The Coming MERS Bailout

Get Ready for the Great MERS Whitewash Bill - CNBC

When Congress comes back into session next week, it may consider measures intended to bolster the legal status of a controversial bank owned electronic mortgage registration system that contains three out of every five mortgages in the country.

The system is known as MERS.  It may have allowed banks to avoid paying some recording fees as mortgages changed hands.  It also has come under scrutiny for sloppiness.  It appears to not have done a very good job at the very thing it was intended to do, keep track of the ownership of mortgages. 

As with so many things these days, though, MERS may not suffer for its poor performance:

it appears that Congress may attempt to prevent any MERS meltdown from occurring. MERS is owned by all the biggest banks, and they certainly do not want it to be sunk by huge fines. Investors in mortgage-backed securities also do not want to see the value of their bonds sink because of doubts about the ownership of the underlying mortgages.

So it looks like the stage may be set for Congress to pass a bill that would limit MERS exposure on the recording fee issue and perhaps retroactively legitimate mortgage transfers conducted through MERS private database.

If Congress does does this and allows MERS, and the big banks that benefited from it, to avoid the consequences of its actions it will tantamount to another bank bailout.

It remains to be seen if voters will be as motivated by such an action as they were over TARP, or if bailout-fatigue fatigue has set in.