Tag Archives: BoA

MERS and the mortgage mess

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It’s almost a certainty that complaints about foreclosures and requests for repurchases like those filed by The Fed and PIMCO against BoA, here, will increase in the coming year, increasing the likelihood of some form of congressional action to again try and deal with the mortgage foreclosure fallout.

I think we will soon hear a lot about a corporation that is legally involved in the origination of 60% of all mortgage loans in the U.S. yet there is no agreement on what the corporation actually is.

The attached PDF is a paper written by Christopher L. Peterson “Forclosure,Subprime Mortgage Lending, and the Mortgage Electronic Registration System” and is an excellent description of how MERS came to be and the legal controversy regarding it’s standing to file foreclosure notifications.

Some excerpts :

“MERS operates a computer database designed to track servicing and ownership rights of mortgage loans anywhere in the US. Originators and secondary market players pay membership dues and per transaction fees to MErS in exchange for the right to use and access the MERS records.”

“When closing on home mortgages, mortgage lenders now often list MERS as the mortgage of record on the paper mortgage- rather than the lender that is the actual mortgagee … even though MERS does not solicit, fund, service, or actually own any mortgage loans”

MERS was originally set up by mortgage industry insiders to avoid paying the fee charged by counties to cover the cost of maintain property records but its role has evolved.

“… when MERS is listed in county records as the owner of a mortgage, courts have generally made the natural assumption that MERS is the appropriate plaintiff to bring foreclosure action. To move foreclosures along as quickly as possible, MERS has allowed actual mortgagee and loan assignees or their servicers to bring foreclosure actions in MERS’s name, rather than in their own name.”

The contract provision use by mortgage originators in MERS as original mortgagee loan contracts states :

“MERS is a Mortgage Electronic Registration Systems Inc. MERS is a separate corporation that is acting solely as a nominee for Lender and Lender’s successors and assigns. MERS is the mortgagee under this Security Instrument. MERS is organized and existing under the laws of Delaware….”

The second sentence seems to suggest that MERS is some sort of agent – a nominee of the actual mortgage. Yet the third sentence flatly asserts that MERS in the mortgagee.

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MBS Repo Markets

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Thanks Pat, good report.

Yes, the Fed knows the assets won’t go away, and all they want is to see funding spreads narrow to help insure the banks aren’t forced to sell due to funding issues and thereby distort prices beyond prudent repricing of risk.

TAF auction (20bb) results announcement will come out tomorrow Wednesday 12/19 at 10:30am. Results of the program have had limited impact on repo rates but have reduced Libor rates by 20bps.Turn levels from Bank of America

UST GC= 2.80 / 2.40

AGCY MBS = 5.15

The problem with funding balance sheets hasn’t disappeared. The TAF and The Treasuries TTL programs have simply reduced the cost of funding but have not, and cannot, make an impact on balance sheet size or composition problems. Balance sheets are bloated with ABCP/ CLO / CDO / Enhanced Cash / Structured ABS / etc….

A quick survey of 4 dealers illustrates how balance sheet pressures and the liquidity of balance sheets have affected the bid for repo collateral. Usually dealers across the maturities dealers are within 5bps of each other. Currently the dispersion of bids is very wide.

At the same time we are finding dealers with balance sheet to lend. It’s just the prices of cash vary by dealer and by term and depend on which banks have bought term liquidity and what term they bought it for.

  1w 1m 3m 6m 9m 1y
MS 4.50 4.75 4.55 4.36   4.15
Citi 4.65 5.20 5.05 4.95 4.70 4.55
CSFB 4.45 4.90 4.80 4.70 4.60  
BoA 4.80 5.10 4.65 4.40 4.30 4.20
Ave 4.60 4.99 4.76 4.60 4.53 4.30
Range 0.35 0.45 0.50 0.59 0.40 0.40

The MBS spreads to LIBOR has narrowed as well. Agcy MBS had been trading as much as L-50 for 3m and longer terms. Now we are close to L-20. This seems to be a result of the TAF and CBK liquidity programs providing cheaper funds along the curve and reflects a relative downward move in LIBOR rates as the MBS and OIS markets are essentially unchanged from a week ago.

♥

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