Is MERS Commercial About To Break The CMBS Market?
The irresponsible actions by MERS are rapidly becoming the stuff of folklore: from their direct and indirect involvement in every fraudclosure, to the president himself falling for what appears to be a MERS agent with a split signature personality, to MERS just-released refutation of it ever having done something wrong, the hammer on MERS seems to be preparing to fall with a resounding thud. Yet with everyone focusing on MERS' involvement in the residential mortgage space, pundits have ignored that "other" space where MERS made the possibility of outright robosigning fraud a distinct possibility - commercial real estate. For specifics one has to go back 7 years in time, to July 28, 2003, and read the following press release from the company titled: "MERS Liberates Commercial Marketplace From Assignments" in which we read that "MERS announces the release of its latest
product, MERS® Commercial, designed to eliminate the repurchase risk and
costs associated with preparing, recording and tracking assignments for
the commercial mortgage-backed securities (CMBS) marketplace." Ah yes, how convenient for MERS to come to the CMBS market with a "time saving" yet fraud facilitating product, at precisely the time when various CMBS issues would start propagating and flooding the market with hundreds of billions of commercial real estate securitizations. Which begs the question: if residential mortgage foreclosures are being halted and if the very fabric of the MBS securitization architecture is put into question, when will someone ask whether MERS® Commercial allowed such pervasive title fraud as is now apparently ubiquitous in the residential space, to take the CMBS space by storm, and how many billions in dollars will Banc of America Securities, Bear Stearns (d/b/a JP Morgan), GE Capital Real Estate, GMAC Commercial, John Hancock and Wells Fargo be forced to buy back loans that were fraudulently certified.
Reading through the MERS press release:
Commercial originators and issuers can save hundreds of dollars in preparing and recording assignments; in cases of cross-collateralized loans, the savings can be in the thousands. Missing interim assignments are eliminated, making the lien release process more efficient for commercial servicers. MERS® Commercial also allows special servicers to foreclose more efficiently by eliminating the problem of missing interim assignments.
“MERS undertook the task of developing this product with the endorsement of the Mortgage Bankers Association of America and the Commercial Mortgage Securities Association,” said R.K. Arnold, President & CEO of MERS. “It was mainly driven by a need in the commercial marketplace for a simpler loan process, elimination of paperwork and cost-savings.”
The first MERS® Commercial loan closed on July 10, 2003 by Bank of America for approximately $300 million. It was collateralized by over 40 properties in over 20 states.
“MERS® Commercial allowed us to more easily originate this complex loan for Bank of America,” said Joe Forte, senior partner at Dechert LLP. “The MERS team was exceptionally responsive to our inquiries. Within 24 hours, they answered all our questions and gave us all the information we needed to close the deal. I believe that the use of MERS® Commercial will quickly become the standard in CMBS transactions.”
“We are excited about the value that MERS® Commercial brings to the commercial lending industry,” said Janice Smith, head of CMBS conduit operations for Banc of America Securities. “This product addresses the longstanding industry problem involving missing or improperly recorded assignments, while also substantially streamlining the overall loan transfer process. We believe that MERS® Commercial will play an important role in helping the CMBS market maintain its liquidity by making loan transfers simple and efficient.”
MERS® Commercial for the CMBS marketplace is designed especially for use by issuers, master servicers, custodians, originators and special servicers. It is easily accessed through the Internet, through a secure, password-protected web-based interface. It supports loan structures with multiple promissory notes and multiple properties in the collateral structure, and provides a method to identify how many security instruments and UCC documents were present at the time of loan closing.
“MERS® Commercial streamlines the final certification process,” said Dan McLaughlin, Executive Vice President, Product Division, for MERS. “It reduces the risk that a lender will have to repurchase a loan.”
MERS® Commercial has been jointly funded by Banc of America Securities, Bear Stearns, GE Capital Real Estate, GMAC Commercial, John Hancock and Wells Fargo.
“It is important for the success of this effort that the industry’s critical players are involved and committed,” said Carson Mullen, Executive Vice President, MERS Customer Division. “They have given their financial support from the outset, as well as their participation in the development of the final product.”
"We are excited about the potential for MERS® Commercial," said Mary Anne Ashmore, Chair of the CMSA/MBA Task Force on Loan Document Integrity and First Vice President of ABN AMRO/LaSalle Bank,. "In addition to reducing the risks associated with collateral documents, it also significantly reduces the costs associated with assigning the collateral to the Trusts. This makes it a perfect solution for our industry."
Oopsie. Perhaps the perfect solution to the CMBS industry will also just end up being its perfect downfall. At least we now know that once MERS fraud is exposed for all to see, that Banc of America Securities, Bear Stearns (d/b/a JP Morgan), GE Capital Real Estate, GMAC Commercial, John Hancock and Wells Fargo (and likely many others), will soon be forced to "repurchase all those loans" they thought were safe in the title certifiation department.
We, for one, can't wait to see how long the CMBS market tries to stay mum about this so overdue next leg down in the commercial mortgage industry. On the other hand, with various CMBX tranches trading close to all time highs, it may be a fitting epilogue to the most contrarian story in the history of commercial real estate. Plus it is not like any one of those tenants are actually paying their rents.
If nothing else, it will at least force Bernanke to finally step in and destroy all speculations and rumors that the Fed may actually allow the commercial mortgage backed security industry to fail, even as intrinsic securities' valuations are rapidly dwindling courtesy of the second great depression.