What Is MERS Mortgage: A Simple Guide to Understanding It

What Is MERS Mortgage: A Simple Guide to Understanding It

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If you have a mortgage, you may not be aware that there is something known as the Mortgage Electronic Registration System, or MERS, that tracks its registry as well as any other mortgages that originated in America. 

The confidential database is used by companies throughout the real estate financial industry for trading and recording residential and commercial mortgages. The electronic registry makes it easier for lenders to register transfer details with the relevant county recorder whenever a loan is sold from one servicer to another.

While this may seem like a shady proposition for borrowers, it was actually created just to simplify and improve the efficiency of county land records, which can provide benefits to everyone. Plus, it’s a program that’s been approved by government agencies such as the Department of Veterans Administration (VA) and Federal Housing Administration, as well as government-sponsored entities such as the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association — better known as Freddie Mac and Fannie Mae.

Below, we provide a detailed look at what MERS is and how it works.

How MERS Works in the Mortgage Industry

MERS is basically just a database that allows for electronic registration of mortgage loans and deeds. It tracks mortgages for all member companies as they are sold from one financial institution to another, which happens relatively often.

After MERS was created, members no longer had to submit assignments manually to individual county recorders any time they bought or sold a loan. This helps to simplify the process and make it more efficient and accurate at the same time.

MERS plays a huge role in the mortgage banking industry, and is used by title companies, document custodians, lenders (warehouse, wholesale and retail), settlement agents, mortgage servicers and originators, county recorders, investors and even consumers.

The system digitizes all loans by assigning them a mortgage identification number, known as a MIN, when it’s registered in the database.

Benefits of MERS

There are many benefits that MERS provides to both lenders and borrowers. Because the process of recording loans and loan transfers is now simpler and more efficient, the cost of doing so is cheaper. This savings is realized not just by the lenders, though, but is also passed onto borrowers in the form of lower closing costs.

There are so many documents that are contained in a mortgage loan, and many steps that must be taken to record it properly. MERS helps to simplify the process by creating a one-stop shop for mortgage documents.

MERS doesn’t just reduce costs and improve efficiency, though. It also significantly improves transparency in tracking mortgage loans. The database is free for homeowners to access, allowing them to look up information on any of their mortgages that might be registered with the system. 

This free public access to information about home mortgages is a great step in ensuring that homeowners can easily look up which company owns their loan, in case there are any questions about it — or need to contact the company.

MERS and Real Estate

Some transactions of home loans will designate MERS as the mortgagee or the lender. These types of loans are referred to as “MOM” loans, or “MERS as Original Mortgagee.”

For deeds of trust, MERS might be named as your loan’s beneficiary, and the organization can act as your nominee. Loans can also be assigned to MERS as the sole nominee, which makes there no reason to have separate assignments every time a loan is transferred.

For the most part, MERS has little if no impact on homeowners who are paying off their mortgages. However, it has been criticized in the past for making it challenging to determine which company owns a mortgage.

For instance, during the housing crisis of 2008, some homeowners who were facing foreclosure or seeking relief from their loans had trouble figuring out which company owned their loan and, therefore, which company they needed to contact for help.

Pros and Cons of MERS

There are many pros and cons that MERS provides to the mortgage industry.

As mentioned before, the database can save lenders and borrowers time and money by creating efficiency in the process of recording mortgage loans. It’s a convenient system for tracking mortgage loans and servicing rights that also creates transparency in the industry.

At the same time, there are some downsides to the database. 

The biggest downside for homeowners is that MERS can be confusing. While there is free public access to the system, it’s not always easy to navigate or figure out where information is.

One reason for this is that lenders look to save time and recording costs by putting the loan in MERS’ name as the nominee in the land records. This potentially hides what company actually owns the loan, which creates confusion and frustration.

Looking Up Your Mortgage on MERS

If you want to look up your mortgage on MERS, you can do so by visiting MERS’ website. Once there, you can search for your mortgage by its 18-digit MIN — which is often printed on your servicer’s online portal or loan statements.

You can also look up your mortgage with a certificate number provided by the VA or FHA, your borrower details or your property address.

If your home loan is provided by Fannie Mae, Freddie Mac or some other organization, MERS’ site provides resources for how you can look up your information.

Alternatively, you can contact the company that services your mortgage to figure out how to find your property on the MERS database. Freddie Mac and Fannie Mae also offer loan lookup tools right from their website.

Importance of MERS for Borrowers

The biggest question borrowers might have is how MERS is relevant and important for them. Knowing who owns your mortgage loan is essential if you want to make any changes to your loan.

For instance, if you want to refinance your mortgage but don’t have enough equity in your home to do so through traditional means, you’ll need to know whether Freddie Mac or Fannie Mae owns your loan. This is because each agency offers different refinancing programs — and requirements — and steps that you need to follow to apply.

