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N.Y. attorney general sues banks over mortgage packaging system

ALBANY, N.Y. — New York's attorney general on Friday accused some of the nation's largest banks of deceit and fraud in using an electronic mortgage registry that he said puts homeowners at a disadvantage in foreclosures while saving banks more than $2 billion.

Democrat Eric Schneiderman sued Bank of America, JPMorgan Chase and Wells Fargo over their use of the Mortgage Electronic Registration Systems, or MERS, claiming the banks submitted court documents containing false and misleading information that appeared to provide the authority for foreclosures when there was none.

The lawsuit also names the registry operator, MERSCORP Inc. of Virginia.

Schneiderman claims the MERS system has eliminated homeowners' ability to track property transfers through traditional public records. He said the electronic system now stores that data and is plagued by inaccuracies and what the lawsuit calls "faulty and sloppy document preparation and execution practices."

JPMorgan Chase and Bank of America declined to comment. There was no immediate comment from Wells Fargo or MERS.

"The banks created the MERS system as an end-run around the property recording system, to facilitate the rapid securitization and sale of mortgages," Schneiderman said. "Once the mortgages went sour, these same banks brought foreclosure proceedings en masse based on deceptive and fraudulent court submissions, seeking to take homes away from people with little regard for basic legal requirements or the rule of law."

MERS was set up by banks to rapidly package and sell mortgages as securities without recording each transaction in county records offices. Complaints allege among other things that homeowners have trouble responding to foreclosure actions and mortgage inaccuracies because MERS makes it difficult to find out who owns the mortgages.

"By creating this bizarre and complex end-around of the traditional public recording system, banks achieved their primary goal — more than 70 million mortgage loans, including millions of subprime loans, have been registered in the MERS system and the industry has saved more than $2 billion in recording fees," according to the lawsuit.

The lawsuit also claims that over the several years, "banks rapidly securitized and sold off millions of loans, often misrepresenting the quality and nature of the mortgages being transferred."

N.Y. attorney general sues banks over mortgage packaging system 02/03/12 [Last modified: Friday, February 3, 2012 11:19pm]
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