Innovative Funding Strategies: How MERS Affects Warehousing

Michael D. McAuley Mortgage Banker Finance

October 26, 2004
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What is MERS?
P Mortgage Electronic Registry System P Registers security interest in mortgages P Electronic book entry system P Private corporation with legal standing nationwide

Why Use MERS?

P Virtually all major investors require it P Eliminates large amounts of paper P Convenient when transferring servicing

How Does It Work?

P Originator registers mortgage on MERS P Warehouse lender reserves right to register security interest in mortgage funded P Originator registers Investor on MERS

How Do Warehouse Banks Use It?

Three Choices with Each Mortgage: Accept paper MERS assignment Register interest on MERS Sign Electronic Tracking Agreement (ETA)

Whats an ETA?
P Electronic Tracking Agreement P Tri-Party Agreement between Originator, Warehouse Bank and MERS P Standing agreement, signed upfront, one time P Allows Warehouse Bank to register interest as Interim Funder if Originator defaults under warehouse agreement

Why Are ETAs Good?

Lays out ground rules for all parties Provides comfort to Warehouse Lender Reduces funding package documentation Eliminates need to send assignments

Electronic Interfaces with MERS

P Goal is to put Warehouse Lender in Interim Funder status on MERS P Methods: P Originator registers and Bank verifies P Bank uses MERS Website to register P Bank uses a batch transfer to register

Why Go Electronic?
P Less paper, so more efficient P Reduces work for Originator P If Warehouse Bank uses batch system, then Originator doesnt have to do any work

Whats Ahead?

Electronic notes registered on MERS No need to ship note to Warehouse Bank or Investor Dramatic change for warehouse lending business Banks working with MERS on this

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Where To Get Information

MERS Suite at Convention Your Warehouse Lender

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