Electronic Mortgage Record System – MERS Definition
What is a Mortgage Electronic Records System (MERS)?
The Mortgage Electronic Records System (MERS) is a database created by the mortgage industry. A confidential electronic registry of mortgages originating in the United States, it tracks transfers and changes in servicing rights and ownership of loans. It is used by the real estate finance industry for negotiating residential and commercial mortgage registrations.
MERS, which also refers to the private company that operates the database, is endorsed by government-sponsored companies such as the Federal National Mortgage Association (Fannie Mae)the Federal Home Loan Mortgage Corporation (Freddie Mac)and the Government National Mortgage Association (Ginnie Mae), as well as government agencies such as the Federal Housing Administration (FHA) and the Department of Veterans Administration (VA) that are involved in home loans. California and Utah housing finance agencies and all major Wall Street rating agencies also use it.
Key points to remember
- The Mortgage Electronic Registration System (MERS) is a private database created by the mortgage industry to simplify the registration and transfer of mortgages.
- By tracking mortgage transfers electronically, MERS eliminates the need for a lender to register the transfer with the county recorder each time the loan is sold from one bank to another.
- Sometimes the MERS itself is referred to as the mortgage lender (mortgage creditor).
- Although MERS saves registration time and costs, it has drawn criticism for making it difficult to see who the current owner of a mortgage actually is.
Understanding the Electronic Mortgage Registration System—MERS
Whenever a mortgage is sold from one bank to another, an assignment – a document showing that the mortgage has been transferred – is, in theory, prepared and recorded in county land records. The assignment transfers all of the interest that the original lender had under the mortgage to the new bank.
By tracking loan transfers electronically, MERS eliminates the long-standing practice that the lender must register an assignment with the county registrar each time the loan is sold from one bank to another.
The MERS system is used by mortgage originators, managers, warehouse lenders, wholesale lenders, retail lenders, document custodians, settlement agents, title companies, insurers, investors, county recorders and consumers. County and regulatory officials as well as property owners can access MERS for free. Homeowners can search for information about their own mortgages that are stored in the system.
In order to use electronic tracking, the mortgage manager assigns it a Mortgage Identification Number (MIN) and then registers the loan in the MERS database. Sometimes the MERS itself is referred to as the mortgagee, as the original lender is officially named in the mortgage documents; such a loan is known as an initial mortgage (MOM). From there, the seller can create the mortgage with MERS as an agent of the lender (also called beneficiary), then assign or register the assignment of the loan to MERS in the county land registry. This would make MERS the official mortgagee.
Although MERS may act as a mortgagee in county land records, it does not actually own the mortgage.
If the lender sells the loan, MERS will update its mortgage information. The administrator of a mortgage can have it removed from the MERS database by sending a deactivation request. MERS will in turn inform Fannie Mae. If a Mortgage Manager wishes to end their MERS membership entirely, they should also notify Fannie Mae as soon as possible.
Advantages and Disadvantages of the Electronic Mortgage Registration System – MERS
As a single electronic site for mortgage documents – deeds of trust
and promissory notes—the MERS greatly simplifies the mortgage loan process. The MERS can be a cost-saving measure to some extent because, by acting
as a mortgagee, it reduces the costs of registering the transfer of a
mortgage from one lender to another. Having the loan in the name of MERS (as an agent) in the land records saves registration time and costs as multiple postings are not required each time the loan changes hands.
The database, however, has drawn some criticism. During the 2008 housing crisis, the system sometimes made it difficult to determine who actually owned mortgages. This has created a challenge for homeowners facing foreclosure or relief from their loans, as they needed to know who held their mortgages in order to find some form of recourse.