The system of pooling and selling mortgages around the world has caused widespread confusion about who owns the loans and raises questions about whether banks in some cases have the legal standing to foreclose, a state judge and consumer attorneys testified before Congress on Thursday.
New York State Supreme Court Justice Dana Winslow said that "standing has become such a pervasive issue" in the cases he sees "that I frequently use the term 'presumptive mortgagee' " to describe the entity trying to foreclose.
Winslow, academics and attorneys defending homeowners described a fundamental problem that goes beyond recent revelations of shoddy paperwork and "robo-signing" in foreclosure cases. They said there is a much broader question about the legality of designating a single company, Mortgage Electronic Registration Systems (MERS), as the holder of mortgages and then trading these loans to investors around the world without updating the ownership documents in local clerk offices.
They said it is unclear whether using this system has stripped those investors of the right to foreclose on homeowners who miss their payments.
University of Utah law professor Christopher L. Peterson said MERS has a "problematic legal foundation" because it undermines state recording laws. Peterson called MERS a "deceptive" and "anti-democratic" institution because it also uses thousands of employees who work for mortgage lenders, servicers and law firms to sign mortgage paperwork in the name of MERS. That practice is also clouding the ownership of the loan, he argued.
"How is a homeowner to understand with whom they can negotiate a settlement, or from whom to obtain additional information, or how to distinguish a legitimate employee from the thousands of mortgage-related con artists and charlatans?" Peterson asked.
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