Great Leap Forward

THE $7 TRILLION DOLLAR QUESTION THAT HAUNTS BANKS: When Will the Obama Administration Recognize that MERS Destroyed the Chain of Title Making All Foreclosures Suspect?

I’ve been writing about the MERS monster since 2010. Here is one of my early pieces:

I suppose it is now safe to reveal that a staffer of Representative Marcy Kaptur put me on the trail of this fraud—in dollar terms it has to be the single biggest fraud in human history. In sheer utter disregard for law it is certainly the most audacious fraud in Western history. To tell the truth, I had never heard of MERS until she called. If you recall the Michael Moore movie, Rep Kaptur stood on the steps and told homeowners facing foreclosure to stay in their homes. She was right: the banksters have no legal claim on the homes they are foreclosing. Foreclosure is theft. Any bank that used MERS has no legal claim on property—there are 65 million such mortgages to which no bank has a legal claim to foreclose.

And, to be sure, even those mortgages that were not run through MERS are suspect if they are handled by any of the five biggest servicers. These servicers keep such shoddy records that they cannot be trusted to accurately credit payments. They’ve been adding on fees and penalties that were unwarranted since they cannot keep track of records.

Folks, there are $7 trillion of securitized mortgages. It was (mostly) the securitization process that demanded fraud. Securitization could never have been profitable—it was a flawed way to go about financing homeownership. It was simply too expensive to compete with Jimmy Stewart thrifts. It required fraud to show profits. (As Bill Black always says: fraud is a sure thing. It is always the most profitable way to run a business—until you get caught.)

In addition to the MERS monster, we also know the securities did not meet the “reps and warranties” claimed. The banks that did the securizations will continue to get sued to take back bad mortgages. They are trying to shovel as many of these back to Fannie and Freddie as they can so that Uncle Sam will take the losses—as discussed in my previous blog they are now doing it through sale of servicing rights.

And of course Uncle Ben has helpfully put a lot of them on the Fed’s balance sheet. This is all part of the cover-up to avoid the obvious: all these big banks are massively insolvent as soon as the courts wake up to the fact that the whole damned real estate finance onion is layer upon layer of fraud.

But let us stick to the MERS fraud.

There should be an immediate and complete halt to all foreclosures in the US, and all foreclosures that have been completed over the past decade should be nullified. Yes that will get messy. But continuing with foreclosures will make the mess immeasurably worse. This foreclosure crisis is not going to stop.

No one should buy any bank owned real estate because it is probable that eventually the US will return to the rule of law. The property will be returned to the rightful owners—those who were illegally kicked out of their houses.

Now that might be a pipe dream, but if the US is not going to be a nation ruled by law then it will not survive.

The biggest banks—including the GSEs—created MERS and proceeded to destroy our nation’s real estate property law. That is not an overstatement. Robo-signing is just one small and inevitable consequence of the fraud. The truth is that foreclosure cannot go through without fraud because the banks do not have the documents to show clear title.

Banks don’t have them because they do not exist.

There are no records because that was MERS’s business model: destroy all records of ownership while speeding the securitization process.

And since the mortgages themselves were often frauds (designing “affordability products” that homeowners could not afford), many would end in delinquency. So MERS was designed to speed the foreclosure process—it would be so much easier to foreclose if you didn’t bother with documents, records, and property law. Just kick the owners out, take the home, sell it, and reboot the whole scam again.

Another whistle-blower has come forward, this one from CBO. Lan Pham was fired because she refused to get with the program: the government is supposed to help the banksters cover-up their frauds, NOT expose them! She refused. So she was fired. Now she tells her story.

I won’t repeat her entire story—you can read it at Zerohedge. Here are a few quotes from Lan Pham, the CBO whistle-blower:

I was repeatedly pressured by the CBO Assistant Director, Deborah Lucas… to not write nor discuss issues in the banking sector and mortgage markets that might suggest weakness in these sectors and their consequences on the economy and households…

…Issues at the heart of the foreclosure problems pertain to securitization….and the Mortgage Electronic Registration System (MERS), which purports to have legal standing on electronic records of ownership on about 65 million…mortgages… MERS…facilitated Wall Street’s ability to expedite the pooling of subprime mortgages into MBSs by bypassing standard ownership transfer procedures as the housing bubble escalated…

The implications have profound financial and economic consequences that would be of compelling interest to Congress and the public, but the CBO sought to silence a discussion of such risks, that in reality have been materializing. These risks put into question the ability of investors or bondholders to make claims on the collateral (the homes) that underlies trillions of dollars in MBSs, the bulk of which are now guaranteed by …Fannie Mae and Freddie Mac. This affects $10 trillion in residential mortgage debt outstanding, of which $7 trillion in mortgage-backed securities (MBSs)…

The CBO dismissing such issues prevents an analysis of the risks, so that the public may be forced again to shoulder the consequences for which they have not been a given a voice or a choice.

