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Thanks for being here.
Last year at about this time
I stood at this podium and announced that I'd joined with
48 other
State Attorneys General to negotiate the National Mortgage Foreclosure settlement
That settlement came after months of investigation
by many AGs
into the behavior of our nation's five
largest banks
at the height of the country's housing crisis.
We uncovered that the banks had committed fraud
during some of their foreclosures by filing
robo-signed
documents with the courts
which in many instances
did not have the accurate parties listed
and were not appropriate for filing in judicial
foreclosure states such as Kentucky.
Kentucky's share of that settlement was about $59-million dollars.
$38-million of that is being allocated currently
by the settlement administrator directly
to consumers who qualify for either
refinancing
loan write-downs
and/or cash payments of up to two thousand dollars if they were foreclosed upon.
Some of that relief, I need to stop and say,
even if you weren't foreclosed on or you're underwater you're eligible to have
the principal write-down
or a change in your interest rate.
To date
the banks report providing more than $33-million in relief
to
almost 1000 Kentucky homeowners.
The average borrower has received about $35,000 in assistance.
Kentucky also receives $19-million in hard dollars from the banks and from the bank
settlement.
That money has gone to agencies that create affordable housing, provide
relief or legal assistance
to homeowners who are facing foreclosure,
to redevelop foreclosed-upon properties and to reduce blight
created by vacant properties.
I told you at that time last year that our work was not over.
This morning
my office filed a lawsuit in Franklin Circuit Court
against MERSCORP Holdings and
its wholly owned subsidiary MERS
which stands for the Mortgage Electronic Registration System
for violations of Kentucky law.
During negotiations for the Mortgage Foreclosure Settlement
I felt the Commonwealth of Kentucky had significant civil claims against MERS.
In fact we kind of held out at the end of the Mortgage Foreclosure Settlement.
We were one of the last states
to sign and agree to it
because I wanted to make certain that language was inserted into the National
Mortgage Settlement
that did not preclude states' abilities to file a lawsuits
and claims
against MERS.
We allege that MERS violated Kentucky statute
by not reporting mortgage assignments for county clerks
when mortgages were sold or transferred
from one bank to another.
Under Kentucky law and under Kentucky statute, KRS chapter 382,
mortgage assignments in Kentucky
must be recorded in
the appropriate county clerk's office
with a $12 fee
that is collected
by the clerks on behalf of the Commonwealth of Kentucky.
Kentucky's
statute is clear.
It requires assignments to be recorded with county clerks
and MERS directly violated that law
by creating this system
that provides absolutely no public record
of sales or transactions
and deliberately
circumvents paying
recording fees
to states.
The process makes it very difficult
for consumers to access data,
to find out who owns their loans
and the Commonwealth is ripped off when it comes to the recording fees.
Now, I would stop here and point out for
our major newspapers in the state which are often preaching and talking about
transparency.
I know that many of you or some of your colleagues have gone to county
clerk's offices
to see what public figures
hold what piece of property,
who is the mortgagee
and to what bank they owe what.
In the interest of transparency now
for about 60% of the mortgages in this state what you see is MERS.
You have no idea who actually holds the note.
You have no idea
actually to whom the loan is owed.
It's an important
transparency issue.
MERS was created
in the 1990's to enable the mortgage industry to avoid state recording
fees,
to allow for rapid sale and securitization of mortgages,
and shorten the time it takes to pursue foreclosure.
Its corporate shareholders include among others
Bank of America, Wells Fargo, Fannie Mae
Freddie Mac
and the Mortgage Bankers Association.
Currently MERS has more than 6500
member institutions
more than 70-million mortgages
have been registered on the system.
The lawsuit alleges that since MERS' creation
members have avoided
paying recording fees nationwide
in the amount of $2-billion.
And hundreds of thousands of Kentucky loans are registered in the MERS system.
I don't have exact data for you but we know that roughly at any given time
we have about a half million mortgages recorded in this state
and if about 60% of the mortgages are MERS mortgages at this point
you can estimate that
that roughly 300,000
mortgages in Kentucky are under the MERS system.
As a result of
not publicly reporting the mortgage instruments
and the mortgage assignments, and paying the required fees, the lawsuit also alleges
MERS violated Kentucky's Consumer Protection Act
by engaging in unfair, false, misleading,
or deceptive conduct.
And under Kentucky law, MERS could be liable for a fine of up to $2000
for every one of those violations.
This whole process
undermines the integrity
of Kentucky's public land records.
Before the bottom fell out of the housing market, banks were bundling up and
selling loans
on the securities market as fast as the ink could
dry on the paperwork.
It's oftentimes interesting for me to go back and talk to people about
the economic meltdown of 2008
There are a lot of our citizens, a lot of my constituents, who think that the economy
just blew up.
