This document discusses issues related to the transfer of mortgages from the original lender to secondary market participants. It notes problems with how transfers were documented, uncertainties about who actually owns mortgage loans, and the impacts this has had on foreclosure proceedings. The key points made are: 1) note and mortgage transfers were often poorly documented, leading to legal challenges of foreclosures; 2) courts have generally prevented foreclosures from proceeding due to transfer issues but have not overturned completed foreclosure sales; and 3) while transfer problems create delays for lenders, the main consumer protection concern is ensuring homeowners can get loan modifications and clear title after paying off their loans. Potential solutions discussed include a centralized mortgage transfer registry and requiring the note

1. Losing the Paper: Secondary
Mortgage Market Transfers and
Consumer Protection
Alan M. White
Valparaiso School of Law

2. Secondary Mortgage Market Transfer
Problems: Law & Society Lens
• What did secondary market participants actually do
to document loan transfers?
• What are courts actually doing in response to
transfer failures?
• What actual impact will all this have on foreclosure
titles?
• What real consumer protection interests are at stake
and how should they be protected?

3. Hypotheses
• Errors were widespread but perhaps not
universal
• Courts unlikely to issue rulings that threaten
millions of land titles

4. Outline to Classify Transfer Issues
Note Transfer
• What are legal methods
• What were actual practices
• Legal impacts, Judicial states
– Pre-sale
– Post-sale
• Legal impacts, Nonjudicial
states
– Pre-sale
– Post-sale
Mortgage Transfer
• What are legal methods
• What were actual practices
• MERS survey
• Legal impacts, Judicial states
– Pre-sale
– Post-sale
• Legal impacts, Nonjudicial
states
– Pre-sale
– Post-sale

5. Where did the paper go?
Note transfers
• Some notes lost or
destroyed, but probably not
that many
• Some notes missing
endorsements, but most
endorsed in blank
• Lots of late allonges
• Little or no reliance on
alternatives to note delivery
Mortgage transfers
• Use of blank assignments,
“bearer” mortgages,
problematic
• MERS – serious problems
with accuracy and
completeness, and hence
with agency theory

6. MERS Survey
• Able to match only 12% of foreclosure
plaintiffs to MERS disclosed “investor”
• Half of cases MERS investor “declined to
disclose”
• Fannie Mae cases also don’t match due to
undisclosed agent policy
• In about 10% of all cases recorded mortgage
assignee does not match foreclosure plaintiff

7. MERS accuracy - impacts
• Not a big issue in borrower foreclosure
challenges, which rely more on Note issues
• Servicers don’t bother with MERS updates,
but do seem to get right assignment in county
records
• No one really relies on MERS as a mortgage
ownership registry

8. Legal Challenges: Who will bring
them, and to what end?
• Borrowers: mostly pre-sale, so impact is on
pace of foreclosures
• Investors
• Regulators
• Purchasers

9. What is actually happening in the
Courts: Judicial States?
• Pre judgment
– Most states focus on note, but some on mortgage
– MERS as subagent works in some states, not
others
– Note transfer failures frequently prevent
foreclosures, clearly a factor in long delays, e.g. NY
• Post judgment/sale
– Few if any true post-sale foreclosure reversals
– Finality of judgment will limit true title clouding

10. What is happening in the courts:
Nonjudicial States
• Nonjudicial states, mostly disinterested in
note transfer problems, if mortgage is
assigned or trustee properly substituted
• Mostly unwilling to enjoin sales based on note
transfer issues – e.g. Jackson v. MERS (Minn)
• Post-sale challenges face barriers like tender
(CA, NV)
• Even in Massachusetts, Ibanez was not
borrower challenge

11. Court Decisions so Far
• Most states will put judicial foreclosure
plaintiffs to their proof, so transfer gaps will
prevent or delay individual foreclosures
• Post-sale challenges rare and unlikely to
succeed
• Nonjudicial states, except Massachusetts,
prize speed and finality over accuracy, BUT
mediation statutes like Nevada’s may change
that
• MA, NY, are picky, IL, FL, CA not so much

12. Consumer Protection: How do
Transfer Gaps hurt Borrowers?
• Avoiding double payment
• Being able to obtain prompt and final lien
releases
• Dealing with servicer who has full authority to
renegotiate loan terms
• Not really a consumer concern – assignor-
assignee disputes as to loan ownership,
liability for errors, securitization fail

13. Solutions
• Deal with loss mitigation duties through
mediation or other statutes
• The single Mortgage/Note document
• Exclude from Article 3 entirely
• Recordation or registration of all transfers in a
publicly available database, either county-
based or national
• Full registration, so that registry image, rather
than original document, is authoritative