When large financial companies sell or buy our mortgages in bundles, they should pay the recording fee or transfer tax the rest of us have to pay (see Mortgage Bundlers Should Pay Fees, 2/1/11 TPP).
To recap: When a mortgage is bundled, it is sold among many to another company, and you end up with a different lender than the one you started with. You still owe the payments, and the lender still owes you the record cleared when you pay off the mortgage, but different companies own your house in the meantime.
The problem for cash-strapped states and counties is that, unlike individuals who buy or sell a house, companies benefit from a legal fiction that when they buy your mortgage with a bundle of others, they are buying a piece of paper rather than a piece of property. While they may have to record a transfer, they do not have to pay the recordation tax, which is collected by local governments.
The Associated Press reported in November 2010, It used to be that every time a bank sold a mortgage, the county land recording office received a fee. It wasnt much $30 or so, but when banks pooled millions of mortgages into securities that investors bought and sold during the real-estate boom, the fees added up. So the banking industry sidetracked the fees by forming Mortgage Electronic Registry Systems Inc., or MERS. Its motto: Process loans, not paperwork. It has registered more than 65 million loans, three out of every five on the market.
The resulting concern is lighting up around the nation: The Register of Deeds in Essex County, Mass., is seeking millions from MERS, based on the thousands of mortgages it processes each year. John OBrien, county recorder, in December 2010 requested Massachusetts Attorney General Martha Coakley to look into whether MERS should pay legally required recording fees in Massachusetts in a real estate transaction.
In Maryland, Del. Anne Kaiser (D) has introduced HB 420 on the recordation issue with numerous co-sponsors. Kaisers Legislative Director, Keith Walmsley, summarizes: This bill will eliminate a tax loophole that corporations frequently use to avoid paying the recordation tax on multi-million dollar mortgage transactions. It is a basic issue of tax fairness: Businesses should not be exempt from paying the same tax that all individuals pay.
There are businesses, however, that have taken advantage of current tax code allowing them to avoid the recordation tax. This bill addresses this obvious loophole that is used by some large corporations.The bill contains language to protect individuals and families that utilize these kind of mortgages to help their children purchase homes.
AP reports that MERS owners the big mortgage companies including Bank of America, Citigroup, Wells Fargo, JPMorgan Chase and GMAC are all facing a foreclosure-fraud investigation launched by all 50 state attorneys general.
All the large companies involved accepted government bailouts after the 2008 mortgage-derivatives crisis. Now, three years after the housing crash and two months after allegations that some banks submitted fraudulent documents to foreclosure courts, every aspect of the nations mortgage machine is under scrutiny, and the companies are fighting to avoid perhaps tens of billions of dollars in penalties that have added up over the years.
Unusually, a Republican state legislator in Virginia, Del. Robert G. Marshall, has introduced a pertinent bill in the 2011 General Assembly to prevent the mortgage industry from bypassing county records. The bill would require lenders to document the chain of title on a piece of property before pursuing foreclosure. It is being opposed by the GOP leadership in the Virginia legislature.
Ironically, the rightwing talking point against such measures is that they would drag down the housing market. A more reasonable view is that with public budgets suffering, in an economy crippled by abuses of mortgage-backed securities, our states and counties need to tackle these undocumented lenders.
As previously noted, the mortgage crisis was actually a mortgage-derivatives crisis. The go-go years of the real-estate bubble inspired a fever of bundling in the mortgage industry such that its impact on the U.S. economy can hardly be overstated. Estimates on losses from the mortgage-derivatives crisis range from $50 trillion upward. Following the 2010 elections, no Republican in Congress has supported measures to limit remote speculation on peoples houses, or to monitor Wall Street more effectively. Note that MERS is used to being sued.
Files for the federal courts include at least 265 civil lawsuits naming MERS as defendant. Most of the cases are closed. One lawsuit against MERS in Maryland was dismissed Feb. 3, 2011, by Judge Roger W. Titus. Two cases in Virginia were dismissed Feb. 4 by Judge Liam OGrady. Titus and OGrady were nominated to the federal bench by Pres. George W. Bush.
Margie Burns is a Texas native who now writes from Washington, D.C. Email email@example.com. See her blog at www.margieburns.com.
From The Progressive Populist, April 1, 2011
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