MORTGAGE ELECTRONIC REGISTRATION SYSTEMS (MERS)
by Christopher J. Beck, ATG Senior Law Clerk
Mortgage Electronic Registration Systems, Inc. (MERS) provides a centralized registry for tracking ownership interests and servicing rights of mortgages. As the number of mortgages registered with MERS grows, MERS increasingly will appear in the chain of title. This article will address the following questions when dealing with transactions in which MERS is in the chain of title:
- How should an assignment to MERS appear in the chain of title?
- May a mortgage and an assignment to MERS be combined into a single document?
- How does one obtain a payoff letter and release for a mortgage assignment to MERS, and how does this appear in the chain of title?
MERS - owned by several companies involved in the mortgage finance industry - began in 1995 as a member-owned, non-stock corporation. It was created to address the problems associated with tracking the beneficial interests and servicing rights of mortgages due to the increased number of transactions in secondary markets. The goal was to make the tracking of the secondary mortgage assignments more similar to the stock market. Thus, an electronic registry was created to track such assignments of rights.
For MERS to be effective, mortgages must be properly registered with the MERS system. Each mortgage is assigned an individual Mortgage Identification Number (MIN) that tracks the mortgage for its life. The MERS system depends on MERS being named as the mortgagee of record in the county public records. This may be done in one of two ways. First, MERS can be identified as the nominee for the lender on the mortgage itself (referred to as "MERS as Original Mortgagee" or MOM). If the mortgage does not name MERS as the original mortgagee, then the mortgage can be assigned to MERS. The mortgage would begin as a typical mortgage, and as such it must be recorded in the county recorder's office. The mortgage would then be assigned to MERS, with the assignment being recorded in the public records. At this point, under either method MERS will be the assignee or mortgagee of record for the life of the mortgage. Assignments are not made outside of the MERS system. At this point, the chain of title will stop with MERS. MERS will internally track all subsequent assignments of interests and rights as long as the mortgage interests remain with a MERS member.
Benefit of MERS
The benefit of MERS is to create efficiency in secondary mortgage markets, thereby reducing costs. MERS relies on the current mortgage recording laws and procedures so that it may perform its goals, and is not meant to in any way replace governmental recording functions. MERS members are expected to update the transfers within the system. MERS has acknowledged that it is critical to its success that they accurately keep track of assignments. Interested parties are putting a considerable amount of trust in the accuracy of the MERS system and in its members diligently updating records.
How Should an Assignment to MERS Appear on the Chain of Title?
Signed mortgage documents are recorded in the county land records to make a public record of the security interest (in the form of a mortgage or a deed of trust). If MERS is not identified as the original mortgagee, an assignment must be recorded naming MERS as the mortgagee when the loan is registered on the MERS system. An assignment to MERS should appear like any other assignment. An assignment naming MERS as the assignee of record is prepared and recorded with the county recorder's office. MERS will be the assignee of record for the life of the loan and the chain of title should end with MERS unless the rights are assigned to a non-MERS member, a foreclosure, etc.
May a Mortgage and an Assignment to MERS Be Combined into a Single Document?
Beginning in 1997, it has been possible to name MERS as the original nominal mortgagee (MOM), eliminating the need for a subsequent assignment to MERS. If MERS is named as the nominee for the lender, there is no need for an assignment to MERS and no further recorded or unrecorded assignments are necessary as long as the loan remains on MERS. After the initial step naming MERS as mortgagee of record, the subsequent treatment of the mortgage is the same whether it was initially created through an assignment or through MOM. MERS prefers to be named as the original mortgagee because it eliminates the need for a subsequent assignment.
How Does One Obtain a Payoff Letter and Release for a Mortgage Assignment to MERS, and How Does This Appear in the Chain of Title?
Obtaining a payoff or release should be a simplified process for mortgages registered with MERS. It is the obligation of the MERS member currently servicing a loan to de-activate the loan on the MERS system and to prepare and send a lien release to the county recorder's office. To find out the name of the servicer, non-MERS members will have to call the MERS Voice Response Unit (VRU) and obtain the servicer's name, address, contact person, and phone number. It will be necessary to contact the servicer because the MERS system will not give out payoff information. It is the responsibility of the servicer to give out all payoff information.
