MERS stands for the Mortgage Electronic Registration Systems. It is also a privately owned and operated company that maintains this electronic database and registry whose purpose is to follow the ownership of and servicing rights to American mortgage loans.
This MERS represents a revolutionary way of vastly simplifying the means of keeping track of how both mortgage servicing and ownership rights can be originated, sold, and followed. The Real Estate finance industry actually created it. MERS boasts that it does away with the requirement to create and record assignments as both commercial and residential loans are being exchanged.
The mortgage banking industry got together to come up with a way to simplify the process of working with mortgages through utilizing e-commerce to reduce and even eliminate paper. The mission of the company and its database lies in registering literally all mortgage loans within the U.S. on the MERS system.
MERS actually performs its role on behalf of the servicer and the lender in handling county land records. Loans that are registered on the MERS system can not have problems with future assignments since MERS is always the nominal mortgagee, regardless of the number of times that a mortgage servicing is sold. MERS is approved to be original mortgagee by all of the major lending outfits, including Freddie Mac, Fannie Mae, Ginnie Mae, the VA, the FHA, and both Utah and California Housing Finance Agencies, along with each of the Wall Street ratings agencies.
Many groups benefit from the existence of the MERS registry. This includes mortgage servicers, originators, wholesale lenders, warehouse lenders, retail lenders, settlement agents, document custodians, title companies, investors, insurers, and country recorders. MERS claims that the consumer benefit as well, though this has been in question until recently.
Ironically, a recent situation has arisen surrounding MERS that may actually benefit many consumers in the end. They are embroiled in the middle of a scandal surrounding original titles and signed promissory notes. Part of what they accomplished in their paperless process led to the loss of such critical original signature documents that the majority of states require for enacting mortgage foreclosures. MERS is now right in the middle of a number of legal challenges resulting from the sub prime crisis and going on in most states around the country. Their right to begin the process of foreclosure has been called into account, since they lack these required original signed documents.
This means that their role in the early days of setting up the system that helped with the buying and selling of mortgages may come back to haunt them and the entire mortgage industry as a whole in the end. Should judges rule these legal suits in favor of the homeowners who took out the mortgages, then it is widely believed that the losses that the banking industry in America suffers from will be so great that they will require substantial amounts of re-capitalization.