I’ve been mulling a followup housing policy post, and meanwhile looking over the news about housing. One thing that stands out to me is the shadow that’s about to be cast on the legal structures of housing ownership, title, and finance.
I spent a few years doing RE Investment banking, and have some friends in that world still – mostly in the larger institutional-commercial space. And I’m guessing that many of the same issues apply there – except that the borrowers have the resources and skills to hire very smart lawyers.
The root of the problem is that we have a mortgage finance system – legal and administrative regime – that was deliberately undermined in the name of efficiency by a bunch of half-smart people who then made (and in many cases doubtless lost) zillions from the new financial conduits they established.
Here’s a great post on Barry Ritholz’s blog that sets out one major part of the problem.
You’ve heard the name Mortgage Electronic Registration Systems or “MERS” mentioned in relation to the foreclosure problems in the residential real estate market.
But what is MERS?
It is the company created and owned by all of the big banks to process title to property in the U.S. Approximately 60% of the nation’s residential mortgages are recorded in the name of MERS.
MERS is a shell corporation with no employees, but thousands of officers.
That’s not necessarily a problem. The way they managed it is.
And the implications are massive; a challenge to the validity of billions in mortgages, putbacks of mortgage securities to banks that are already stressed, and a frozen hosuing market because title is impossible to insure.
Go read the whole post, and think about it when you write your next mortgage check.