Essentially, the chain of title on securitized mortgages appears broken, whether or not there is a foreclosure. This would pertain to most homebuyers in the past 10 years as most mortgages were securitized by Fannie Mae and Freddie Mac providing the guarantees, and the largest banks (“The $7 Trillion MBS Problem – Foreclosure Problems and Buybacks”). Recall that these same entities founded MERS, which expedited securitization and purported to have foreclosure authority from its electronic records of ownership on about 65 million mortgages. “Robo-signing” emerged as fraudulent or defective documents were used or created to establish the legal authority to foreclose as MERS faced legal challenges; as of July 22, 2011, foreclosures could no longer be initiated in MERS’ name. At last year’s pace, some figures suggest it could take lenders in New York 62 years to clear their foreclosure inventory, 49 years in New Jersey and a decade in Florida, Massachusetts, and Illinois.

It is unclear how the recent State attorney generals’ agreement to a proposed yet unpublished terms of the $25 billion robo-signing settlement would repair the chain of title issues that continue to mutate. In January 2011, the Massachusetts Supreme Judicial Court reversed the foreclosure actions of two banks for lacking proof of clear title, followed by a decision in October 2011 that a buyer who purchased a house that was improperly foreclosed upon does not make the buyer the new owner of the house; the sale does not transfer the property.

A striking little mention fact of the Massachusetts foreclosure case was that the lenders could not show that the two mortgages were part of the securitization pool. Let’s consider a thought exercise. Others have the raised the question: if the entity that has been taking the homeowners’ mortgage payments is not the real owner, what happens when the true owner(s) of the mortgage shows up? Are homeowners on the hook again for those ‘missed’ mortgage payments? It was not uncommon for mortgages to be sold multiple times, and it is my understanding that loans were intentionally not given unique identifiers as it moved from origination or purchase through to securitization.

This is what I’ve been arguing since 2010. This will not go away—no matter how much the Administration, the Congress, and the banks try to cover it up.


41 Responses to “THE $7 TRILLION DOLLAR QUESTION THAT HAUNTS BANKS: When Will the Obama Administration Recognize that MERS Destroyed the Chain of Title Making All Foreclosures Suspect?”

RyanMarch 16th, 2012 at 6:43 pm

When congress caused MERS to be setup with the blessing of the FHFA and FNMA and Freddie and the entire banking system, why didn't they codify it? They sort of created chaos by not clarifying whether or not it was authoritative for interstate banking/commerce transactions.

LRWrayMarch 16th, 2012 at 6:50 pm

I don't think congress had anything to do with this, and indeed, I am not sure congress could have done anything about it. Local recording is local law so far as I understand it.

hangemhiMarch 16th, 2012 at 7:28 pm

This is a pipe dream. You can't put people back in homes they can't afford. Or what's your solution – hand them the home free and clear? I get the MERS problem, I agree it is a sham and fraud, but this is a vast over simplification…. and this will go away…. eventually the housing market will bottom, foreclosures will dry up, and the economy will move on. We can legally battle this out forever, and most of the homeowners will still be out. Instead why don't we focus on something like restoring their credit of those who lost their homes through foreclosure so that they can loans again. Focus on things that create jobs so they have income to buy a home. Or, forget about the stupid "american dream" of owning a depreciating asset via a loan that is higher than inflation.

JohnMarch 16th, 2012 at 8:28 pm

I've said this before and I will say it again: the very existence of MERS suggests fraud. It bypasses the county recorders office and hence does not necessarily represent the chain of title;. Hence someone can show up and say: "this house is mine, not yours."

We have grown accustomed to "just move on. No need to look behind that curtain. All will be well." This one has a very long shadow. In my view it is a cancer. Some of those banksters and their friends need to go to jail.

Joe FirestoneMarch 17th, 2012 at 3:10 am

I think Randy stated parts of the solution. The rest of it is to take the big banks into resolution and prosecute, prosecute, prosecute those responsible for the frauds and the foreclosures. It's the only way back to the rule of law. As Randy says:

".. . . if the US is not going to be a nation ruled by law then it will not survive."

