MERS Overview Enabling eCommerce for the Mortgage Industry December 2, 2005

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MERS OverviewEnabling eCommerce for the Mortgage
IndustryDecember 2, 2005

• William C. Hultman, Senior Vice President

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What is MERS?

• MERS is an industry utility created by the
  mortgage industry to promote electronic commerce
  and eliminate paper-based processes.
  
• MERS eliminates the need to prepare and record
  paper assignments when selling loans between
  MERS Ready members.
  
• MERS operates the MERS eRegistry to provide
  liquidity for electronic notes.
  

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What is MERS?

• Mortgage Electronic Registration Systems, Inc.
  (MERS) is the legal entity that is recorded in
  the county land records as mortgagee for loans
  registered on the MERS System.
• MERS is a bankruptcy remote subsidiary of
  MERSCORP, Inc. which operates the MERS systems
  and processes, including the MERS eRegistry.
  

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Who Owns MERS?

• The mortgage industry represented by
• Fannie Mae Freddie Mac WMC
• MBA ABN AMRO Wells Fargo
• EverHome CCO Mortgage ALTA
• Chase CitiMortgage United Guaranty
• Corinthian Countrywide CMSA
• GE Capital Guaranty Bank First American
• HSBC Merrill Lynch MGIC
• Nationwide GMAC-RFC PMI
• SunTrust WaMu Stewart Title

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How Does It Work?

• The security instrument names MERS as mortgagee
  and nominee for the lender.
  
• MERS serves as mortgagee in the county land
  records for MERS members.
  
• When servicing transfers from one MERS member to
  another, no assignment is needed because MERS
  remains the constant mortgage lien holder over
  the life of the loan.
• Chain of title is simplified because it begins
  and ends with MERS.

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How Does It Work?

• Members register loans on the MERS System and
  then report transfers of beneficial and servicing
  interests as they occur.
  
• MERS receives service of process and
  electronically forwards documents to the current
  servicer on the MERS System.
  
• Members foreclose and release liens in the name
  of MERS through our corporate resolution naming
  their officers as MERS officers.

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MERS Residential

• Over 36 million loans registered since 1997
• Average 34,000 loans registered daily
• Over 2,400 companies registering loans
• Over 53 market share on all newly originated
  loans in the U.S.
  
• Over 22 million active loans on the system
• Accepted by all major secondary market investors
  and routinely included in rated securities.

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MERS Commercial

• Same legal foundation as MERS for residential
  loans
  
• System adapted for cross collateralized loan
  products
  
• Over 27 billion (1,600 loans) registered since
  July 2003
  
• Live on MERS Commercial
• Bear Stearns Banc of America Securities
• Wells Fargo Ginnie Mae
• Pinnacle Fin. RESMAE
• LaSalle CBA Commercial
• Morgan Stanley Midland Loan Services
• Other lenders in the pipeline
• Lehman
• GE Capital

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What is the MERS eRegistry?

• The industrys response to the requirements
  imposed by UETA and E-SIGN
  
• The central location to identify the current
  Controller (holder) and Location (custodian) of
  the Authoritative Copy of an eNote

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Definitions

• Paper World Electronic World
• Negotiable Instrument Transferable Record
  (eNote)
  
• Original Note Authoritative Copy of eNote
• Possession Control
• Lender/Investor/Holder Controller
• Custodian Location (eVault)
• Endorsement/Delivery Transfer of Control
• Holder in due course Transferable Record Audit
  trail
  
• Servicer Controllers Delegatee

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Why MERS?

• Strategic imperative for MERS
• Logical extension of the MERS mission and
  expertise
  
• Potential additional revenue for MERS
• Endorsed by MBA
• Fannie and Freddie solution for uniform eNote
• Supported by Covington Burling legal opinion
• Develop and promote industry standards

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Assumptions

• Industry investors will require eNote
  registration
  
• eNote must refer specifically to the MERS
  eRegistry
  
• Participants must be members of MERS
• MERS eRegistry does not store eNotes
• Multiple eVaults will be created to store eNotes
• Funding of loans occurs outside the MERS
  eRegistry
  

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Registration Sale Process
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eNote Progress

• Two lenders active and registering eNotes on the
  MERS eRegistry First Advantage and Ohio Savings
  Bank over 150 registered to date GMAC also
  ready
• Fannie Mae is an active Investor and has
  purchased registered eNotes
  
• Other lenders/investors in process Freddie Mac,
  Countrywide and Wells
  
• Vendors
• Ready DPS, Fiserv
• In process Encomia, Stewart, Digital Docs

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Industry Standards

• Mortgage Identification Number (MIN)
• Organizational ID Number
• Registry operator in Uniform eNote
• MISMO XML data and SMARTdoc format
• SISAC-accredited issuing authority for digital
  certificates
  
• Policy reinforces standards for eClosing process
• Signing methodologies (SPeRS)
• Registration timeframes (Investors)
• Solutions for modifications, addendums, riders,
  etc.
  
• Enforceability and transferability of eNotes
  (SPeRS)
  

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Potential Future Initiatives

• Working with Countrywide and Stewart Title to
  facilitate timely delivery of lien releases to
  counties for our members
  
• Working with Fannie Mae, Freddie Mac, Countrywide
  and other members to provide standardized
  delivery of electronic documents from one member
  to another.

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Questions?
More information is available from the MERS Web
Site (WWW.MERSINC.ORG) under the MERS eRegistr
y Tab.