The Fourteenth Banker Blog

November 19, 2010

A Retroactive Bailout for MERS

Filed under: Running Commentary — thefourteenthbanker @ 6:29 PM

In this Washington Post article the strategy of major banks becomes clear. Reframe the issue, collect on IOUs from the campaign, demonstrate the revolving door promises for tomorrow.

The financial services industry has launched an aggressive campaign on Capitol Hill to bolster the legality of the way companies have turned mortgages into securities and traded them across the globe in recent years.

The companies have opened wide their wallets for lobbying and are flying top executives to Washington for one-on-one meetings with lawmakers. They are holding briefings for key staffers, including an event last week that drew more than 60 aides. And they are blanketing Congress with white papers, memos and other documents that lay out their arguments.

The industry is seeking legislation that would effectively affirm MERS’s legality and block any bill that would call into question what MERS does. MERS has spent more than $1 million in lobbying since fall 2008, when lower courts around the country began to rule against it. But MERS had kept its name under the radar until the recent uproar over foreclosures revealed broad problems in mortgage paperwork.

If successful on Capitol Hill, the industry could in one quick swoop make all lawsuits related to MERS across the country moot and remove one of the key uncertainties dangling over the mortgage industry. On the flip side, lawmakers could create a new federal registry, effectively killing MERS’s business and forcing the industry to submit to greater oversight.

Reframing efforts:

In the wake of such controversies, lobbyists for Reston-based Merscorp, which runs MERS, have been floating the idea of legislation that would establish the firm as the national registry to track the transfer of mortgages.

The MERS database “is a powerful tool that can be harnessed by the Congress and the industry to improve the mortgage finance system,” R.K. Arnold, Merscorp chief executive, told members of the Senate banking committee this week.

This reframing approach offers the fig leaf to congressmen that would support this backdoor bailout. A bill to eliminate liability for fraud, the high costs for legal remediation, and public accountability for misdeeds while intruding on the states abilities to safeguard property rights, would be colored instead as a measure to support efficient commerce.

Tom Deutsch, deputy executive director of the American Securitization Forum, an industry group that defended the validity of MERS in a recent paper being circulated on Capitol Hill, said establishing a centralized tracking system would resolve much of the confusion resulting from the patchwork of local laws governing mortgages and their transfer.

“There’s a lot of validity in the idea of a national mortgage registry that is complete and unambiguous about legal title to loans across all 50 states,” he said in an interview.

In its paper, the forum argued that although there have been “several minority decisions” in the courts that have taken issue with MERS, “not one of these decisions has challenged MERS’ ability to act as a central system to track changes in the ownership.”

Consumer advocates say such legislation would retroactively bless all mortgage transfers made through MERS – and eliminate one of the strongest legal arguments that homeowners in foreclosure are using to challenge their cases. There’s also concern among state officials that such a bill might permanently remove some of their power over property law and place it within federal jurisdiction.

Some of the advocates are referring to the idea as the “great MERS whitewash bill.”
“Fixing MERS on a federal level to give them a free pass from complying with what we have known as the law for many years because the banks screwed up is really a bad precedent,” said Ira Rheingold, executive director of the National Association of Consumer Advocates.

The compensation for politicians comes in two forms. Down payment made in campaign contributions. Big Bonus later in fancy high paying jobs.

Lobbyists working for MERS include people who were prominent legislators or federal officials: former U.S. representative Bob Livingston and his former chief of staff, Allen Martin; John M. Duncan, assistant secretary of the Treasury for legislative affairs in the George W. Bush administration; and Arnold Havens, a former general counsel at Treasury.

The revolving door into lucrative lobbying deals and high paying, low responsibility industry jobs is wide open.  Here is where one former Congressman landed.  Here is where a former Senator landed. Pretty good jobs. Do not for a minute think that the MERS bailout won’t result in some good work down the line for our public servants.





  1. Relax. Obama is not going to sign this bill. You have to understand Marxism in order to figure this one out.

    Comment by Bob G. — November 19, 2010 @ 6:55 PM | Reply

  2. I don’t agree that Obama is certain not to sign a MERS bailout bill. The Administration has been supportive of the banks, and unwilling to confront their frauds, almost since inauguration. Obama clearly thinks that the banks are still too fragile to hold to account. I can see him and his advisors buying the argument that without a MERS bailout, the banks face potentially multi-hundred billion dollar liabilities, and that these liabilities will destroy the incumbent banks and the economy.

    We’ll see.

    Comment by Don't Curse the Dark — November 20, 2010 @ 12:36 AM | Reply

  3. Yeah I’m not quite sure where Obama stands with all this. The problem with Obama is that he is a people pleaser. And just like every people pleaser personality out there, these people don’t have the capability to be true leaders. There wimpyness comes in the way every single time. Because their vision gets limited to the person sitting across from them. And that’s obviously the CEOs doing those one-on-ones.

    To be quite honest I think that’s the price we have paid for promoting “Agreeable” people as opposed to honest people in our society. We have lost our balance in choosing leaders. Somewhere along the way we have all become people who don’t like to hear anything negative said to us even if it’s in our best interest. Our leaders are simply a reflection of us.

    Comment by Vocalbanker — November 20, 2010 @ 3:24 PM | Reply

  4. Just came from seeing “Inside Job” and it is all I thought it would be and more. I came away believing Obama is either as craven as the men of Bush’s reign that he re-appointed, or he’s utterly clueless, neither of which bodes well for us as a society. I am sorely disappointed in the man.

    As the movie also made crystal clear, the men running the show are at best cowboys and at worst, sociopaths. The severely flawed incentive structure was, indeed, a recipe for disaster. It was not designed in ways that would teach the miscreants a lesson – oh,no! Much better to let the little guy take it in the neck while we retire from the field, temporarily, to count our ill-gotten gains. I seem to recall reading back in the 90’s, that they no longer taught ethics in college, especially in business schools. Duh! Seeing the side deals the Glenn Hubbards and Martin Feldsteins get and then see NO CONFLICT OF INTEREST in soliciting or receiving, was a revelation to me, even though I have followed this thing pretty closely, reading a half dozen books on it, from Frank Partnoy to Simon and James’ “13 Bankers”.

    I also found myself wondering where the average person is supposed to turn – not just where should we invest for our retirements, etc, but if the whole social structure has been this corrupted, where to we turn? There is obviously no “justice” to be had, or there would be many more suits in the slammer. I thought Elliot Spitzer made some excellent points, and I’m not entirely sure there wasn’t some nefariousness behind taking him down. (Even though he apparently was dumb enough to fall into the same “I’m special, the laws don’t apply to me” mindset that seems to infect the lot of these power trippers.)

    And Vocalbanker, you were right about the body language. If Lloyd Blankfein could have said, “Off with their heads” re: Carl Levin, he would have.

    Comment by Sandi — November 21, 2010 @ 5:05 PM | Reply

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