We noted recently that it looks like MERS will survive. But it will certainly not be the same firm that caused some much controversy over the last few years. 

The firm, of course, was designed to ease the paper burden of secondary market mortgage sales-the DTCC of the mortgage-backed market-but it ended up wilting dramatically under the sheer volume of foreclosures when the recession hit home. Ever since then, its future has been unclear. To be sure, it faces some continuing legal issues at the state level and the bankruptcy court level. But it has changed its stripes in dramatic ways, and it has agreed to a federal consent decree that requires some changes. In so doing, the Reston, VA based firm is addressing some of its most vituperative critics. 

As of July 22, 2011, some new rules are in effect for MERS members, which include  the big two GSEs and the top mortgage lenders and services. 

• One rule prohibits a foreclosure proceeding or any proceeding in a bankruptcy from being filed in the name of MERS. This gets at the heart of the criticism directed against the company-that it is contrived owner, an entity that stretched the legal definition of ownership to make it easier for lenders and services to foreclose. Some members had already been shying away from foreclosing in the name of MERS as the legal controversies mounted. JPMorgan was among the most prescient on this. The big GSE also stopped more recently.
• Another rule requires that MERS certifying officer-who are controversial in their own right because they are not really employees of the member not MERS-must now assign mortgages away from MERS before initiating foreclosure or legal proceedings. Certifying officers must also send the assignment of the mortgage to public land records for county-approved recording. We assume that means MERS or a member will now be paying fees to the county registrar. The rule strikes at two big criticisms: (1) that the mortgage is never properly recorded and that the ownership trail has been lost and (2) that neither the bank nor MERS ever pays fees to the county, which infuriated county registrars, who have been some of the most vocal critics.  

Taken together these rule changes--what took so long?--would appear to enhance the longevity of the firm. But it just might end up raising the collective costs of the mortgage ownership daisy chain that has become so complex in this golden era of securitization. 

We would note that at least one competitor has emerged, Global Debt Registry. These entities look a lot like what the original MERS was envisioned to be way back in the 1990s. 

Of course, MERS changes do not mean that its legal woes all of sudden will disappear. But it has inked a victories as of late. The company has been happy to tout that recent decisions in California, Utah and New York have affirmed the right of MERS to act as a nominee. All in all, one gets the feeling that the worst of the crisis has passed for the firm-or better or worse.