MERS Settlement with Delaware AG: Score One for Securitization

You may remember all the hub-bub last year about the culpability of the electronic mortgage registry, MERS, in the residential mortgage securitization “fraud” that had been perpetrated on the market by unscrupulous Wall Street bankers.  Those “in the know” told us that these bankers had schemed to cook-up an organization like MERS just so they could pump and dump  more mortgages into their shady mortgage-backed bond businesses.  You may remember that the conspiracy theorists were out in force suggesting that there was no other explanation for the formation of MERS and now that the market had collapsed, it was standing there in “plain sight” for everyone to see.  The New York State (Schneiderman) and Delaware State (Biden) Attorneys General jumped into the pool as well launching vicious attacks on MERS and anyone else standing close by.  They pledged to prove that the MERS system and, in fact, securitization itself were nothing more than a scam.

Well wouldn’t you know it, last week MERS announced that they had reached a settlement with the Delaware AG.  Did MERS fall on its sword, you may ask?  On the contrary, when you look at the terms of the settlement, which consists of series of agreed upon reporting mechanisms (many of which were/are already in place), it can only look like a slam dunk for MERS and the industry.

Dig a little bit through a description of the settlement and the conclusion you will reach is that this is yet another example of government officials getting in over their heads when it came to understanding how securitization works and how it actually benefits the markets.  We have said it before, there is no way that our elected and appointed officials could have gotten up the curve on the complexities of the structured finance markets in the short time that so many professed to become experts.  Completely understanding how MERS operates, why it was formed and how securitization works and benefits the markets and the economy simply cannot be learned in a few months, in some cases even years.  Nevertheless, we have had a rash of new legislation and high-profile litigation aimed at a market that few, if any, of the antagonists really understand, even to this day.  Securitization is not voodoo but it does take sometime to understand.

If only these officials had taken the time to learn a bit more about what they were railing against before they sicked the dogs on MERS or penned some of those sections related to securitization in Dodd-Frank.

About markferraris
Managing Principal Orchard Street Partners LLC

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