The loan servicer will send a lien release to the county recorder's office. The release should contain the MIN and the telephone number to access the MERS VRU, which is the number the general public may call to obtain information about the MERS servicer. The number for the VRU is 1-888-679-MERS (679-6377). To access this service, callers will have to know either the MIN or the social security number of the borrower. If an inquirer lacks this information, he or she will still be able to access this information by calling the MERS Help Desk at 1-888-680-MERS (6377), provided one can provide the mortgagor's name or the property address. If a non-MERS member does not have any of the above information, the MIN should be available at the county clerk's office once the lien release has been recorded. "MERS has made a commitment to provide access to its system to county recorders and to the public generally," and the county recorder should be able to get people the information they need. 1997 Ill. Atty.Op.Gen No. 97-008.
As MERS becomes more prominent in the mortgage industry, title agents and companies may have to adapt some of their methodology and procedures to conform to the MERS system. While this initially may prove to be an inconvenience, the title industry should ultimately benefit from increased mortgage tracking efficiency that MERS will provide.
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Does use of the MERS® System change the current mortgage closing process?
Yes, it makes it better! When your organization uses the MERS® System, you follow your normal and customary closing procedures.
How does it work?
At closing, both the lender and borrower agree to standard, Freddie Mac- and Fannie Mae-approved language in the security instrument that names Mortgage Electronic Registration Systems, Inc. (MERS, wholly-owned subsidiary of parent company MERSCORP Holdings, Inc.) the original mortgagee or beneficiary. After closing, lenders record the security instrument in the public land records and register the loan on the MERS® System, the national electronic database operated by MERSCORP Holdings that tracks changes in mortgage servicing rights and beneficial ownership interests in loans. Through this role as mortgagee or beneficiary in the security instrument, our Members no longer need to record assignments of the mortgage when ownership of the promissory note or servicing rights transfer between members because the security instrument—the mortgage or deed of trust—remains in the name of MERS.
What are the benefits of MERS and the MERS® System?
The benefits of MOM loans include:
- Reduces cost of homeownership.
- Eliminates breaks in the chain of title.
- Hard dollar savings on each loan for homeowners and lenders.
- Identity of servicer and investor available for free to homeowners via phone or Internet.
- Used by lenders to find undisclosed liens.
- Used by governments and code enforcement officers to find companies responsible for maintaining vacant and abandoned properties.
- Simplifies lien releases when a lender goes out of business.
- Increases efficiency in sale of loans and servicing transfers in secondary market.
- Optimizes the Mortgage Identification Number (MIN) assigned to each loan used for tracking.
What is the MERS as Original Mortgagee (MOM) language used in the security instrument that is recommended by Fannie Mae and Freddie Mac?
The following revised MERS as Original Mortgagee (MOM) language must be used on the revised security instrument. After July 2000, only the revised security instrument may be used. Please see Fannie/Freddie Bulletins for further details (April 26, 1999).
"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 has an address and telephone number of P.O. Box 2026, Flint, MI 48501-2026, tel. (888) 679-MERS.
NOTE: This is representative language only. Consult official Fannie Mae and Freddie Mac Announcements for specific language for your state. Other changes also may be required in the body of the Deed of Trust or Mortgage.
Can a lender also assign loans to MERS if the loan has already been closed in the lender's name?
Lenders may also assign loans to MERS if the loan has already been closed in the lender's name. Once the loan is assigned to MERS using the same paper assignment process as you use now, tracking servicing and beneficial rights can occur electronically for all future transfers. Additional assignments after this point become unnecessary unless the servicing rights are sold to a non-MERS® System Member.
In addition to receiving the same benefits as MOM loans, assigning a loan to MERS enables you to become compliant with the requirements of trading partners.
What is an iRegistration?
An iRegistration enables companies to take advantage of the fraud and loan tracking benefits of a MERS® System registration at a discounted price by registering the loan, but without the requirement of recording MERS as the original mortgagee in the county land records. Benefits of iRegistered-loans include:
- Mitigates fraud by verifying a borrower’s declaration of property
- Enables lenders to complete property preservation information (as required by certain jurisdictions)
- Provides transparency throughout the life of the loan
Am I allowed to designate MERS as mortgagee and use the MERS® System with new loans only?
