MERS Near 50% Market Share

Executives at the electronic registry that tracks ownership of mortgage servicing rights believe that about half of all loans being made today are being registered on the system.

Since its inception, more than 22 million mortgage loans have been registered on MERS, the industry-owned utility that is modeled on the book entry system of tracking ownership of stock shares.

R.K. Arnold, president and CEO of MERS, said that about half of all new loans are now going on the system with MERS designated as the original mortgagee. Tracking actual ownership of the beneficial interest in the loans is done on the electronic registry.

Last month, Mr. Arnold told MSN that MERS is being required in three different ways in the marketplace. Some firms require MERS registration if they purchase a loan. Others offer originators an incentive for registration, and others have created disincentives if loans are not registered.

"We are seeing, more and more out in the secondary market, a pricing differential between registered and nonregistered loans," Mr. Arnold said.

And Mr. Arnold believes that MERS' market penetration will continue to grow and eventually will account for almost all loans sold into the secondary market.

Twenty-nine of the top 30 loan originators are registering loans on MERS, he said. MERS has more than 1,500 member companies.

"We still have hundreds of companies coming in our doors to become members, and we continue to sign up 60 or 70 companies per month," Mr. Arnold said.

One piece of the market that may not embrace registration is portfolio lending. Loans that a company holds in portfolio with no intention of sale do not require any assignments, which is where MERS adds value. Assignments required for a loan sale or transfer of servicing rights are managed electronically by MERS, eliminating the need to record these changes in land records.

However, Phil Kuhn, vice president of correspondent lending at Principal Residential, Des Moines, said that lenders should be cautious about assuming that a loan will never be sold.

Principal Residential was a strong and early backer of MERS, and Mr. Kuhn is pleased by the progress the registry has been making in the market.

"What you have today is more of the big investors require it, so you have more critical mass," he said. "I think that people value lenders that utilize MERS. It provides better operational efficiency."

Year-to-date, about 76% of the loans Principal Residential acquires are MERS-ready, he said. That will eliminate assignments that would have been required when loans or servicing rights are sold in the future.

Mr. Kuhn said the trend toward electronic commerce is also encouraging the registration of loans on MERS. Principal Residential's correspondent group does 85% of its transactions over the Internet, he noted, demonstrating that the company's correspondent partners have adapted to changing technology.

While bulk transfers of mortgage servicing rights have been infrequent in recent years because of falling interest rates, Mr. Arnold said that as the market for trading servicing rights comes back, the value of MERS will become even more apparent.

MERS estimates, that on average, registration on the electronic registry saves $22 any time an assignment would have been required, but the amount varies depending upon recording costs in different states. In New England, the savings may average as much as $75 per loan, while it may be as low as $8 in a state such as Colorado, Mr. Arnold said.

Already, MERS is seeing the impact of higher registration levels. There were 156,000 transfers over the electronic system during the first quarter. During the peak period of refinancing, MERS saw a daily registration volume of about 33,000 loans on average. More recently, the average has been about 23,000 per day.

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