A lot of home lenders' bottom lines have been under pressure recently, and that makes it more tempting for mortgage companies to fraudulently double-pledge loans, potentially increasing warehouse lending risk.

The risk has certainly dropped compared to 2009, but it looks likely to have increased compared to about a year or so ago. Since then, profit from loan volume has become harder to come by due to a jump in rates from historic lows, and lender expenses have gone up due to major regulations that took effect early this year. Lenders have shown some signs of desperation for cash in the wake of these developments. Loan volumes have picked up a bit from earlier this year, but they are still below some estimates. And there is yet another sweeping and potentially costly regulatory change on the horizon requiring lenders to provide new disclosures  to provide to borrowers in originations.

"The warehouse lender can name themselves in MERS, in the MERS chain of title, as interim funder, so once anyone has named themselves as interim funder, that's in MERS. If somebody else tries five minutes later or five days later to name themselves as interim funder on that same loan, it's going to pop up as a duplicate right away to get notified that there's already a party in that position," she said.

Some warehouse lenders used MERS when double-pledging abuses were rampant. The problem was the use wasn't widespread or frequent enough, said Perrin. "You need to know where your money is moment by moment. So hopefully people are using it all throughout the day as they're funding loans," she said.

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"MERS has had its challenges relative to accurately recording information," he said. "It will eventually be accurate and eventually work out, but these particular cases of fraud are perpetrated so quickly." He advises warehouse lenders to be wary of the risk even if they use the system. Past challenges at MERS related to user delays in registering loans are addressed by tighter MERS policies regarding those members, said Janis Smith, a spokeswoman for MERSCorp Holdings in Reston, Va., which owns and runs the system. (Read complete article.)