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With Proper Compliance, MERS Benefits Financial Institutions
The automation of the Mortgage Electronic Registration System (MERS) helps its users reduce costs and work. In order for the system to remain effective, MERS relies on its members, the institutions listed as the servicer of loans registered on the MERS System, to conduct periodic reviews of the information contained in the MERS System. Without proper reviews and compliance, institutions will not benefit from all of the advantages of engaging the MERS System.
What is MERS?
The MERS System is a national database that tracks changes in mortgage servicing rights and beneficial ownership interests in loans secured by residential real estate. MERS serves as a common agent for the mortgage industry, and exists to act as mortgagee in the land records for loans registered on its system. When a residential real estate loan transaction closes, MERS can be appointed mortgagee as nominee for the lender and its successors, or the mortgage might be assigned to MERS after closing.
The lender registers the loan information on the MERS System and records the mortgage in the county land record in MERS’s name. If the lender sells servicing, the MERS System is updated to reflect the change and the lien remains in MERS’s name so there are no breaks in chain of title. If the lender sells the note, the MERS System will need to be updated with investor changes. MERS receives service of process and legal notices regarding the mortgaged properties and provides the documents electronically to the appropriate party.
Determine your internal review requirements
If a member is listed on the MERS System as the servicer of 1,000 or more active Mortgage Identification Numbers (MINs), an external, third-party review is required. If members are listed as the servicer of fewer than 1,000 active MINs, they are permitted to use either their legal or quality assurance (QA) officer MERS System contact, or another employee who is not a MERS System contact, as long as the reviewer is not affiliated with the MERS function. However, the internal reviewer may not be the executive sponsor. Alternatively, an external third-party reviewer can be used.
Develop an effective quality assurance plan
Members are required to maintain and update the information of the loans they register on the MERS System. Members are also required to have a QA plan in place and on file with MERS. A QA plan template is provided by MERS, and members must complete the template and submit to MERSCORP Holdings via email.
The MERS QA Plan requires members to check the MERS System daily for new reports. It also requires members to have procedures in place that provide reasonable assurance that all reject and warning reports are researched and cleared, and that remaining items are tracked. Members must validate that the data on the MERS System matches the members’ systems of record; items such as borrower name, property address, and note date should match in both systems. The members’ system of record is the data source for the MERS System, so it is imperative that each member maintains its system of record in a way that ensures accuracy with the MERS System.
Complete and submit annual reports
Active members listed as servicers on MERS are required to complete an annual report confirming that the institution is compliant with the MERS System Procedures QA Standards, and must submit an annual report to MERS for the prior 12 month period. All members listed on the MERS System as the servicer of 1,000 or more active MINs must engage a third-party reviewer when completing the report. The reviewer must sign the report confirming he or she has monitored performance, tested the appropriate controls, and reviewed them for effectiveness against the most current version of the MERS System Procedures.
MERS requires six questions be answered “yes” or “no” as part of the annual report:
- Member has written internal procedures that provide reasonable assurance that data has been submitted for all MERS System required and conditional reporting fields
- Member has conducted internal system-to-system reconciliation for all MERS System required and conditional reporting fields at the required interval for the institution (monthly or quarterly)
- Required and conditional fields entered by the member on the MERS System match member system of record, and discrepancies are tracked and monitored until reconciled
- Member has written internal procedures in place that provide reasonable assurance that daily reject/warning reports are managed
- Member has written internal procedures in place that provide reasonable assurance of compliance with signing officer rules and procedures outlined by MERS
- Member has monitored performance against the QA plan and reviewed and resubmitted as necessary
Stay on top of reconciliation
There are common reconciliation oversights that members should make sure to avoid. Take steps to reconcile any issues promptly and accurately with these steps.
Clarify annual report responses
If a question on the annual report is answered “no,” a detailed explanation is required by either the member or the third-party reviewer. One common issue is members having internal MERS procedures that don’t clarify what needs to be done as part of the reconciliation process at the required reporting intervals. Members’ MERS policies and procedures should encompass the end-to-end QA process for all loans, and should cover the daily and monthly reconciliation tasks. They should also describe the QA self-testing procedures currently in place. Clarifying the process and procedures will make reconciliation a less burdensome task for members and ensure accuracy and consistency.
Select accurate daily and monthly reports
Members should also select the appropriate daily and monthly reports generated by MERS. For example, daily reports might include Registration Reject/Warnings reports and County Unknown Warning reports. Monthly reports might include Payoff Reject Reports and Transfer of Servicing Rights Rejects/Warnings. These daily and monthly reconciliation documents should be used to make corrective actions; errors should be cleared on a regular basis so the same issue is not appearing on subsequent reconciliation documents.
Perform system-to-system reconciliation
MERS members should also request the monthly Member Reconciliation Extract (MRE), which is used to perform either the monthly or quarterly system-to-system reconciliation. Member reconciliation process should include receipt and review of the monthly MRE reports and these reports should be retained. These reports are only available by request for a limited period of time, so the process of how to request, use, and retain these reports should be described in a member’s internal policies and procedures.
How we can help
MERS can cut back on its members’ workload by limiting the amount of required servicing paperwork preparation. But the system requires accountability in order to be fully beneficial to institutions. CLA Bankers Advisory is listed on the MERS member website as a vendor who can perform QA reviews to help your institution comply with MERS requirements. In addition, we can provide organizations with a compliance assessment that further explains the process used to conduct the review, an analysis of findings, and recommendations.