So, stop your own pipedreaming and make your choice — a democracy ruled by law or a feudal oligarchy ruled by the rich. If we don'y get this done, then in two generations it won't even be a nation-state anymore.

KenMarch 17th, 2012 at 10:46 am

The bigger issue of this mortgage mess are the attorney’s. They will not take the cases because they’re too busy wanting to do the easy modifications. Im current on my mortgage and Im convinced there is fraud on my chain of title. Im not even sure if my mortgage is even valid. But I can not find an attorney that will help me sue. Everyone wants to take the easy way out make a quick buck and aviod accountability. Its FRAUD and I will have my day in court. Talk about a pipedream, anyone know a good attorney in broward county florida that will help me hold these fraudsters accountable.

CarlosMarch 17th, 2012 at 11:54 am

Dear Randall,
I have been reading your column for the last year. I particularly like it because of the academic rigour and the style. I find it useful to make sense of a number of issues in economics and monetary policy. Thank you for highlighting such issues like foreclosures and fraud, the economics and political divide, among others.
Please, keep on.

LRWrayMarch 17th, 2012 at 2:19 pm

Dan this is just blantantly false. I have read many court cases; MERS has lost many (and, yes, won many). You must read beyond the websites devoted to apologizing for banksters.

And to those who notice I'm "just an economist". True. But I have many lawyers sending info and interpretations to me, I've read many of the court decisions, and I do have my colleague, Bill Black to help advise. None of them should be blamed for my mistakes, though.

Axj MemberMarch 17th, 2012 at 3:11 pm

MERS is indeed the biggest fraud in human history and Americans Against Foreclosures ( AAF ) has reported it to the Attorney Generals and the FBI and is waiting for the to act.

sierra7March 17th, 2012 at 5:24 pm

MERS was created by the banking industry to "expedite" the chain of title. Unfortunately, too many of those titles are now suffering huge storm "cloudiness".
There is a movement in my area of Central California to go, en mass, to local county recording offices and request to see the chain of documentation and try to find "who owns my loan".
The old process of really scrutinizing loans and the other paperwork involving the chain of title was just too slow for the increasing volume of securitizations demanded by "investors" and financial houses, such as BofA, Wells Fargo, Ally Financial and others who stood to loose billions in process and creation fees and "business" to the competition.
We need a moratorium on foreclosures.
The "Too Big To Fail" institutions got their faux trillions from the FED and the taxpayers; now it's the common folk's turn.
And, no it's not impossible to do.
One of the best steps to move this whole mess forward is for the banks to bring back on their books the crap that is off the books, recognize those losses just like the homeowners in foreclosure must do.
Where is the equality and fairness in this system??????
You have to be mentally herniated to think this problem is going to be solved the way we are now trying to do.
Wake up.

EclecticMarch 18th, 2012 at 9:14 pm

Without going into details of possible fraud, the chain of title, etc… (I'm not privy to those details). I think the whole mortgage system is in fact a cancer on society. One of the commenters said "give the house free and clear?" Well, what if that happened? funded by the hundreds of billions to be recovered from the banks. It only takes one legal definition: making housing a right, and everything falls into place. This is in fact what I explored in detail in this article

that I wrote in January 2012. It is not that long considering that it addresses all the possible issues I could think of. It is detailed and I believe implementation of the plan proposed would eliminate the foreclosure, homelessness, mortgage and housing problems. Not only that, property rights would be stronger than ever. Yes, it is more far-reaching than the piece-meal (laughable really) solutions being proposed these days that (surprise! surprise!) favor the entrenched interests.

It would be nice if the ideas presented were discussed at the level of people capable of making a real difference.

Ab FabMarch 18th, 2012 at 10:33 pm

I just want to point out – The federal government allows banks to lend out a 10-to-1 ratio of loans to actual deposits on hand. In other words, when a bank "loans" you money, they are creating that money out of thin air…. Also, when you sign an original note, you are a Trustor creating a Trust where MERS is the beneficiary. You can do all sorts of hoops to change the beneficiary of the Trust, but the reality is, courts will not listen in a foreclosure. So yes again, MERS is a sham but it doesn't help regular folks in court.

JohnMarch 20th, 2012 at 6:43 am

I agree with everything, the banksters should be in jail, but it makes no sense to return the houses to their previous owners.

