First, the electronic mortgage superhighway. Then, the pileup.

A nice article in the Washington Post explaining MERS.

In the early 1990s, the biggest names in the mortgage industry hatched a plan for a new electronic clearinghouse that would transform the home loan business – and unlock billions of dollars of new investments and profits. …

On March 4, 1994, the MBA unveiled its plan to county recorders who were charged with keeping track of titles signifying the ownership of land. Not everyone was sold on the idea.

“There needs to be some outside control or oversight,” one recorder said, according to a transcript of the meeting.

Another said that if errors were put into the electronic system, “they’re really hard to track further down the road.”

Sixteen years down the road, the mortgage business is a mess. The electronic clearinghouse has become a reality; Virginia-based Mortgage Electronic Registration Systems, a registry with 67 million mortgages on file, has become part of the industry’s standard operating procedure.

Critics say promises to increase transparency and iron out wrinkles in recordkeeping haven’t panned out. The firm, which tracks more than 60 percent of the country’s residential mortgages but whose parent company employs just 45 people in a Reston office building, is now on the firing line.

MERS is facing lawsuits from across the country seeking unpaid county recording fees. Several state courts have rejected attempts by MERS to act on behalf of banks seeking to foreclose on delinquent mortgages. And Congress is weighing legislation that would bar home loan giant Fannie Mae from buying any mortgage listed in MERS, potentially a death knell for the registry. …

In addition, the mortgage bankers had greater ambitions of hyper-charging the market for mortgage-backed securities. Invented in the late 1970s by a trader at Salomon Brothers, these investment packages pooled together thousands of mortgages. They were then sold not only to banks but to pensions, insurance companies and other big investors.

The only thing holding back wider securitization, they believed, was the time-consuming and costly chore of recording and re-recording ownership of the individual mortgages.

In the years to come, the growth of MERS and securitization went hand in hand. …

But somewhere along the way MERS became a stripped-down version of the original idea. The first thing to go was the vault for keeping documents. MERS instead became a giant electronic card catalogue that tracked who was managing a particular loan as it was sold and resold, but it left the companies responsible for guarding the mortgage (or deed of trust) and the promissory note (or IOU) – the two critical pieces of paper that prove who owns a loan.

Next to go, critics say, was transparency. …

The mortgage bankers decided that to simplify recordkeeping, MERS would be listed as a “nominee” for the mortgage holder in local land records offices. When the loans changed hands, the new owner or servicer would register the transaction electronically in the MERS system without having to re-record the transaction across the country. …

As millions of homes fell into foreclosure, MERS found itself in a tricky legal position because its name was listed as the mortgage holder in local land records. Because the law allows only the mortgagee to foreclose, MERS had to either file court papers in its own name or transfer the mortgage back to the real owner. Both scenarios require huge amounts of paperwork.

But with only a handful of employees – most of them computer technicians – MERS was in no position to do so. So MERS authorized employees at mortgage servicers, debt collectors and foreclosure law firms – 22,000 in the most recent count – to identify themselves in records or court papers as “vice president” or “assistant secretary” of MERS. …