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Anatomy of Mortgage Fraud, Part II: The Mother of All Frauds

Anatomy of Mortgage Fraud, Part II: The Mother of All Frauds


2 minor corrections: 1. There are now 66 Million mortgages in MERS 2. The First Edition of MERS Recommended Foreclosure Procedures was actually written in 1998. To see the First Ed. from 1998 go here towards the bottom.

L. Randall Wray

Professor of Economics and Research Director of the Center for Full Employment and Price Stability, University of Missouri–Kansas City

Posted: December 13, 2010 10:58 AM
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In part one of this series I showed that MERS recommended that mortgage servicers retain the “wet ink” notes that borrowers signed. These notes are required in 45 states to foreclose on a home. Not only does the foreclosing party need to physically hold the note, but the note must be properly endorsed and transferred every time a mortgage is sold. A clear chain of title must be demonstrated to make the note valid. This is to protect borrowers from fraud — no one can manufacture a note, claim to be a creditor, and then take a homeowner’s property. And this is especially important when mortgages are securitized and bought and sold a dozen times — if there is no clear chain of title, the borrower can never be sure who is really the creditor.

But, in fact, the notes were never transferred, there is no clear chain of paperwork, and in many cases the notes have “disappeared” so that when the servicers or MERS tries to foreclose, they must file “lost note affidavits” claiming rightful ownership even though they do not have evidence. They have also been caught using “robo-signers” to forge documents — and sometimes they have foreclosed on the wrong properties and even seized homes on which there was no mortgage. That is precisely why the law requires proper transfers of the note. Without that, the mortgage is a fraud and foreclosure is fraudulent.

By itself, all of this is a horrific scandal, involving up to 65 million mortgages — the number of mortgages registered at MERS, most of which presumably were subjected to MERS’s guidelines and extremely sloppy record-keeping. But like Shrek’s onion, it is much more complicated than that — with layer after layer of fraud piled on fraud. There are many angles to be explored, most of them too complex and arcane to be pursued in a short column. Here, in part two, I will discuss the implications for the securities that bundled the fraudulent mortgages registered at MERS. Not only did MERS defraud the counties out of their recording fees and the homeowners out of their homes, but it also helped to perpetrate securities fraud and federal tax fraud. Fortunately for the investors in these securities, the securitization process was fatally flawed, meaning that they can return to the issuing banks and demand their money back. But that implies, of course, that the banksters are hopelessly insolvent — on the hook for hundreds of billions of dollars.

© 2010-15 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.



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The Anatomy of Mortgage Fraud: MERS’s Smoking Gun, Part I

The Anatomy of Mortgage Fraud: MERS’s Smoking Gun, Part I


L. Randall Wray

Professor of Economics and Research Director of the Center for Full Employment and Price Stability, University of Missouri–Kansas City

Posted: December 9, 2010 06:04 PM

In two recent pieces I harped on the problems at MERS, the Mortgage Electronic Registration System. (“Support Representative Kaptur’s Bill: Time To Shut Down Mers And To Restore The Rule Of Law” and “Shut Down MERS“). Briefly, MERS purportedly offers an alternative to paperwork, maintaining an electronic record of mortgages that are usually packaged into mortgage backed securities (MBSs). When mortgages go delinquent, MERS helps mortgage servicers foreclose on homes.

I argued that MERS was created to run multiple frauds, a topic I will discuss in more detail in part two of this series. However, one of the big puzzles of the ongoing foreclosure crisis concerns the whereabouts of the “wet ink notes” — the IOUs signed by borrowers. In foreclosure cases across the nation, the banks have been filing “lost note affidavits”, certifying that they cannot find the notes that are required to prove that they have the right to take away someone’s home. In some cases, the notes miraculously appear, seemingly out of nowhere, and in others “Burger King kids” have been manufacturing them for robo-signers. By law, the notes are supposed to be at REMIC trustees, held against the MBSs sold on to investors — and must be presented to foreclose.

The real mystery is why these trustees cannot produce the notes. I think we have finally found the smoking gun. An interested reader alerted me to MERS’s instruction manual, “MERS Recommended Foreclosure Procedures — State by State”, originally written in 1999, updated in 2002 and available on MERS’s website (accessed by clicking on: Recommended Foreclosure Procedures).

© 2010-15 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.



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