This occurred on a panel at a meeting of the Mortgage Bankers Association, where Platt appeared with Georgetown Law Professor Adam Levitin, who has been critical of MERS. I corresponded with Levitin, and this was an accurate rendering of Platt’s remarks.
“My response was that’s nonsense,” Levitin wrote in an email. “No one, absolutely no one, is arguing that a valid security agreement should not be enforced. Instead, the issue is whether we should enforce invalid security interests or let parties that do not hold a security interest enforce someone else’s. I hardly think that denying parties that right will result in a change in the cost of credit. It might result in them changing law firms, however, to ones that didn’t screw up their securitization deals.”
MERS, an electronic database created and funded by the banks to avoid land recording fees at county offices, has been criticized on multiple fronts. First of all, they don’t track the information inputted in the database, leading to inaccuracies between what appears in MERS and what appears on the note. Second, they stand in as the mortgagee and sell Vice Presidencies in their company when servicers attempt to foreclose, at the same time saying they have no financial interest in the loan. Third, banks using MERS failed to convey mortgages and notes properly, instead using this unregulated private system, and have broken chain of title in many circumstances, voiding their right to foreclose or even collect payments from a borrower.
Platt clearly wants to threaten the political system here. He’s saying that mortgage interest rates will skyrocket and constituents will become angered if the banks aren’t allowed to do what they want. That aims at a political settlement that stops the courts from making findings of the banks’ wrongdoing under the law. “If we want to have a well functioning credit system, we need to enforce security interests when they are done in compliance with the law, and not enforce them when they fail to comply,” Levitin wrote. “This is fundamental commercial law—you screw up on dotting the I’s and crossing the T’s in a security interest and you’re SOL. Everyone knows the rules of the game going in and there’s no reason to bailout sophisticated parties who failed to comply with the law.”
The notion that MERS saves the banks so much money that they can offer loans at multiple percentage points less than what they’d have to without it is extremely puzzling. “I don’t know of anyone who has argued that MERS lowered interest rates,” Levitin wrote. He estimated that the banks saved “maybe $50 per loan” using MERS, which certainly makes it worthwhile from their perspective, given the millions of loans on the system, but which makes the claim of massive savings to interest rates just foolish. “Of course, even if MERS lowers interest rates, we have to ask at what cost, and a screwed up title system is a pretty high cost for saving a few bps (basis points),” Levitin concluded.
Looking at this chart of mortgage rates from before and after MERS came into existence in 1995, you can see no evidentiary basis for the claim that MERS lowered interest rates; the mortgage lending rate basically tracks the prime interest rate.
At the root, this is a scare tactic. The banks don’t want to change their systems, and they certainly don’t want them found illegal. So they trot out corporate lawyers to make baseless charges that will be taken in Washington as conventional wisdom. And the politicians will scramble to make sure the inaccurate consequences never take place.
This occurred on a panel at a meeting of the Mortgage Bankers Association, where Platt appeared with Georgetown Law Professor Adam Levitin, who has been critical of MERS. I corresponded with Levitin, and this was an accurate rendering of Platt’s remarks.
“My response was that’s nonsense,” Levitin wrote in an email. “No one, absolutely no one, is arguing that a valid security agreement should not be enforced. Instead, the issue is whether we should enforce invalid security interests or let parties that do not hold a security interest enforce someone else’s. I hardly think that denying parties that right will result in a change in the cost of credit. It might result in them changing law firms, however, to ones that didn’t screw up their securitization deals.”
MERS, an electronic database created and funded by the banks to avoid land recording fees at county offices, has been criticized on multiple fronts. First of all, they don’t track the information inputted in the database, leading to inaccuracies between what appears in MERS and what appears on the note. Second, they stand in as the mortgagee and sell Vice Presidencies in their company when servicers attempt to foreclose, at the same time saying they have no financial interest in the loan. Third, banks using MERS failed to convey mortgages and notes properly, instead using this unregulated private system, and have broken chain of title in many circumstances, voiding their right to foreclose or even collect payments from a borrower.
Platt clearly wants to threaten the political system here. He’s saying that mortgage interest rates will skyrocket and constituents will become angered if the banks aren’t allowed to do what they want. That aims at a political settlement that stops the courts from making findings of the banks’ wrongdoing under the law. “If we want to have a well functioning credit system, we need to enforce security interests when they are done in compliance with the law, and not enforce them when they fail to comply,” Levitin wrote. “This is fundamental commercial law—you screw up on dotting the I’s and crossing the T’s in a security interest and you’re SOL. Everyone knows the rules of the game going in and there’s no reason to bailout sophisticated parties who failed to comply with the law.”
The notion that MERS saves the banks so much money that they can offer loans at multiple percentage points less than what they’d have to without it is extremely puzzling. “I don’t know of anyone who has argued that MERS lowered interest rates,” Levitin wrote. He estimated that the banks saved “maybe $50 per loan” using MERS, which certainly makes it worthwhile from their perspective, given the millions of loans on the system, but which makes the claim of massive savings to interest rates just foolish. “Of course, even if MERS lowers interest rates, we have to ask at what cost, and a screwed up title system is a pretty high cost for saving a few bps (basis points),” Levitin concluded.
Looking at this chart of mortgage rates from before and after MERS came into existence in 1995, you can see no evidentiary basis for the claim that MERS lowered interest rates; the mortgage lending rate basically tracks the prime interest rate.
At the root, this is a scare tactic. The banks don’t want to change their systems, and they certainly don’t want them found illegal. So they trot out corporate lawyers to make baseless charges that will be taken in Washington as conventional wisdom. And the politicians will scramble to make sure the inaccurate consequences never take place.
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