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In my last post, I discussed how resource staffing issues and business model changes likely played a role in some of the compliance missteps I observed during my 2021 MERS annual compliance reviews. I encourage you to read it, if you haven’t already, to understand some of the top pervasive issues and compare them against your organizations own controls.
Another common theme last year with MERS compliance was errors found on recordable documents. This should come as no surprise as MERS has strict guidelines for what verbiage can and can’t be used in a MERS document.
Common deficiencies identified included:
- Incorrect use of MERS’ Name – Subject to state requirements, MERS’ name must appear and be written in one of seven permissible ways identified in the MERS Procedures Manual. Depending on the original security instrument type, MERS’ capacity is identified as mortgagee, beneficiary, or grantee. (e.g., Mortgage Electronic Registration Systems, Inc., as mortgagee). The naming convention should be consistent throughout applicable documents.
- MERS is described as a licensed financial institution in Louisiana – MERS strictly prohibits being identified as such and to do so is a violation of La. R.S. 9:5174. We continue to see Members utilizing subservicers who do not comply with this requirement.
- Corporate Resolution Management System (CRMS) errors including MERS Signing Officers are not officers of the Member organization. As MERS requires all candidates for Signing Officers to be officers of the member’s organization, you should be able to provide the independent auditor with a copy of the meeting minutes of the organization’s annual Board of Directors Meeting where the slate of officers for the year is authorized. A document from the Corporate Secretary identifying the selected individuals as officers of the organization is also valid documentation. (It’s important to note that this is NOT the MERS Corporate Resolution document you receive from MERS.) The signing officer’s tile printed on relevant MERS documents must use the title granted to them by MERS (e.g., Assistant Secretary, Assistant Vice President, or Vice President). Any title beyond that should not be used. We commonly see “loan servicing manager, document management supervisor or default supervisor” listed as the designated MERS Signing Officer(s).
- Incorrect assignments from MERS. We continue to see the use of verbiage assigning the note (e.g., together with the note or together with the indebtedness) or the word sells to describe the action being taken by MERS. This is commonly seen in documents drawn by outside counsel who are using legacy forms. It is recommended practice for Members to provide specific instructions on the correct verbiage when documents are not from a compliant vendor or are drawn by outside counsel.
- Modification agreements leveraging older forms. The problem herein this deficiency is older forms contain verbiage that state all loan documents that are affected by the modification agreement have been assigned to the investor. Unless there is an assignment from MERS to that effect, this verbiage is incorrect and should be modified. Specific instructions on how to adapt the modification agreement form for a MERS registered loan are available on both Fannie Mae’s and Freddie Mac’s websites.
I hope both of my recent posts summarizing my 2021 annual audit findings help your organization reflect on changes your organization should make to its MERS policies and procedures in the year ahead. If you feel you might benefit from our deep domain expertise on MERS compliance or any of these topics specifically, please reach out for a discussion.
My next post on MERS compliance will cover the importance of internal controls. Read it here.