1) If you do this, this, then you are violating the law, just the same way the banksters did.
2) The reason why the borrowers could not pay for the houses is that they were insolvent. If you give them the house back, it is very unlikely they will be able to pay for them.

Punish the crime not the innocent people who bought the foreclosed houses

PhilMarch 20th, 2012 at 12:51 pm

This MERS thing is nonsense. The ISSUE is that these homeowners did not pay their mortgages as they promised they would. If there's any crime going on here, then that's the crime!

rick knoxMarch 21st, 2012 at 3:21 pm

I offered to buy a short sale – the bank could NOT show they had title – this was 2 years ago
WHY would any buyer be interested in a house with an illegal & questionable title ? the RULE of LAW must prevail ! those who buy REOs had better do the DUE DILIGENCE themselves – IF there are NO local county seat records – WALK away -you could well be screwed – even YEARS LATER – further; – IF this 'blows up' in the future – your title insurer will just go bankrupt ! BUYER BEWARE – if there are NO county title chains – WALK AWAY !

ECONMarch 22nd, 2012 at 2:15 am

For a Canadian to have kept up to date with the financial and mortgage mess, it is apparent that the federal govt, courts, congress, TBTF banks, lobbyists have created a monster that is a cancer on society. When will the 99% call game over and remove it and restore some adherence to law. USA of today is not up to the challenge. Go back to your channel changer !!

point blankMarch 24th, 2012 at 7:37 pm

MERS was created by the banking industry to "expedite" the chain of title. Unfortunately, too many of those titles are now suffering huge storm "cloudiness".
There is a movement in my area of Central California to go, en mass, to local county recording offices and request to see the chain of documentation and try to find "who owns my loan".

Luiza WarrenMarch 30th, 2012 at 5:41 am

Well, I heard that since his inauguration, President Obama had neglected to make a single payment on the home he'd shared with his wife and two daughters, while the house itself fell into grave disrepair….…. I just wonder if he is personally familiar with the problems of middle-class people who face foreclosure..?

shawnnaApril 3rd, 2012 at 2:58 am

Anyone who buys a foreclosed home is asking for trouble. There is NO WAY you will ever get a clear title without any exceptions on any foreclosure.

Robert P. CoutinhoApril 6th, 2012 at 7:53 am

I'm sorry to have to inform you, but the last few sentences answered your question. What is the solution? Find the real owner(s) of the property. Meanwhile, those who purchase the foreclosed property will not legally own it. If the general public ever comes into this realization, no foreclosed homes (or homes foreclosed since MERS) will be able to sell. Who would buy a house that may be subject to confiscation because the seller had no legal right to it?

Robert P. CoutinhoApril 6th, 2012 at 8:22 am

Hate to have to tell you this, John, but if there is no clear title…the (new and previous) homeowner will not have to pay a mortgage. In other words, it is the responsibility of the lender to ensure that he can foreclose (meaning prove that he has the right to do so). If he can not prove this, he eats the loan. Not pretty for the mortgagor, sweet deal for the mortgagee. That is why this would be a mess.

Un-American DreamApril 6th, 2012 at 2:18 pm

When the technicalities get in the way of intent, ask what the Chinese state would do. If the Chinese state does something contrary to the laws on the books, it simply ignores the laws or it changes the laws and makes the changes retroactive. So far the first part (ignoring laws) has happened; the second part will happen when Congress is forced to act to make the MERS system legal. If I were a mortgagor, I would hurry to seek legal annulment before the rules change. And if I were an American I would be p*ssed off that my country is looking more and more like corrupt China.

Eric ForatApril 6th, 2012 at 3:46 pm

you say: "Where is the equality and fairness in this system??????" Hahaha, sucker… since when has there been any shreds of fairness and equality in the US financial system? My Father was an investment banker and always told me: Never, ever, under no conceivable circumstance put your trust in a Banker! (words which I do not see any reason to doubt, ever!)

John MarlinApril 6th, 2012 at 4:10 pm

Was the moment of truth for MERS the mid-November 2007 lightning bolt from U.S. District Judge Kathleen O'Malley in Cleveland? She rejected 32 foreclosure applications for having an inadequate paper trail. Deutsche Bank was filing most of them. MERS blurs. See local Bellwether blogpost at the time I posted at

Knute RifeApril 10th, 2012 at 5:34 pm

MERS was created as a tax-avoidance mechanism. As any tax planner will tell, don't use a tax-avoidance mechanism for anything else. The members of MERS did. Chaos has ensued.

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