reached. Some title companies are taking a proactive approach.
For instance, Stewart Title Guaranty Company has issued a national bulletin to all of its issuing offices explaining MERS. On MOM mortgages, Stewart’s policy is to show the original beneficial owner on the mortgage as the insured. If the lender requests, Mortgage Electronic Registration Systems, Inc. can be named as an additional insured. Jim Gosdin, Senior Vice President and Senior Underwriting Counsel, spearheaded this effort to educate Stewart agents. He states, "MERS will facilitate production of payoffs and will assure that we receive satisfactory releases of mortgages. Because of the MERS involvement in the real estate process, we expect that we too will be more efficient. MERS is one of the best ideas in real estate to develop in recent times."
First American is currently working on a memorandum to send out to its offices and will be placing information about MERS on its web-site. It sees the value of educating its agents up front on this timely topic.
Information about MERS is out there. This article is the second one to appear in Title News. You can also visit the MERS web-site for information at www.mersinc.org.
The number of mortgages registered on the MERS System exceeds 31,000 and is increasing daily as more and more lenders are registering loans. By the end of this year, one million loans will have been registered. There are currently 26 members registering loans, but this number is quickly rising. MERS is here, so Ready, Set ?.MERS.
Sharon serves as Corporate Counsel and Assistant Secretary for Mortgage Electronic Registrations Systems, Inc. She has worked with Fannie Mae and Freddie Mac on policies and procedural changes to the uniform security instruments. Sharon is a member of the New Jersey State Bar and the Virginia State Bar and received her law degree from the University of Richmond in Richmond, VA. She may be reached at 1-800-646-MERS.