Mortgage Electronic Registration System-MERS Definition

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Mortgage Electronic Registration System-MERS Definition

What Is a Mortgage Electronic Registration System—MERS?

The mortgage banking sector developed a database called the Mortgage Electronic Registration System (MERS). It maintains a record of transfers and changes to the ownership and servicing rights of mortgages that were originally issued in the United States. It is used by the real estate finance sector for documenting trading of residential and commercial mortgage loans.

Government-sponsored companies like the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), and the Government National Mortgage Association (Ginnie Mae), as well as departments like the Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA), have approved MERS, which also refers to the privately held company that manages the database. It is used by all major Wall Street rating agencies as well as the California and Utah Housing Finance Agencies.

Key Takeaways

  • The mortgage banking sector developed the Mortgage Electronic Registration System (MERS), a privately held database, to make the registration and transfer of mortgages easier.
  • MERS avoids the requirement for a lender to file a transfer with the county recorder each time a loan is sold from one bank to another by keeping track of mortgage transfers electronically.
  • MERS itself is designated as the mortgage lender on occasion (mortgagee).
  • MERS has come under fire for making it difficult to determine who is truly the current owner of a mortgage, despite the fact that it may reduce recording costs and save time.

Understanding the Mortgage Electronic Registration System—MERS

Theoretically, an assignment—a document demonstrating the transfer of the mortgage—is generated and entered into the county land records each time a mortgage is traded from one bank to another. The assignment transfers to the new bank all of the previous lender’s interest in the mortgage.

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MERS removes the customary need that the lender register an assignment with the county recorder each time the loan is transferred from one bank to another by keeping track of loan transfers electronically.

Mortgage lenders, servicers, warehouse lenders, wholesale lenders, retail lenders, document custodians, settlement agents, title firms, insurers, investors, county recorders, and customers all make use of the MERS system. Homeowners and county and regulatory agencies have unfettered access to MERS. Homeowners may search the system for information on their own mortgages that have been registered.

The mortgage’s servicer issues it a mortgage identification number (MIN) and registers the loan with the MERS database in order to enable electronic tracking. Sometimes the original lender, referred to as the mortgagee in the mortgage documentation, is MERS itself; in this case, the loan is referred to as an original mortgagee (MOM) loan. The seller may then initiate the mortgage with MERS acting as the lender’s nominee (also known as the beneficiary) and assign or record the loan’s assignment to MERS in the county land record. As a result, MERS would become the mortgagee of record.

In county land records, MERS may represent itself as the mortgagee, but it does not really hold the mortgage debt.

MERS will update its data on the mortgage if the lender sells the loan. By submitting a request to have it deactivated, the mortgage servicer may have a mortgage removed from the MERS database. In turn, MERS will alert Fannie Mae. The mortgage servicer must also provide Fannie Mae prompt notice if it decides to completely discontinue its MERS membership.

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Pros and Cons of the Mortgage Electronic Registration System—MERS

MERS significantly streamlines the mortgage process by serving as an electronic one-stop shop for mortgage papers, including deeds of trust and promissory notes. MERS may, in certain cases, save costs because, by serving as a mortgagee, it avoids the costs associated with documenting the transfer of a mortgage from one lender to another. Because repeated assignments are not required every time the loan changes ownership, having the loan listed in the land records under MERS’ name (as nominee) saves time and money on recording.

However, there has been some criticism of the database. Sorting out who truly held mortgages became challenging at times during the housing crisis of 2008 due to the system. That posed a problem for homeowners who were facing foreclosure or debt relief since they needed to know who owned their mortgages in order to come up with a solution.

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