No. If MERS was not named as the original mortgagee on the security instrument at the time of closing, you can assign the mortgage to MERS after closing. You may also register your entire portfolio on the MERS® System to help you streamline your operation by eliminating the need to run dual tracking of mortgages registered, and those not registered. Then, if you decide to sell the mortgage rights, you’ll save the time required to register them on the MERS® System and prepare an assignment to MERS for a portion of the sale portfolio—speeding the transfer process along the way. In addition, the value of the servicing asset may be enhanced.
Is the MERS® System intended for registration of first liens only?
No. Multiple lien positions are supported.
Does the Mortgage Identification Number (or MIN) require us to replace our current loan number system?
No. While the MIN is a unique life of the loan identifier, your organization is under no obligation to abandon use of its loan number system. In fact, you can use your existing loan number wrapped by your unique MERS® System Organizational ID (Org ID) and a check digit to generate the MIN. You need to enhance your servicing system to carry the MIN, which is a unique 18-digit identifier. The MIN becomes the vehicle for communicating information with other members of the real estate finance industry without having to resort to elaborate cross-referencing schemes for different loan numbering systems. And since you can assign a MIN for a loan when application is first made by the consumer, you may find that your numbering system is no longer needed.
Can MERS operate in all 50 states?
Yes. MERS can operate within the existing legal frameowrk of all 50 states, either as mortgagee, beneficiary or nominee of the beneficiary.
How can I become a MERS® System Member?
It's easy! Call (800) 646-6377 today and ask for the Customer Group, or click here to contact your regional director directly. Membership is open to the real estate finance industry.
How much does it cost to be a MERS® System Member?
Annual membership fees begin at $150 and increases from there, depending on the size of their organizations and the level of service and access they require. Modest transaction fees are also assessed for mortgage registration and transfers of mortgage servicing rights. Download the MERS® System marketing brochure (1.92 MB) for more specific information.
What agreements does my organization have to sign to become a MERS® System Member?
Your organization signs a standard binding application which sets out the relative rights and responsibilities of all members. The application refers to the MERS® System Terms and Conditions and its Rules and Procedures, which control the operation of the MERS® System.
If I don't sell servicing, why should I become a MERS® System Member?
Because predicting the future in the mortgage industry is risky, registering mortgage loans you service on the MERS® System gives you the flexibility to react quickly to future market changes. Designating MERS as the mortgagee also reduces paperwork by eliminating the need to prepare and record assignments if and when you decide to sell servicing. With MERS as the Mortgagee of Record, you don't need additional assignments.
Do my correspondent lenders have to become MERS® System Members?
While it is not required, it would be to their advantage. Capital lenders are urging their correspondents to become members because they prefer the elimination of assignments. But you can instruct correspondents to name MERS as the mortgagee of record on the original assignment without the need for them to become a member.
How does the designation of MERS as original mortgagee save lenders time?
Designating MERS as Original Mortgagee (MOM) saves the time associated with processing multiple assignments, plus it streamlines the lien release process since MERS is virtually guaranteed to be the end of the chain of title. This corresponds to reduced research time and fewer re-recording fees.
For lenders who originate for their own portfolio, what benefits do we get from designating MERS as Original Mortgagee?
Lenders who originate for their own portfolio see the same benefits—eliminating the cost of multiple assignments and reducing costs associated with lien release.
Are there any benefits to title companies?
For loans registered on the MERS® System, title companies have a single, electronic source for identifying the current servicer of a loan to obtain payoff quotes and verify that payoff funds have been received, simplifying the entire titlework process.
Does MERS replace the role of the trustee in deed of trust states?
No. Servicers perform substitution of trustee and satisfactions just as they do without MERS except that they prepare these documents in the name of MERS since MERS is the mortgagee of record.
Have the nationally recognized rating agencies approved use of the MERS® System?
Yes. All of the major rating agencies (Standard and Poor's, Moody's and Fitch) permit the use of MERS as mortgagee for mortgage loans included in mortgage-backed securities transactions without any additional credit support.
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