Mortgage Charges: What MERS and a Microwave Have in Common

I’ve talked about all the different charges you see on your Good Faith Estimate. Where does all this money go, and what’s it for? In particular, what on earth is MERS?

As you’re sitting across from your mortgage lender who is going over, line by line, the charges and fees associated with your loan, he/she mentions MERS. It’s only costing you $4.95, so you don’t pay particular attention to it. I mean after all, $4.95 is nothing compared to the state tax stamp fee or other line items you see. But, aren’t you curious as to exactly what MERS is? At face value it sounds like something you should get an inoculation to avoid. But in actuality, it’s a little system that has revolutionized the mortgage industry.

MERS is kind of like a microwave. You never knew how much you depended upon it until you consider taking it away. Seriously. Our microwave was broken for a short period of time, and I couldn’t believe how much we used it or how much it simplified our lives. Half the food I cooked became a real trial to prepare the old fashioned way. Not to mention heating up leftovers. Ironically, it’s a very similar situation for the mortgage industry if they had to do away with MERS all of a sudden. It would be perplexing, annoying and time consuming.

MERS stands for Mortgage Electronic Registration System. If you visit the MERS website (http://www.mersinc.org/), you can read their overview: “MERS was created by the mortgage banking industry to streamline the mortgage process by using electronic commerce to eliminate paper. Our mission is to register every mortgage loan in the United States on the MERS (registered trademark) System.” Nice. Everyone likes paperless systems these days.

In the old days, if you sold a loan on the secondary market, you had to assign the mortgage to the new buyer. You created a paper assignment and recorded it at the courthouse. If there was an error on the assignment, you had to correct it (have it initialed by the appropriate parties) and re-record it. Then you sent this original recorded document to the new buyer for them to keep. If they in turn sold the loan, they had to prepare another assignment, record it and forward it, along with the first recorded assignment, onto the new buyer. And so on and so forth. Lots of paper being printed, recorded, regenerated and reconstituted. MERS came up with a fabulous system to eliminate this nightmare. Now, when you sign a mortgage, MERS assigns a unique identifying number to that mortgage. The lender, upon closing, registers the loan with MERS to show it exists. Then, any transfers can be done electronically. The mortgage servicing and mortgagees can also be tracked electronically, which allows for title searches to be streamlined. It’s a beautiful thing. This system has saved a lot of time and energy for the industry.

However, if you were to tell a mortgage operations person that MERS was going away, and they were going back to paper assignments, it wouldn’t go over well. They would probably be at a total loss. Sort of like tossing someone a bag of popcorn and telling them to cook it without a microwave.

Let My Experience Work For You!
Email your home loan financing questions to Kristin Abouelata, Home Loan Specialist with Mortgage Investors Group, at question@kristinmortgage.com or call direct: (865) 567-0113 Toll Free: 1-800-489-8910. For more information visit her website at http://www.kristinmortgage.com/ Home Loans Plain Talk.

Mortgage Lending: No Title Insurance? No Moola…

Just what exactly is title insurance? It’s on your list of mortgage charges, but why do you really have to have it?

So, you’re sitting across from your mortgage lender going over all the charges for your mortgage. It seems like there are countless charges for this (document preparation) and that (MERS assignment fee - what the heck is MERS again?). But, none of these little charges are that big. But, whoa, wait a minute! What’s that on line 1108? Title insurance? Do you really need it since you’re putting 20% down on the property? Is that a double charge for the insurance you’re getting in case your house burns down? What exactly does it do for you?

Truth be told, title insurance as required by the lender doesn’t do a whole lot for you as a borrower. But it does a heck of a lot for the lender. Title insurance protects from loss against problems arising from problems with the title. If you are being lent money to buy or refinance your home, your lender is going to require it. Before you came along and put down a contract on the house you want to buy, there have possibly been numerous people who owned the house or at least the property it sits upon. The house may have changed hands countless times. And if the parties conducting the transaction before yours made a boo-boo, it could mean the world to you and your wallet. Which in turn, could pose a huge risk for your lender.

What kind of errors could be made? Well, say someone forged a document. It happens more than you think. Maybe Aunt Sue really never intended to sell that house when she was in a coma. Or what about tax liens against the property? If they were undiscovered at the time of a previous transfer, someone somewhere is owed some money. Title insurance will protect the lender for unforeseen claims against title up to the amount of the mortgage. It’s obligatory that you buy it if that lender is giving you money. You will be required to pay a single up front premium that will protect the lender for the life of the loan.

So you can see, a lender’s mortgage insurance policy does very little to protect a buyer. However, buyers can purchase their own title policy insurance to cover their legal fees and needs if a problem with title insurance occurs. It’s usually offered at a discounted rate to them at closing, allowing them to “piggyback” off of the lender’s policy. At a closing I attended the other day, the closing agent told of an undiscovered $10,000 lien that surfaced after a loan closing. It seems that the sellers had a pool built. Unfortunately, they failed to pay the pool builder. So the builder filed a lien against the old homeowners. These homeowners went to sell the home to the new buyers, a title search was done, and there were no issues. But, after closing, the pool builder figured out he had filed his lien in the wrong county. Oops. So he promptly re-filed it correctly. And lo and behold, suddenly there was a doozy of a lien existing against this property. The seller was long gone. Thankfully, the title insurance paid the lien so the lender was happy. And the buyers just had happened to purchase title insurance as well –so, they were happy because the whole fiasco cost them nada. In fact, it might have been the wisest $150 they ever spent. End of story.

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Let My Experience Work For You!
Email your home loan financing questions to Kristin Abouelata, Home Loan Specialist with Mortgage Investors Group, at question@kristinmortgage.com or call
direct: (865) 567-0113
Toll Free: 1-800-489-8910.
For more information visit her website at www.kristinmortgage.com Home Loans Plain Talk.