Morgenson on a Mortgage Front

Gretchen Morgenson, unlike the rest of the press, pays attention to a Kansas court ruling last week that has potentially huge implications for homeowners and the mortgage industry.

The court ruled that the Mortgage Electronic Registration System, used by much of the mortgage industry to reduce paperwork and filing fees by acting as an ownership front, has no legal standing because it has no underlying interest in a note.

MERS is one of the little-known cogs in the machine that created the housing bubble. It eased the way for securitization by eliminating the need to refile paperwork with a county every time a loan changed hands. The Times itself wrote one of the only big stories about the entity back in April, and I reviewed it here, noting that the piece raised serious questions about MERS.

The Kansas court seems to agree, noting that Sovereign Bank didn’t register its ownership of a loan, which was attributed to MERS:

In January 2007, it found that Sovereign’s failure to register its interest with the county clerk barred it from asserting rights to the mortgage after the judgment had been entered. The court also said that even though MERS was named as mortgagee on the second loan, it didn’t have an interest in the underlying property.

By letting the sale stand and by rejecting Sovereign’s argument, the lower court, in essence, rejected MERS’s business model.

This has huge implications for the foreclosure mill, Morgenson reports:

BUT Patrick A. Randolph, a law professor at the University of Missouri, Kansas City, who described himself as a friend of MERS, described the recent decision as unsettling. “This opinion is hostile to the notion of MERS as nominee and could lead to problems for it in foreclosing,” he said. “The entire structure of MERS as a recorded nominee could collapse in Kansas, and that could lead to a patch-up job where they would have to run around and re-record the mortgages.”

To which Morgenson says:

If so, MERS would be hoisted on its own petard. And it would be a rare case of poetic justice in this long-running mortgage mess.


Why has this issue been almost totally ignored by the press? Every newspaper in every community in the country can do a MERS story—probably a really good one.

It’s time to play catch-up.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum.