Definition of Mortgage Electronic Registration System (MERS)
The Mortgage Electronic Registration System (MERS) is a privately held company created by a consortium of major financial institutions. Its primary purpose is to streamline the mortgage process by serving as a centralized, electronic registry for mortgage transactions. Instead of recording each mortgage transfer at a county recorder’s office, MERS maintains an automated database of mortgage rights and transfers. This system significantly reduces the recording fees often incurred during the traditional public record system and facilitates efficient management of loan portfolios and fraud detection.
Examples
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Loan Transfer: If a home loan originated by Bank A is sold to Bank B, the traditional process would require recording the transfer with the local government. MERS simplifies this by updating the transfer within their electronic database, sparing the time and cost associated with public registration.
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Foreclosure Proceedings: Critics argue that when MERS is listed as the mortgagee, it becomes challenging for homeowners facing foreclosure to ascertain who truly owns their loan. This can complicate legal defenses against foreclosure actions, as the borrower might not know the identity of the actual lender.
Frequently Asked Questions
What is the primary purpose of MERS?
The primary purpose of MERS is to act as an electronic registry for mortgage transfers. This helps reduce costs, streamline the mortgage process, and provides efficient management of loan information.
What are some criticisms of MERS?
Criticism of MERS often centers around lack of transparency for borrowers, particularly in foreclosure situations. Because MERS appears as the nominee on records, it can be difficult to determine the actual loan holder.
How does MERS benefit financial institutions?
MERS benefits financial institutions by lowering recording costs, speeding up transactions, and providing a centralized system to manage mortgage data more efficiently.
Is MERS involved in all home mortgages?
While MERS is widely used, it is estimated that around half of all home mortgages in the U.S. are registered with the system.
Can borrowers access information about their mortgage through MERS?
Yes, borrowers can obtain information about their mortgage through MERS, which has an online portal for consumers to find mortgage servicers linked to their loans.
Related Terms with Definitions
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Mortgage: A loan used to purchase real estate, where the property itself serves as collateral.
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Foreclosure: a legal process through which lenders can take ownership of a property if the borrower fails to repay their mortgage.
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Loan Servicing: The management of a mortgage loan, from the collection of payments to the handling of escrow accounts.
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Recording Fees: Charges imposed by local government entities for entering mortgage records into public files.
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Pooling: The practice of grouping multiple mortgage loans to facilitate their sale to investors.
Online Resources
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MERS Official Website: MERS
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Consumer Financial Protection Bureau: Offers guidance for homeowners dealing with MERS-registered loans.
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HUD - Housing and Urban Development Information on Foreclosure: HUD Housing
References
- Mortgage Electronic Registration System, MERS
- Consumer Financial Protection Bureau, CFPB MERS Guide
- Housing and Urban Development Information on Foreclosure, HUD
Suggested Books for Further Studies
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The Big Short by Michael Lewis: Explores the housing bubble and includes references to mortgage processes similar to those managed by MERS.
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All About Mortgages: Insider Tips to Finance Available by Julie Genovese: Provides a comprehensive understanding of mortgage financing, servicing, and related implications of systems like MERS.
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Mortgage-Backed Securities: Products, Structuring and Analytical Techniques by Anand K. Bhattacharya: Offers an in-depth look at the securitization of mortgage loans, a process facilitated by systems like MERS.
