What it means
Traditionally, every time a mortgage was sold, the new owner had to record the transfer at the local county office. That created a lot of paperwork and cost, particularly when loans were bundled and sold many times.
MERS was set up in the 1990s so that transfers among its members could be tracked in a single electronic registry instead. The system works through a special arrangement.
MERS is named in the public land records as the nominee, or stand-in, for the lender that actually made the loan. When the loan is later sold between member companies, the registry is updated, while the county record continues to show MERS.
The benefit is speed and lower cost for the industry, because securitising loans (bundling them into bonds) requires frequent transfers. A single database also makes it easier for servicers and investors to find out who holds a given loan, which matters when thousands of loans move in a single transaction.
Each loan registered in the system is given a number that identifies it, and members update the record whenever ownership or servicing changes hands. The arrangement has been controversial.
Critics argued that it made it harder for borrowers and local authorities to identify who truly owned a loan, and some courts examined whether MERS could start foreclosure proceedings in its own name. Rules and court decisions vary between states and have changed over time.
For borrowers, the practical point is that the name in the land records may not be the company you pay. Your loan servicer will handle payments, and you can generally use the registry's public search tool to find out who the servicer is.
Law and practice differ between states and over time, so anyone involved in a dispute should take legal advice. Lenders, servicers and investors that rely on the registry keep careful records of their own so they can prove ownership if challenged.
Good documentation is the best protection for everyone in the chain.
In practice
Real-world examples.
Example
A lender sells a pool of 2,000 mortgages to an investor. Because the loans are registered with MERS, the sale is recorded in the electronic database and no deeds need to be filed at 2,000 separate county offices. The lender estimates that this saves weeks of administrative work and a considerable amount in filing fees each year.
Example
A homeowner receives a letter saying her loan servicing has moved to a new company. She searches the registry using her loan details and confirms that the new servicer is listed. She then updates her payment details with confidence that the notice is genuine, because she knows scammers sometimes send false notices about changes of servicer.
Example
An attorney working on a foreclosure checks the land records and finds MERS named as the nominee. She asks the servicer to provide documents showing who holds the loan, including any assignment records and the original note. The paperwork clears up who has the right to act before the case proceeds.
Case study
Seen in the real world.
Cedarline Savings is an illustrative, fictional lender that originates 8,000 loans a year and sells most of them within weeks. Before using an electronic registry, it paid staff to prepare and record transfers in many local offices.
The operations head estimated that each recorded transfer cost about $75 in fees and labour. On 8,000 loans, that was 8,000 x 75 = $600,000 each year in administrative cost.
By registering loans electronically, the company cut that cost sharply, though it kept a small team to handle legal questions arising from disputed cases. The illustrative lesson is that a shared registry reduces cost and delay, but still requires careful record keeping because ownership questions can arise later. The operations head now audits a sample of 100 loans every quarter to check that the registry and the internal records agree.
Watch out
Common mistakes.
- Thinking MERS owns your mortgage, when it is a record-keeping system and the nominee named in the records, not the investor who holds the loan.
- Sending payments to MERS, when payments should go to your loan servicer.
- Assuming the registry replaces legal documents, when the underlying loan agreement and security documents still matter and must be stored safely by the parties.
Questions
People also ask.
What does MERS do?
It keeps an electronic record of loan ownership and servicing rights among its members, so transfers do not each need to be filed in local records.
Can I find out who services my loan?
Generally yes, because the registry offers a public lookup that can show the servicer for a registered loan, usually by entering the property address or a loan identification number.
Why was MERS controversial?
Critics said it made ownership harder to trace and questioned its authority in foreclosures, and courts have reached different views depending on the state and the facts of each case.
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