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BarCap: MERS foreclosure issues may be spreading to commercial real estate

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Possible foreclosure issues with loans processed through the Mortgage Electronic Recording System, or MERS, may be spreading to commercial real estate, but the effect on securitizations could be minimal, according to Barclays Capital analysts. MERS allows lenders to track individual mortgages through an electronic tracking and holding system. Through that system, MERS holds legal title to a mortgage as the loan owner's agent and is sometimes granted the authority to enforce foreclosure. But recent lawsuits against the company have raised questions about the legal standing MERS has as a foreclosing entity and electronic record keeper. JPMorgan Chase (JPM), which is still reviewing foreclosure issues of its own, dropped MERS as a foreclosing agent but still holds loans on the system. According to BarCap, these lawsuits are spreading outside the residential space, challenging foreclosures on loans backing commercial mortgage-backed securities. But analysts believe there are legal remedies available to limit any negative effect for investors. "As such, there could be a scenario where MERS originated loans could see a possible extension in liquidation timelines by a few months, but this should not affect CMBS valuations on a fundamental level," according to BarCap. Foreclosures still remain low on CMBS loans, standing at about 2.2% of outstanding balance through September, according to analysts. MERS did not immediately reply to requests for comment. Write to Jon Prior.

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