Mortgage Market A Giant Criminal Enterprise - By Matt Taibbi

Read more at: http://www.huffingtonpost.com/2009/09/22/matt-taibbi-mortgage-mark_n_295136.html

The court ruled that the electronic transfer process used by the private company MERS, a clearing process for mortgages, similar to a depository, that is used for about half the mortgage market is fundamentally unreliable, & any mortgage sold and/or transferred through MERS cannot be foreclosed on, at least not in Kansas.

A landmark ruling in a recent Kansas Supreme Court case may have given millions of distressed homeowners the legal wedge they need to avoid foreclosure. In Landmark National Bank v. Kesler, 2009 Kan. LEXIS 834, the Kansas Supreme Court held that a nominee company called MERS has no right or standing to bring an action for foreclosure. MERS is an acronym for Mortgage Electronic Registration Systems, a private company that registers mortgages electronically & tracks changes in ownership. The significance of the holding is that if MERS has no standing to foreclose, then nobody has standing to foreclose – on 60 million mortgages. That is the number of American mortgages currently reported to be held by MERS. Over half of all new U.S. residential mortgage loans are registered with MERS & recorded in its name. Holdings of the Kansas Supreme Court aren't binding on the rest of the country, but they're dicta of which other courts take note; & the reasoning behind the decision is sound.

This is a potentially gigantic story. It seems that a court has ruled that about half of the mortgage market has been run as a criminal enterprise for years, which would invalidate any potential forelosure proceedings for about, oh, 60 million mortgages. The court ruled that the electronic transfer process used by the private company MERS — a clearing process for mortgages, similar to a depository, that is used for about half the mortgage market — is fundamentally unreliable, & any mortgage sold and/or transferred through MERS can’t be foreclosed on, at least not in Kansas.

Coincidentally I’d been working on something related to this all day yesterday. All over the country, lawyers are contesting foreclosures because of similar chain-of-custody issues. I have some material about this coming out in my next Rolling Stone story, so I can’t get in to this much, but suffice to say the lenders & the banks were sloppy about their paperwork (at best — there is a fraud angle as well) & jammed up the process with missing and/or mismarked mortgage notes. Since a sale isn’t legal unless there’s full transfer of the physical note, a lot of the sales of mortgage-backed securities were not entirely legal, since the actual notes were often not transferred.