Mortgage Database MERS Reaches Settlement With Delaware

Merscorp Holdings Inc., which operates a mortgage registry, settled a lawsuit brought by the Delaware Attorney General Beau Biden that accused the company of engaging in deceptive practices.

Merscorp Holdings agreed to conduct regular audits of its records for accuracy and maintain a database that allows homeowners to learn who owns their mortgage, Biden said today in a statement.

The MERS system, which tracks ownership interests in mortgages and servicing rights, has been targeted in lawsuits by the attorneys general of New York and Massachusetts. Biden contended in his lawsuit in Delaware Chancery Court in Wilmington that the company’s records were inaccurate and that it impeded the ability of homeowners to fight foreclosures and obtain loan modifications from lenders.

Banks created MERS to reduce costs and speed up the process of bundling mortgages into securities, according to Biden. The company built “an unregulated shadow mortgage registry” that allows mortgage records to be changed without any oversight, Biden said in court papers.

Bank of America

Merscorp Holdings’ shareholders include Bank of America Corp., Wells Fargo & Co. (WFC) and mortgage-finance companies Fannie Mae and Freddie Mac, according to its website. Bank of America and Wells Fargo were among five banks that reached a $25 billion settlement with state and federal officials this year over foreclosure practices.

Biden said his settlement will increase the transparency and accuracy of mortgage records.

“MERS’s inaccurate and unreliable records raised serious questions about who owns what in America,” the attorney general said in the statement. “The steps MERS will now take will help answer those questions.”

The settlement agreement requires Merscorp Holdings to maintain a database accessible online and by phone that allows homeowners to see who owns their mortgage and services the loan, according to Biden’s office. Records of the MERS system must be audited, with the results reported to Biden’s office, the attorney general said.

Merscorp Holdings already has implemented the measures in the settlement nationally except the reports to Biden’s office, Jason Lobo, a company spokesman, said in a phone interview. The Reston, Virginia-based company didn’t admit to wrongdoing.

‘Best Interests’

“We are pleased to have come to an agreement with the state of Delaware that both serves the best interests of Delaware homeowners and protects the value Merscorp Holdings brings to its members,” Chief Executive Officer Bill Beckmann said in an e-mailed statement.

Jason Miller, a Biden spokesman, said in an e-mail that Merscorp Holdings may have voluntarily taken steps to correct its records after state and federal authorities exposed its problems. Under the settlement, the company is obligated to make reforms and “will be held accountable if it does not follow through,” Miller said.

The case is Delaware v. Merscorp Inc., CA6987, Delaware Chancery Court (Wilmington).

To contact the reporter on this story: David McLaughlin in New York at dmclaughlin9@bloomberg.net

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net