Even if you don’t want to refinance your home, though, it’s important to know which company owns your mortgage in case you ever need to contact them for relief options or for simple questions.

MERS Makes Recording Mortgages Easier and Cheaper

Knowing what MERS is and how it works can serve you well if you ever need help from your mortgage company. The private electronic database tracks new mortgage loans, servicing rights and ownership.

In addition to streamlining the process of recording mortgages and transfers for the mortgage industry — thereby saving time and money for lenders and borrowers alike — MERS also creates transparency for homeowners. 

Anyone can look up information about home mortgages for free on the MERS website, through an 18-digit Mortgage Identification Number (MIN) that’s assigned to every loan in the system.

While MERS operates in the background for many homeowners, it’s an important tool for borrowers, lenders and the mortgage industry as a whole.

Home Affordable Refinance Program

Understanding the Home Affordable Refinance Program (HARP)

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When the financial crisis hit in 2008, thousands of homeowners across the country suddenly found themselves in a precarious position. The homes they owned all of sudden were worth less than how much they owed on their mortgage.

Combined with mass layoffs that occurred at companies all over, many of these underwater homeowners couldn’t afford to pay their monthly mortgage and were facing foreclosure. 

In response to the building crisis, the Federal Housing Finance Agency created a government-backed refinance program in 2009 called the Home Affordable Refinance Program. 

HARP, which was sometimes referred to as the Obama Refinance Program or the Obama Mortgage, was designed to help underwater homeowners refinance the mortgages they had — sometimes at lower interest rates.

While the HARP program ended at the end of 2018, borrowers still have options to refinance their mortgages if they find themselves underwater on their homes.

HARP Eligibility and Requirements

The HARP program was available only for homeowners that had mortgages that either Fannie Mae or Freddie Mac guaranteed. To qualify for the program, then, homeowners had to have a mortgage from either entity in place before May 31 of 2009.

The government’s goal with the program was to slow down the rate at which mortgages were being foreclosed on, while also helping homeowners who found themselves victims of subprime lending practices.

In addition to having these two types of mortgages, borrowers had to be up-to-date on their mortgage repayments, and the property also had to be in a good condition. Any borrower who vacated their property or had defaulted on their mortgage couldn’t qualify for a HARP refinance.

There were other requirements that borrowers had to meet in order to be eligible for HARP, including the fact that the loan-to-value ratio (LTV) needed to be 80% or more. 

Homeowners with either a first or second mortgage were able to qualify for the program.

Benefits of a HARP Refinance

There were a few different benefits of HARP refinance, all of which provided both short- and long-term advantages. This included lower interest rates, which in turn resulted in a new lower monthly payment.

It also allowed borrowers to convert their loan from an adjustable rate to a fixed rate, which provided long-term cost certainty and, as a result, financial stability. A HARP refinance sometimes even allowed borrowers to shorten the repayment term of their mortgage, from 30 years to 15 years, for example.

The FHFA released a report in March of 2019 that said almost 3.5 million borrowers refinanced using the HARP program, which shows just how popular and beneficial it was.

How to Apply for a HARP Loan

There were a few options that borrowers had to apply for a HARP loan. They could either work with a lender or mortgage broker, and while not all mortgage services participated in the program, most did.

One of the nice parts about the program was that borrowers didn’t need to refinance through the same lender who originated the original mortgage. This gave borrowers plenty of choice in refinancing.

Much like applying for an initial mortgage, lenders required borrowers to provide a lot of information to apply. This includes proof that they fit the parameters of the program, as described above.

To do this, borrowers needed to provide proof of income, have a credit check run and have an appraisal done on the home, which often also included a general inspection to ensure the property was in good condition.

Once the lender had that information in hand, they could process the application and start the underwriting process. When the process was complete, the result was a new mortgage with new terms that defined how much the borrower owed, what the new interest rate and length of the loan were, and what the resulting monthly payments were as well.

HARP Replacement Programs

Once the HARP program came to an end in 2018, both Freddie Mac and Fannie Mae launched new programs intended to help homeowners who had a high LTV ratio getting better terms on their loans. 

The two programs were called the Freddie Mac Enhanced Relief Refinance Mortgage and the Fannie Mae high-LTV refinance option, or HIRO. Both of the programs are similar in terms of their eligibility requirements, though each program has its own rules.

Which program homeowners can apply for depends on which of the agencies owns the loan on your home. There are many benefits of this program, first and foremost the fact that they are designed to help homeowners who have little to no equity in their home gain more favorable loan terms.

High-LTV Refinance Options

The two main high-LTV refinance options start with the LTV on your home to figure out whether you qualify.

The Fannie Mae HIRO plan, for instance, requires that your LTV ratio be as high as 95% for a variable-rate loan or 97% for a loan with a fixed rate. In either case, the dwelling must be a single-family home, and it must be the borrower’s primary residence.

