With MERS Under Fire, A Rival Debt Registry Says It Can Do Better
November 23 2010
Source: Collections & Credit Risk
Greg Ousley wants to be a chaperone of sorts for the secondary mortgage market.
The chief executive of Global Debt Registry says his company's system, which was designed to track ownership of delinquent credit card debts, can improve upon the widely used Mortgage Electronic Registration System. MERS' reputation has taken a beating in recent months as questions about its legal standing in foreclosure cases have increased amid a broader controversy over mortgage servicers' record keeping.
One criticism of MERS is that it relied on its members to update and register mortgage assignments themselves. Ousley's system would manage and oversee the entire mortgage-transference process for lenders and servicers.
"What GDR advocates is a person-managed solution, a third party that watches and makes sure that everyone is doing what they're supposed to be doing," Ousley said.
"My system is managed with a person involved in the transaction and a quality assurance process that says, 'The note is here, it was transferred,' not just relying on two parties to say what they were going to do," he said. "It makes sure they're the actual owners of what they're trying to sell, makes sure the documents exist that are supposed to exist and then, once it takes place, validates that everything that was supposed to happen, happened."
Analysts and legal experts say Global Debt Registry, or some other start-up, could conceivably capitalize on MERS' troubles and take market share.
"There's a lot of controversy around MERS right now," said Michael Benoit, who represents banks as a partner in the Hudson Cook law firm. "Can you build a better, or not necessarily better, but a different mousetrap? Absolutely. I don't know that MERS is necessarily the final say."
Karmela Lejarde, a spokeswoman for Merscorp Inc., the company that owns the MERS system, said it is not familiar with Global Debt Registry.
Developed in 2006, Global Debt Registry has the capability, Ousley said, to record the flow of all the underlying documentation of a mortgage, not just the assignment of the note, which is what MERS was designed to track.
After the sale of a mortgage is complete, Global Debt Registry would record the transfer of the assignment at the county level, which would bring transparency back to the process, Ousley said, and let consumers find out who owns their mortgage.
Ousley faces a Goliath in getting the mortgage industry to adopt his debt registration system. For all its troubles, MERS is owned by a consortium of some of the largest players in the industry and is used by more than 3,500 mortgage companies. It tracks about 60 million mortgages.
At the same time, Ousley is relatively unknown in the mortgage industry, and Global Debt Registry's adoption by debt buyers has been slow going.
Its first debt portfolio was uploaded in June 2009. Today, the Columbia, Mo., company counts more than 50 debt buyers and broker participants in its system and has recorded transfers on more than 350,000 accounts, for a total of $1.7 billion in face-value transactions — a fairly small portion of the overall debt buying industry.
Until now, Global Debt Registry has focused on nonmortgage loans, but Ousley, who spent seven years running a national billing firm and collection agency, said he believes his system could easily be applied to the mortgage industry.
Debt buyers have faced paperwork problems not unlike those bedeviling mortgage servicers. The debt buyers have been increasingly challenged in court over the proper documentation of debt, and are often required to prove not only their ownership of the debt but also that the amount being collected is correct. And like mortgages, credit card and other consumer debt often changes hands countless times and can be difficult to track.
Global Debt Registry would differ from MERS, Ousley said, by tracking all loan-related documents. He said he envisions his system integrating with county recorders, so that when a mortgage assignment is transferred, the transaction is recorded in his system as well as at the county courthouse. "There's got to be a happy medium where you can maintain those county records and record them in a central depository," Ousley said. "You keep them involved, but yet you maintain your centralized database. I think that is where things may have gotten off track."
"I'm a big believer that the county record thing was working," he went on. "I'm only saying that my system was built to provide all the protection and to meet all the rules and regulations. But not have all this controversy surrounding it."
Including county recorders in the process could face some resistance from the mortgage industry, however. MERS was created in 1996 to help lenders avoid racking up fees at the county recorder's office every time a mortgage changed hands, which, during the securitization boom, occurred quite frequently.
"One of the critical components of creating an effective secondary market is portability," said Rob Carpenter, chief technology officer of Dorado Corp., a mortgage origination technology company. "Investors need to be able to move loans to other investors without high costs. … The alternative is sending someone down to the local courthouse. … It isn't 21st century business."
The MERS system's legal standing has been challenged many times. Four states — Arkansas, Kansas, Maine and Missouri — have said that MERS cannot bring foreclosure actions against borrowers. Some servicers, like JPMorgan Chase & Co., have taken heed and no longer bring foreclosure actions in MERS' name.
Christopher Peterson, an associate dean and law professor at the University of Utah, was skeptical about the idea of a new, improved MERS. "Is this going to fix the current mess? Probably not," he said.
"There's nothing wrong with having companies that … subcontract record keeping solutions. … Just having some system that keeps track of the information doesn't solve the problem of having the physical promissory note," Peterson said.
Ousley does not claim to have solved the issue of lost notes. He acknowledged that his system works best when all the documentation is in order.
He is meeting with servicers, regulators and other mortgage industry participants to get the word out about his system. He even approached Merscorp, wanting to discuss working together. The company declined to meet with him, he said.
"I don't know that MERS is going to go away because it's got 60 million mortgages wrapped up in it," Ousley said. "I can augment it. I can supplement it. I can plug the holes."
This article was first published in U.S. Banker, a Collections & Credit Risk sister publication.