The board of governors of the Mortgage Bankers Association of America has set aside $50,000 in an effort to create a mortgage registration data base.
The data base, known as the Mortgage Electronic Registration System or MERS, will be an electronic registry that will enable originators, servicers, and consumers to track loans regardless of who owns or services the paper.
The MBA made the money available so the construction of the data base can continue as member companies form an organization to oversee funding, construction, and operation of the system.
MERS is expected to be completed by mid 1996, and is expected to cost about $8 million, though it is unclear who will fund the development project.
When fully operational, the system could save the mortgage industry upwards of $75 million per year in origination, servicing and selling costs. The bulk of these savings will come from the reduction of paper in mortgage processing.
"Although we do not have plans to use the money, it is available, should any costs come up as we work to finish the establishment of a stand-alone entity that will operate the system," said Faith Schwartz, executive vice president of TMC Mortgage Co. and a chairperson of the MARS business development team.
Ernst & Young, which performed a feasibility study and designed the business model for the system, determined that the group operating MERS should have about $4 million in working capital.
With such funding, the organization operating the system should reach a break-even point after 30 months of operating the system.
According to officials close to the development project, the MBA is reviewing a funding proposal for both the organization and implementation phases by the National Cooperative Bank in Washington.
Brad Nordholm, a corporate vice president at the bank said the institution is ready to commit $8 million to begin the systems installation and marketing of the project.
The bank believes members of the industry who join the cooperative will chip in additional funding if it is needed.
"All we are waiting for is the final business and technology plans for the cooperative, and once that is received, we will be ready to go," he said.
"We lend exclusively to cooperatives, and this is a very solid and well conceived plan that has the right business concepts."
When MERS is completed, it will assign a universal number to loans, allowing members to track them.
The system allows mortgage providers and consumers to access electronically loan data. Much of loan tracking and reporting is currently done on paper.
"Originators and servicers will no longer have to take the time of moving countless pages of paper around in order to get loan information," said Robert Roma, a manager at Ernst & Young in New York.
"The system will give the industry the opportunity get information on- line, faster, cheaper, and more accurately then ever before."
Mr. Roma said the system's cost justification hinges on the elimination of paper associated with loan servicing and origination and the costs incurred when mailing, recording, and processing such documents.
"Servicing and origination is a very time-consuming process, and by creating this type of organization and data base, all of the information will be in one central location that is easy to get at and use," he said.
Ms. Schwartz said the industry has widely accepted the concept behind MERS because the benefits from its establishment are quite clear.
Experts said the effort is consistent with efforts by individual servicers and originators to reduce the reams of paper generated by a typical mortgage transaction.
"By having the data base in place, the industry will be able to reduce and in some cases eliminate the amount of paper used in the servicing of new and existing loans," she said.