That it just blew up. That from time to time we enter into
an economic downturn.
I have briefed the
Attorney General of New York on what we're doing here today because they've taken a
similar action and he's been appointed by the
President along with the Secretary of
Housing and Urban Development, Shaun Donovan, to
follow up on the Mortgage Fraud
Foreclosure Task Force that they
created.
I know the Attorney General of New York has developed
evidence that
sometime well before
the housing downturn
that actually the
land values had peaked out.
But that because of
Wall Street gorging itself
on mortgage-backed securities
that there was a period,
an intentional period, of artificial inflation
of mortgage values
that exacerbated the economic downturn.
Our economy didn't just didn't "blow up"
in 2008.
What happened was
that this ghost of an entity, MERS, was created,
banks took the mortgages, they resold in the number of times, revalued them,
and placed them in trusts in states like Delaware & New York,
divvied them up and created a housing bubble that brought down our economy.
And we have to make certain as public servants that even if Kentucky only plays
a small part in it
we have to make certain that we learn the lessons from that debacle and it doesn't happen again.
And even when the downturn hit, when homeowners had trouble paying their
mortgages
they had trouble finding out who owned their loans.
It was difficult
to find out
who to call
to request a loan modification
or to defend
the foreclosure
and there is and was
no public record
of the transfers.
To stop here for a second, and give an example of what we're talking about. We filed this lawsuit
in Franklin Circuit Court,
you look at page 98 of our complaint
just as an example,
we asked MERS to produce information concerning 49 properties in
Franklin County, Kentucky
involving
foreclosures right here in Franklin County where we filed the lawsuit.
We investigated and developed our own
information.
Pursuant to that request MERS could only provide data on 43
of these properties.
Our review of these 43 properties
turned up some troubling data.
With respect to 19
of these 43
foreclosed-upon properties, nearly 50%,
data in the MERS system was inconsistent
with information found
the foreclosure file in Franklin Circuit Court.
With respect to 11 of these properties the MERS system had no record of the foreclosure
proceedings whatsoever
even though we can tell from Franklin County
records that
foreclosure took place. With respect to the other 8 properties
in which inconsistencies exist,
the foreclosing party identified in the MERS system
does not match up
with the party that filed for foreclosure
in Franklin Circuit Court.
This happened all over
the Commonwealth
of Kentucky.
In addition the lawsuit makes civil claims
that MERS created this system to unjustly enrich
and pad its bottom line
at the expense of consumers
and the Commonwealth of Kentucky.
This is
a complicated issue.
I know for many of your it's going to be tough to report on and fully explain.
But most people that have bought a home and taken out a loan
understand
what a mortgagee is.
That is someone who
holds your note.
That mortgage is supposed to be recorded
in the county land records
so that anyone who wants to see what's going on with a particular piece of property
can go check the metes and the bounds
and who holds the lien.
MERS claims
that it's the mortgagee.
However, MERS is a ghost.
It's a front to allow banks
to reassign
mortgages behind its facade
without proper disclosure.
MERS has no beneficial interest in the loan.
They're not a creditor entitled the payment.
They're not a lender.
In fact they have very few employees.
Throughout its existence MERS has had only about 50
employees.
What they do as they allow their member banks to
name their employees as certifying officers.
So these MERS certifying officers are really employees of the banks.
No one's really
checking up on them even though they're acting
in the name of MERS.
And at last count there were over 20,000
people in this country acting as MERS
certifying officers.
In July 2011 MERS
put in place a rule change
that said that there could be no
foreclosing in MERS' name,
which begs me to ask the question:
if you can't foreclose,
how can you claim
you're the mortgagee?
Additionally, our lawsuit
makes it clear that MERS lacked standing to foreclose the Commonwealth of
Kentucky.
If you read our
rules of civil procedure
it says that all actions have to be brought
in the name of the real party in interest.
MERS is not
the real
party in interest.
Oftentimes they didn't even hold the note but made claims in our courts that they did.
They didn't check these quote-unquote "certifying officers" from the bank,
and oftentimes after foreclosure proceedings had begun
MERS went ahead
and assigned the mortgage after foreclosure had begun
which they're not supposed to do.
MERS destroyed
the integrity
of the public land recording system in the Commonwealth of Kentucky.
We're the 4th state to file suit
joining Delaware, New York,
and Massachusetts.
Last year, after the National Mortgage Settlement
the President of the United States
named a Mortgage Fraud Task Force
chaired by Secretary Donovan of HUD
and Attorney General Eric Schneiderman of New York.
We are participating in that task force
Late last week I briefed both
Attorney General Schneiderman
and Secretary Donovan
on this coming lawsuit.
They have pledged any and all resources they can provide
to help us with discovery, and to make certain we get to
a process in the future that is certainly a lot better than
the one we have been through.