The Freddie Mac program is available for loans that have LTV ratios as high as 95%. It’s a program that supplements the agency’s cash out refinance option. The maximum amount for a mortgage with a variable rate is an LTV ratio of 105%, though there’s no maximum ratio if you have a fixed-rate mortgage.

Both programs require a full appraisal of your home to confirm what the LTV ratio will be, since that ratio is calculated by comparing the value of your home to your total outstanding mortgage amount.

There are instances where your loan application might be able to be underwritten electronically, in which case you could potentially qualify for an appraisal waiver. If this happens, you will save money on closing costs, since the full appraisal won’t be needed.

There are some things about the new mortgage that results from these two programs that you should be aware of. While the programs are designed to give homeowners financial relief, they might require you to pay monthly private mortgage insurance, or PMI.

This monthly payment is in addition to your principal, interest, property taxes and insurance, and PMI can sometimes get expensive. In addition, PMI often does not go away for the life of the mortgage, meaning it’s a long-term, ongoing additional expense.

Refinancing with HARP

When it existed, HARP was a great program the federal government put in place to help homeowners who had underwater mortgages due to the financial crisis of 2008. In addition to potentially lowering the interest rates on the mortgage, HARP helped give some homeowners more favorable overall loan terms.

Now that HARP has ended, there are still refinance programs available to help struggling homeowners who find themselves with high LTV ratios. The Fannie Mae and Freddie Mac programs are two good ones, but can only be used if your mortgage is owned by one of these federal agencies.

Refinance options are available for other federally-backed mortgages, such as VA loans, FHA loans and USDA loans. All of these programs can help borrowers lock in a lower rate, which helps to reduce the monthly payment for the long run.

Explore Your Refinance Options if Your Mortgage is Underwater

The Home Affordable Refinance Program may no longer be available, but it served as the blueprint for many of the home refinance programs that are around today. This includes two programs offered by Freddie Mac and Fannie Mae, as well as others offered by the VA, USDA and FHA.

If you have a conventional mortgage through a private lender that’s not backed by a government agency, you may have options as well.

If you find yourself with an underwater mortgage with a high LTV ratio, it’s important to contact your mortgage servicer as soon as possible to figure out your options. Doing so before you fall behind on your mortgage payments is crucial if you want to qualify for some of the programs that are available.

Refinancing can be a great option for homeowners who are struggling to make their mortgage payments, as it can result in a lower interest rate and better overall terms.

Exploring the Best Loan Modifications: HAMP vs Non-HAMP Programs

Exploring the Best Loan Modifications: HAMP vs Non-HAMP Programs

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If you are having trouble paying your mortgage, you might be worrying about whether your lender is going to foreclose on you. This is obviously something you want to avoid, as it can lead to your home being taken from you and your credit score being hit significantly.

Luckily, there are some options available to struggling borrowers who find themselves in financial hot water. Depending on what type of mortgage you have, and who your lender is, you could have various loan modification programs available to you.

These programs are designed to help borrowers avoid foreclosure if they’re having trouble meeting their mortgage payments. In this process, the original mortgage terms will be modified in some way to provide financial relief to you.

The goal of loan modification programs is to provide homeowners with financial relief so they can avoid the foreclosure process, which is not only damaging to them but challenging and undesirable to lenders as well. 

Here is some more information about loan modification programs and how they work.

Benefits of Loan Modifications

Loan modifications can be very beneficial to struggling homeowners. Making adjustments to the current terms of your loan can result in lower payments, which can help you afford your daily life and, ultimately, avoid foreclosure.

Sometimes, you could also obtain more beneficial long-term financial relief from loan modification programs, too. This could come in the form of interest rates that are lower than what they were in your original loan.

Depending on the loan modification you participate in, you might qualify for a reduced monthly mortgage payment that equals no more than 31% of your gross monthly income. This means that if you earn $50,000 per year before taxes, your monthly mortgage payment could be capped at just less than $1,300.

How the loan modification programs work depends on the specific program. No matter how it works, though, this program often allows borrowers to stay in their homes for longer and avoid foreclosure in the process.

Home Affordable Modification Program (HAMP)

The Home Affordable Modification Program, also known as HAMP, was created in 2009 to help struggling homeowners modify their mortgages. The program was created at the height of the housing market crash, and was expanded again in 2012 to aid even more families who needed help.

The goal of the program is to offer borrowers the ability to lower their monthly mortgage payments if they’re at risk of being foreclosed. It’s not just about creating a lower monthly payment in the near term, but also offers a repayment plan that is sustainable for them in the long term.

To qualify for the program, borrowers have to prove that they’re experiencing financial hardship, and that they’ll be able to afford the modified monthly mortgage payments.

