What Is MERS?

MERS Explained in Less Than 4 Minutes

Mortgage lender analyzing financial data on a laptop with a colleague during meeting in an office
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MERS is the Mortgage Electronic Registration System. It is a privately held electronic registry that documents both new mortgage loans and their transfers of ownership. For members who use MERS, it can replace a complex and paperwork-laden system of recording transfers of loan ownership through documents called “assignments” with a county recorder’s office.

MERS has saved a lot of time and become a central hub for transfers of ownership in the mortgage lending world. It’s important to understand what it means if MERS is listed as the beneficiary of your loan, as well as what lenders gain from MERS.

Definition and Example of MERS

MERS is a privately held company started in 1995 that provides an electronic record of mortgage ownership and sales/transfers. For some mortgages, the company is listed as a beneficiary of the mortgage, enabling it to receive official paperwork associated with the mortgage. In most cases, the company then forwards relevant documents to whoever currently owns the loan.

MERS saves time and money because the process of selling and transferring ownership of a mortgage loan, sometimes called the “chain of title,” can be cumbersome. There is an official document called an “assignment” that must be filed with the county recorder in the U.S. to transfer ownership when a mortgage loan is sold. MERS created a new system that allowed the process to happen digitally while still being official and legal.

It also has become a hub that routes certain kinds of documentation to the current owner, rather than having to constantly change the official beneficiary of the loan every time it is sold.

  • Alternate name: Mortgage Electronic Registry System
  • Acronym: MERS

How Does MERS Work?

Before MERS, every time a lender chose to sell a mortgage to another entity, they recorded the transaction by preparing an assignment for the county recorder, updating physical documents. MERS creates a centralized online system that still generates the necessary paper trail of loan sales.

In some cases, MERS becomes the beneficiary or nominee for the loan, even as the current holder and subsequent buyers record their transactions on MERS. Sometimes, MERS is the beneficiary from the start; other times, that assignment is made later in the life of the loan.

Confusion can arise, considering that the beneficiary, MERS in this case, isn’t actually the owner of the loan or holder of the promissory note. The actual owner of the loan, often a lender, just gives MERS permission to act as a designated beneficiary. This allows the loan to be bought or sold with much less paperwork and hassle.

Pros and Cons of MERS

Pros
  • Serves as a hub for paperwork and transfer proceedings

  • Saves work, making loans cheaper overall

Cons
  • MERS’ role as the beneficiary complicates foreclosure

  • Can be difficult to know who is actually servicing a MERS-beneficiary loan

Pros Explained

  • Serves as a hub for paperwork and transfer proceedings: Some lenders appreciate having MERS receive, handle, and forward relevant notices and information about loans. If the loan is sold, MERS remains a consistent point of contact for things like public notices about loans.
  • Saves work, making loans cheaper overall: Interest rates and fees on loans are tied to the amount of work it takes to originate and service the loan. When MERS began, the practice of transferring or selling loans became faster and simpler, reducing needed work and therefore the cost of loans.

Cons Explained

  • MERS’ role as the beneficiary complicates foreclosure: Because judicial foreclosure turns to the beneficiary of the loan as the plaintiff in a foreclosure lawsuit, having MERS in this role can complicate those proceedings. MERS isn’t the actual servicer or owner of the loan, so even if it wants to handle the paperwork of a foreclosure, some states have decided they cannot legally be the plaintiff, and the actual loan owner must bring the suit. As a result, MERS stopped initiating most foreclosures on behalf of lenders in 2011, although exceptions exist.
  • Can be difficult to know who is actually servicing a MERS-beneficiary loan: If MERS is the original mortgagee of a loan, it’s important to understand what MERS does and doesn’t have the right to do. These rights are spelled out in documents signed at closing. Keeping track of who your servicer or loan owner is can be a bit challenging until you understand what MERS is actually designed to do.

What It Means for Homeowners

Homeowners can look up their own properties on MERS to see whether the loan has been sold or is still being serviced by the original lender. Generally, though, MERS shouldn’t much affect the experience of owning your home with a mortgage loan, other than reducing some of the administrative costs of maintaining the loan.

Key Takeaways

  • MERS is the Mortgage Electronic Registration System, an electronic database documenting the ownership transfer of mortgage loans.
  • The database can be accessed by homeowners as well as a variety of lenders and institutions associated with the mortgage lending industry.
  • MERS holds the designation of “beneficiary” for many mortgage loans even as mortgage ownership changes, and it documents the ownership and servicer of the loan in its database.