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The mere definition of the word compliance can have a negative connotation. According to Merriam-Webster compliance is defined as:
1a: the act or process of complying to a desire, demand, proposal, or regimen or to coercion
1b: conformity in fulfilling official requirements
The mortgage industry has certainly had its fair share of official mandates over the years to make compliance managers and senior leadership scramble to assess the operational and financial impacts that come along with the command to conform.
Unlike other industry regulations (HMDA, TRID), non-compliance penalties for MERS have historically been financially nominal and have certainly not been as publicized in the media. Nonetheless, MERS compliance is still required by the Rules of Membership and servicers can and, in fact, have incurred penalties for failure to comply.
Beyond avoiding penalty, there are two key process benefits servicers gain by maintaining a robust MERS compliance plan. It helps to reduce errors based on inadequate procedural knowledge and helps standardize workflow, both of which ultimately help reduce cost and risk!
What does it take though to eliminate the dreaded MERS compliance headaches and achieve those process benefits? I have 5 “C’s” for turning MERS Compliance into a positive connotation.
- Commitment Compliance is not a departmental responsibility. Organizations needs to be committed from the top down. This means the company must ensure they have the proper tools and necessary personnel to maintain compliance. It is also important that businesses stay up-to-date on the MERS Member policy and procedural changes on a consistent basis. Procedurally, system releases occur almost annually and policy changes depend on changes to regulatory or legal issues.
- Control Proper controls are paramount for meeting any guidelines and regulation. To be the most effective, when establishing and documenting procedures they should be as specific as possible. By doing this, when “Suzy” or “Ben” leave the company, knowledge of a given procedure does not go with them. Assessing internal non-MERS procedural changes should also be reviewed, as they might affect MERS processes.
- Collaborative – Compliance must be collaborative and communicative, not only among the day-to-day managing teams but across all departments and stakeholders. This ensures all are aware of current and future compliance requirements and its impact on the business. Developing training material that allows stakeholders to understand MERS requirements and their importance is a great way to broaden overall awareness. It also demonstrates to the larger team how their processes affect or are affected by MERS transactions.
- Continuous– Compliance is not just a on-time event to “check a box.” When it comes to MERS Annual Reviews specifically, internal testing and procedural reviews should occur on a consistent basis to meet the “monitoring” requirement outlined in the servicer’s quality assurance plan. It’s also important that your independent third-party reviewer is committed to helping you assess and course correct any issues throughout the year.
- Continuity (Business) – The current pandemic has certainly elevated the importance of business continuity as a whole. Specific to MERS, remote employees are now performing manual MERS tasks that may be time-sensitive and/or employees are tasked with functions for which they are not fully knowledgeable to help juggle operational disruption. This draws further attention to the fact that MERS policies and procedures must be well documented and accessible. The vendors you might be using for MERS compliance too face pandemic related challenges. Those without solid business continuity plans themselves may not be in a position to support your needs well enough.
Automation of course, also helps with business continuity. Automating processes for reporting life of loan transactions for MERS (such as initial registration, deactivation for default/bankruptcy, paid in full and transfer of serving rights to name a few) can eliminate the chance for human error. Utilizing your current servicing system’s automated functionality for transaction processing should be considered. Some servicers have the capability but have not utilized the functionality due to dollar costs. This brings me back to my first “C”, the importance of having organizational commitment to equip compliance teams with the proper tools to maintain compliance.
Compliance, where failure is not an option, does not have to carry a negative connotation, particularly for compliance with MERS regulations. All it takes for a smoother, more effective compliance execution is an understanding and adoption of five simple “C’s.” From there, cost reduction, greater accuracy and improved processes are sure to follow.
