State and federal regulators have yet to stop mortgage-foreclosure abuses and exact punishment on the banks responsible for them. A slap on the wrist for 14 of the largest mortgage firms, a still fruitless effort by state attorneys general to reach a settlement with banks, and superficial investigations into the extent of the abuses have done little to answer questions about the proliferation of mortgage fraud. Without that knowledge, regulators are at a disadvantage in arriving at an equitable solution.
Enter the most unlikely players in this whole mess: unassuming elected county officials known as registers of deeds. Whenever a mortgage gets transferred from one owner to another or a home falls into foreclosure, documents of the transaction get filed at the county register's office. Much of the truth about systemic document fraud is sitting in these local offices. Until now, virtually no register of deeds had bothered to take a look.
But Jeff Thigpen, the register of deeds in Guilford County, North Carolina, a county of about 465,000 in the center of the state (the largest city is Greensboro), decided to survey all the mortgage documents submitted to his office by DocX, a notorious "mortgage mill" that processes documents on behalf of lenders, between August 2006 and April 2010. He was inspired by a 60 Minutes investigation revealing numerous forgeries, backdating, and other false information on mortgage documents. "When I saw that [story], I was basically on fire," Thigpen says. "'I know this material is in my office, I've got to find it, I've got to get it out.'"
Out of the 6,100 documents Thigpen examined, 4,500 showed signature irregularities. The name of one DocX employee, Linda Green, who was acting as a vice president for several major banks, was forged 15 different ways on the Guilford County documents, rendering them invalid. Thigpen's investigation was one of the first systematic assessments of mortgage document fraud in the entire country, certainly more robust than anything conducted by state and federal regulators.
Thigpen was elected as the Guilford County register of deeds in 2004, during "the steroid era of land records," as he describes it. Mortgage securitization has been around since the 1980s, but it became widespread as the housing bubble inflated, when banks sliced up subprime mortgages into securities and sold them to global investors as an allegedly safe product. To reduce costs, the banks invented and funded the Mortgage Electronic Registration System (MERS), an electronic registry that allowed banks to circumvent county registers and thereby avoid paying the recording fee of roughly $35 per mortgage.
"MERS institutionally moved the documentation out of recording offices, stacking the deck for the banking and lending industry with no redeeming value to the consumer," Thigpen says. "Registers of deeds became more of a ministerial office. We would just take the documents and check the expiration date, and that's it."
This not only neutered the registers' offices but also significantly damaged the careful land-recording system in use in America since the pre-colonial period. MERS basically took over that system, tracking over 60 percent of all mortgages in the United States, about 65 million in all. The public documents list MERS as the "mortgagee" (the lender), and mortgage transfers recorded on the MERS database become invisible to the registers of deeds. But those transfers are often sloppy and incomplete, failing to follow prescribed guidelines in securitization agreements. What's more, if a borrower on a mortgage with MERS listed as the mortgagee falls into default, MERS must assign the mortgage back to the lender, so the lender can foreclose. To pull this off, MERS then makes an employee of that lending institution a MERS "signing officer" -- MERS has over 20,000 signing officers and almost no employees. People like Linda Green were named "signing officers" of MERS despite working for DocX, signing (or having their signatures forged on) foreclosure documents that ended up at the registers' offices.
Several state supreme courts have ruled against this legal arrangement, putting a cloud over the entire premise of MERS. That means that a mortgage owner trying to foreclose may not be able to foreclose if challenged. This flaw in the land-title system could become almost impossible to resolve, and the homes infected by a "clouded title" (where the legal owner is unclear) difficult to sell. Much of this comes down to the legality of the documents themselves, and the registers of deeds have that evidence in their possession.
Thigpen hooked up with another register of deeds, John O'Brien of Essex County in Massachusetts, who was just as concerned about MERS and pervasive document fraud. O'Brien is seeking back fees from the banks for the mortgage transfers that went through MERS and circumvented the registers' offices (and the accompanying recording fee), which could amount to hundreds of millions of dollars for his county. With state and local budgets squeezed by the Great Recession, this is an attractive potential source of revenue and could spur other registers of deeds into action. Thigpen and O'Brien want to attract more registers to their cause, saying they're currently in "alarm-sounding mode." O'Brien plans to speak at the national conference for county clerks and registers this year and present their findings. "The conference is in Atlantic City, which I think is a symbolic location," Thigpen jokes.
Thigpen, O'Brien, and other registers have two goals. First, they want to return the system of land titles to public hands, phasing out MERS and requiring all transfers to be filed. "You need an entity with public oversight tracking these transfers, not a private entity with no accountability," Thigpen says.
Second, they want to slow down the rush to settlement between state attorneys general and the banks. They have publicly called on Iowa Attorney General Tom Miller, who is leading the negotiations, to put them on hold until there is a deeper investigation of the damage caused by the banks. They also want to be involved in any future settlement talks, armed with the knowledge of what is sitting in their offices. Miller has yet to respond. As O'Brien and Thigpen said in a recent press release, "Common sense mandates that if a bridge collapses and there is a meeting to rebuild that bridge, the structural engineers must be invited to the table."
Some federal officials have begun to take notice. Sheila Bair, the outgoing chair of the Federal Deposit Insurance Corporation, told the Senate Banking Committee last week that "millions" of foreclosures could be infected by these systemic flaws -- something for which Thigpen saw fit to take a little credit. "If I can pull 4,500 documents and send them to the feds and have Sheila Bair say five days later that things are more difficult than they imagined, that means something."
Whereas state and federal regulators have failed to probe violations on the part of the banks, unheralded registers of deeds are uniquely situated to do so, because of their access to the physical documents. If every office in the country reported on its documents the way Jeff Thigpen did, the results could be monumental.
"We're doing everything in our power to scream and yell about what is going on," Thigpen says. "The banks had control of the paperwork and took us for granted. We have to respond to that."