Lost somewhat in all the media coverage of the consent decree agreed to by big banks to satisfy federal regulators was the part that dealt with MERS, the much maligned Mortgage Electronic Registration System. The Reston, Va.-based firm, owned by the big mortgage GSEs as well as all of the top banks, has generated a massive amount of controversy. 

The goal of the entity, set up roughly a decade ago, was to make the buying and selling of mortgages as easy as buying and selling stock. To do this, the founders set up what they envisioned to be a DTCC-like institution for mortgages, which would make securitization a snap. MERS worked fine for many years; it now acts as mortgagee of record for roughly 31 million mortgages. But the financial crisis and subsequent foreclosure fiasco exposed many flaws that have outraged consumer advocates and bank critics as well as various judges. 

As the negotiations with regulators ramped up, one big question was how any settlement would deal with MERS. Some thought the very existence of MERS was at issue. As far as the OCC and other federal regulators are concerned, we now have an answer. The consent decree did deal with MERS in Article VI. Banks have 120 days to comply with several requirements, none of which radically change the system. The decree in effect confirms the right of MERS to legitimately act as a mortgagee of record for member banks and mortgage servicing firms. So in a sense, the decree confirms that the whole idea of MERS and its certified officers is legitimate.

To be sure, the rules are aimed at making banks properly cross their t's and dot their i's when it comes to ensuring that officers are properly certified by MERS, to logging good information, to properly documenting mistakes and exception, to setting up programs to deal with cases of missing information, and so on. But if banks stay within the rules, they are free to use the MERS system as it is currently constituted. It has been blessed in a sense. 

The OCC also won a consent decree with MERS specifically. But again, the point of the drecree was to tighen up the system, not change it. MERS has agreed to do a better job of ensuring the accuracy of the data in its database and the integrity of the certifying officers process. So the status quo survives.

This will not go over well with the many critics of MERS, who increasingly can count state and bankruptcy court judges among their ranks. They have questioned the very legitimacy of the organization and have suggested that the idea of certifying bank officers as vice presidents of MERS is a hokey way of doing business. 

The federal consent decree certainly muddies the waters, as it is unclear if it means anything for the various legal rulings that have taken a different view of MERS.

One gets the idea that a breaking point between federal regulators and state attorneys general, who are pursuing their own settlement with banks, might have been MERS. The states have taken  a harder line as of late, especially country real estate registrars who are miffed that MERS does not pay transfer fees. I doubt we've heard the last of this. - Jim