What Is the Electronic Mortgage Registration System

The need for an electronic Mortgage Registration System was first felt on October 1993. This was first proposed by Freddie Mac, Fannie Mae and Ginnie Mae in a white paper. Soon thereafter, the acronym MERS was coined. It took until October 1995 and the involvement of the Mortgage Bankers Association to incorporate MERS. Officially, MERS was launched in April 1997.

Initially, MERS was set up to act as the nominee for real estate transactions. This was analogous to the way Cede & Co. served as the nominee “street name” owner of record of all securities that are held in trust by the DTCC or the Depository Trust and Clearing Corporation. In the 70s, because of the utter complexity of exchanging innumerable stock certificates physically every day, the American securities industry was practically drowning in paper. DTCC originated the modern computerized securities industry by restraining physical stock exchanges and the replacing them entirely with book entries.

The 80s witnessed huge growths in volumes of MBS or mortgage-backed securities. This led to the conclusion that mortgages placed into such securities would also need a similar mechanism. The problem, however, was the mortgage loan becoming “bankruptcy remote” from the original lender, when transferred into an MBS. That meant, in case of a collapse of the original lender, the investors of the MBS would demand some sort of protection.

The protection preferred was to convey the loan via three or four entities before it could reach the MBS. The relevant recorder or land registrant was required to record each of the conveyances. This meant that each loan would need three or four assignments, and there were hundreds of such loans going into each of the MBS. The net result was assignments flooded and overwhelmed the recorders.

The problem was fixed with the help of MERS. The mortgagee of record or the nominal beneficiary was now named as MERS in most of the standard loan documents. Investors and lenders were able to transfer mortgages in local recorder’s offices without any recording assignments. They also could avoid paying any recording fees.

If the loan is paid back in time properly, the MERS loan demands recording of only two documents. These are the deed of trust or a reconveyance of the mortgage and the original mortgage naming MERS, being recorded back to the borrower, thereby merging the equitable and legal titles. Since all the entities in between are MERS members, the intermediate transfers between such points are tracked only through MERS.

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