By Curt Anderson
and Michelle Conlin
Associated Press
NEW YORK (AP) — It used to be that every time a bank sold a mortgage, the county land recording office received a fee.
It wasn’t much — $30 or so — but then real estate boomed in the 1990s and banks pooled millions of mortgages into securities that investors bought and sold.
One mortgage transaction became a dozen or more, and the tab grew ever larger.
So the banks came up with a way around the fees.
And now they are fighting to avoid perhaps tens of billions of dollars in penalties that have added up over the years.
In 1997, when the banks’ burgeoning business in mortgage securities was clashing with the unwieldy nature of written forms, the industry created its own alternative, an electronic system that would track the ever-changing ownership of home loans.
The banks formed a private company called Mortgage Electronic Registry Systems Inc., or MERS. Its motto: “Process loans, not paperwork.”
It has registered more than 65 million loans, three out of every five on the market.
MERS’ owners are all the big mortgage companies, including Bank of America, Citigroup, Wells Fargo, JPMorgan Chase and GMAC.
They are all facing a foreclosure-fraud investigation launched by all 50 state attorneys general, and all took government bailout money after the financial meltdown in 2008.
Counties complained about the lost revenue after MERS was implemented, but they rarely tried to challenge the new way of doing business. Now, three years after the housing crash and two months after allegations that some banks submitted fraudulent documents to foreclosure courts, every aspect of the nation’s mortgage machine is under scrutiny.
Two lawyers in Reno, Nev., have filed suit in 17 states alleging that banks cheated counties out of billions of dollars.
In Virginia, a lawmaker has asked the state’s attorney general to investigate MERS over its failure to pay recording fees.
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