MERS is doomed and how to trade that concept

Here’s a very important explanation of why MERS (and therefor the administrator of MERS, our LPS short) is in so much trouble and why there is pretty much no solution that’s pretty for MERS, LPS or any of the TBTF banks who once again stupidly gambled on a horrible idea.

Devastating Analysis of MERS

Some of the meat:

A somewhat overlapping problem is this: In the MERS model, there is again no need for a written assignment anytime the mortgage changes hands—unless the mortgage is going to be foreclosed by someone other than Lender A or removed from the MERS system. An unavoidable side-effect of this is that Lender A remains the mortgagee of record at the local land office, albeit with MERS acting on its behalf. In other words, the clear implication is that Lender A’s status as mortgagee at the local land office somehow survives the multiple transfers of the note that take place along the road to securitization. But MERS cannot have it both ways: the MERS model is designed in its own way to tie ownership of the mortgage to ownership of the note—which means that once Lender A has sold the note it has no further interest in the mortgage and its continuing status as mortgagee in the land office records34 is at best a negligent misrepresentation and at worst an act of fraud. It is also in any event a breach of the complete transparency required under G.L. c. 244, § 14.35 This “personality disorder” has a further consequence as well.

And be sure to read the 93 comments after the article. Lots of insight and therefore edge for LPS traders.

PS. My apologies for the typos in this morning’s opening post.