History of Securitization: Pre MERS

For traditional lending (prior to the concept of securitization), the original recording was usually the only recorded document in the chain of Title. That is because banks kept the loans and did not sell them, hence only the original recording being present in the bank’s name.

The advent of securitization in the late 1970s, especially through “Private Investors” and not Fannie Mae or Freddie Mac, involved an entirely new process in mortgage lending. With securitization, the Notes and Deeds/Mortgages were sold once, twice, three times or more. (The transfer and selling of the Note is not to be confused with the selling of Servicing Rights, which is simply the right to collect the payment of the Note, and keep a small portion of the payment for Servicing Fees. Usually, when a homeowner states that their loan was sold, they are referring to the Servicing Rights.) Using the traditional model would involve recording new Assignments of the Deed/Mortgage and Note as each transfer of the Note or Deed of Trust/Mortgage occurred. Obviously, this required time and money for each recording…

So banks started to brainstorm on how they could avoid these ‘burdensome’ County recordings while still selling millions of mortgages. Led mainly by Countrywide’s Anthony Mozillo and Fannie Mae’s James Johnson , they came up with the idea of a third-party ‘company’ that would be collectively shared by many banks, so that the first set of documents could be put in that company’s name, and every future mortgage transfer could simply reference that company and purport to be associated with them. This ‘company’  was founded in 1995 as Mortgage Electronic Registration System, or MERS.