How HAMP Works

HAMP provides a number of different benefits to struggling borrowers. It modifies existing mortgages by extending the loan terms, reducing interest rates or adding late payments to the principal balance.

The federal government provides incentives to mortgage servicers to encourage them to participate in the program. 

HAMP uses what’s known as a “waterfall” process to determine the specific loan modification to use, so that it achieves a targeted front-end debt-to-income ratio that’s no greater than 31%.

HAMP Eligibility and Requirements

There are certain eligibility requirements that the federal government set for borrowers to qualify for the HAMP program. 

The loan in question must have originated before 2009, be the first lien on the property and be an owner-occupied home. The outstanding principal balance of the loan must be $729,750 or lower. Plus, the principal, interest, property taxes and homeowners insurance must be more than 31% of the borrower’s gross monthly income.

To apply for the program, borrowers have to completely document their income, as well as sign an affidavit of financial hardship that shows they are having trouble making their mortgage payments. In addition, they can’t be more than 5% “underwater” on the home, can’t be delinquent on the mortgage or facing imminent default.

Once an application is made, the HAMP program will verify the borrower’s income to determine their eligibility. In some cases, the borrower may be required to pay mortgage insurance, depending on their situation.

Non-HAMP Loan Modification Options

With the HAMP program expiring in 2016, many homeowners were left without an obvious and straightforward loan modification program. But, depending on what type of mortgage you have, there could still be plenty of options available to you.

FHA Loan Modification Program

FHA loans, backed by the Federal Housing Administration, are some of the most popular mortgages available today. A loan modification program is available for borrowers who have an FHA loan and are struggling financially.

Under this program, it’s possible to modify FHA loans by extending the term of the loan, reducing its interest rate and/or adding late payments to the principal balance.

Some borrowers may also qualify for a “partial claim” option, which could reduce their outstanding principal balance by as much as 30%.

Fannie Mae and Freddie Mac Flex Modification Program

Mortgages backed by Fannie Mae and Freddie Mac also potentially qualify for the Flex Modification Program. This program is aimed at borrowers who have conventional mortgages avoid foreclosure.

This program is actually available to borrowers who are delinquent on their mortgage, as long as they aren’t more than 60 days late on payments. The Flex Modification Program could extend the current mortgage term to 480 months.

Those extra 10 years on the mortgage could significantly lower the monthly payment, though it could result in the borrower paying a larger overall amount if they see the loan through until the end.

VA Loan Modification Program

The Department of Veterans Affairs backs mortgages like the FHA does, only for veterans and their spouses. The VA also has a loan modification program that allows outstanding payment amounts that are past due to be added to the outstanding principal balance. 

In doing so, borrowers can get an entirely new payment schedule, which results in a lower monthly payment. In some cases, the monthly payment can be reduced significantly through an extension of up to as much as 10 years on the life of the mortgage.

Comparing Loan Modification Programs

While all of these loan modification programs have similarities, there are many differences, too.

HAMP was a federal program that was available to any homeowner who qualified, regardless of the type of mortgage they have. Non-HAMP programs are offered by either individual government agencies or lenders, and apply only to those types of loans.

Each of these loan modification programs have different rules and regulations to qualify. If you are having trouble paying your mortgage, the best thing to do is reach out to your mortgage service company and discover your options for a loan modification.

Choosing the Best Loan Modification Program for Your Needs

Sometimes, you’ll have a choice when it comes to loan modification programs. Other times, you may be locked into only one option.

That’s why it’s important to figure out what your options are so that you can make the best choice for you. You’ll want to consider your current financial situation, the type of mortgage that you have as well as the eligibility requirements before applying for a loan modification.

In addition, compare all the benefits and drawbacks of each program available to you so you can make the most informed decision possible.

Alternative Mortgage Relief Options

It’s possible that a loan modification program might not be available to you, or you may decide that the options that are available to you simply aren’t very attractive.

If this is the case, you could consider alternative options to receive mortgage relief. 

One such program is called the Home Affordable Refinance Program, or HARP. The Federal Housing Finance Agency created the program to aid homeowners who are underwater on their mortgages — meaning their home is worth less than the amount that they still owe on it.

The program helps borrowers refinance their mortgages with a lower interest rate and lower monthly payments that makes it more affordable for them, and sets them up for long-term financial success.

Investigate Loan Modification Programs if You’re Struggling Financially

If you’re struggling financially and having trouble repaying your mortgage, know that you are not alone. Also know that there are options available to you that would allow you to change the terms of your current mortgage and avoid foreclosure.

Various loan modification programs are available that could provide you with financial relief and allow you to stay in your home.

HAMP and non-HAMP programs offer different benefits and eligibility requirements, so it’s best for borrowers to compare the pros and cons to see which option might be best for them.