The comment period ended Wednesday on a proposed rule that would forbid mortgage investors and their servicers from foreclosing in the name of the Mortgage Electronic Registration Systems Inc.
As lawyers for MERS’ parent company, Merscorp Inc., review those comments, the company is keeping mum on what its members and shareholders think about the plan. The company’s spokesperson declined comment on a number of Mortgage Technology’s questions about who commented and what they said.
“The questions that you asked are not questions we are going to be able to answer for you. It’s because it’s really all proprietary,” Janis Smith, Merscorp vice president corporate communications, said in a phone interview. “This is an exchange between Merscorp and our members. MERS is not a government agency or a public company, so it’s a little different than what you’d expect.”
The private company’s shareholders include a number of publicly traded companies, as well as Fannie Mae and Freddie Mac—currently under federal conservatorship and the recipient of more than $160 billion from the U.S. Treasury Department.
The practice of servicers foreclosing in the name of MERS—rather than filing a mortgage assignment transfer to the noteholder prior to initiating the foreclosure—has come under increasing scrutiny and legal challenge.
MERS already prohibits its members from foreclosing in its name in the state of Florida and when the case also requires the filing of a lost note affidavit. In addition, Fannie Mae has required its servicers to file an assignment of the mortgage out of MERS’ name since Dec. 2006. This April, Freddie Mac enacted a similar directive.
Merscorp outlined the proposal in a Feb. 16 announcement and on March 8, issued a policy bulletin that outlined the proposed change to the MERS Rules of Membership, namely directing mortgage note owners or their servicers to file an assignment out of MERS’ name prior to initiating a foreclosure. The proposal sets an Aug. 1 implementation date and a $10,000 fine for each violation.
During the comment period, members were not allowed to foreclose in the name of MERS without giving the company two weeks’ advance notice. Now that the 90-day comment period has ended, lawyers will review submissions and make any changes deemed necessary, before the measure is put to a vote by the Merscorp board of directors.
“Something will be implemented,” Smith said, adding “At the moment, it’s really too soon to say for sure when the rest of that will precisely happen.”
Smith declined a request to provide information about the number of MERS’ 5,000 members that commented on the rule as well as a request to provide copies of comments or reveal members’ responses.
“If this was a proposed regulation from the government, of course it would be reasonable to ask all those questions about the comments and have copies and so forth,” she said. “But what happens in this case is very different. It really is an internal exchange between the company and the members.”
But the multi-agency consent order filed against Merscorp on April 13 would appear to be a proposed government regulation about this MERS foreclosure policy.
The five federal agencies that reviewed Merscorp found the company “failed to establish and maintain adequate internal controls, policies, and procedures, compliance risk management, and internal audit and reporting requirements,” in the services it provides “to tracking, and registering residential mortgage loans and initiating foreclosures.”
The consent order requires Merscorp to develop an action plan by mid-August to develop a compliance and quality assurance program to ensure members follow MERS policy—and in two places, specifically references adherence to the Feb. 16 announcement of the change to the foreclosure filing rules.
Another section of the consent order gives Merscorp until June 13 to create a “process that provides sufficient incentives for members to inform Merscorp and MERS of the filing of all lawsuits brought in MERS’ name,” and “proposed revisions as necessary to the Merscorp Rules to implement these processes.”
