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In my 2021 summary of audit findings, it was evident the broader challenges of the past two years have not circumvented MERS compliance. Human resource hurdles of collaborating though remote work, illness, and increasing attrition remain. Changes in their business model also left many mortgage servicers’ facing the unexpected requirement to engage an independent 3rd party auditor. For some, the prior year’s extraordinary volume and servicing retention strategy meant they suddenly had larger than normal portfolios (of more than 1000 loans) on March 31st, 2021. Industry acquisitions a plenty, non-MERS members who acquired a MERS member, found they too were on the hook for instituting new foreign compliance processes.
How did this manifest itself in my 2021 3rd party independent MERS reviews?
Through lack of written procedures – Where transactions are not submitted through automated systems, written or formally documented procedures are imperative, as defined by the MERS System Procedures Manual. This year, a significant number of reviews were identified with missing, unknown, or outdated MERS procedures. The “Great Resignation” may have led to a loss of institutional knowledge regarding the MERS processes. Documenting manual MERS transaction processes will become increasingly important as servicers feverishly work to plug staffing holes well into 2022.
Through missed timeframes – Compliance specifies transactions on the MERS system must be performed within seven days of the corresponding transaction on the servicing system. As it did with written procedures, employee absences may have played a role into an increase in the number of missed MERS transaction timeframes. The greatest number of missed transaction exceptions were identified for deactivations: Paid in full, Default or Bankruptcy, and Transfer to non-MERS Member.
While data reconciliation, commonly done via an automated system, was performed according to the proscribed timeframes (either monthly or quarterly), the timely clearing of the identified exceptions slowed. The need for a manual review of a staff member to clear exceptions can be attributed to this finding. Not only were exception clearing timeframes missed but there was also an increase in numbers on aging reports, particularly with 60/90/120 days outstanding. Exceptions were left uncorrected month after month. The goal for remediating exceptions should be 30 days. Some deficiencies noted in other categories such as matching active loan counts on both systems, deactivation transaction failures and loans not transferred to the new servicer, could have been identified and corrected sooner if the exceptions had been reviewed and cleared in a timely manner.
To understand all the required transaction timeframes and new requirements or changes to existing compliance guidelines, Servicers should thoroughly review each new release of the MERS System Procedures Manual.
Through a general lack of internal QA controls and monitoring – With staffing shortages geographically dispersed and a growing list of 2021 hot potato priorities for Servicers, internal quality assurance (QA) monitoring faltered. Forbearance workouts, intensifying CFPB oversight, and complex portfolio management were not a pass for internal auditors to fail to routinely monitor their company’s policies and procedures against the MERS QA Plan. Nor was being a company who had not previously been subject to an independent 3rd party review. Internal QA departments of MERS Members should fully understand their MERS requirements. “We thought we were doing it right,” while an empathetic reaction, is not and excuse for non-compliance.
Servicers shouldn’t rely on their 3rd party auditor to tell them what is wrong at the end of the year. Instead, work with them early in the year to identify any gaps in process and procedures. This allows you to correct any deficiencies mid-year before they become a pervasive problem. It also provides for a successful final audit result.
Start 2022 off right with MERS Compliance strategies. Download this infographic to help you with planning, execution and results. To talk with LoanLogics in more detail about your needs for a consultative independent annual review, reach out here.
As with prior years, servicers continued to struggle with errors on recordable documents. Read my next post here on that important topic.
