MERS® Compliance Health Monitor: An Examination of Recordable Documents

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In my first post of this series, I discussed a new yearly training program offered by MERS® to certify experienced, knowledgeable independent review firms and the level of detail needed to demonstrate compliance. As promised, I’m back with an examination of recordable documents and its significance in Annual MERS Compliance Reviews.

Many internal and external MERS quality assurance reviews tend to focus the bulk of their attention on data integrity and reconciliation. While this is an important component of annual and ongoing reviews, it only impacts 4 of the 6 primary control areas in the Annual Report. In addition to data integrity and reconciliation, review organizations should be requesting documentation for the verification of the existence of the policies/procedures and should test the applicable controls to ensure that those procedures are being followed. 

Formally, when attesting to whether a “Member has monitored its performance against its Quality Assurance Plan, has reviewed the plan at least annually for effectiveness, and has revised and resubmitted an updated plan as necessary,” this attestation covers all requirements in the MERS Procedures Manual and Rules of Membership as outlined in the Quality Assurance plan. This must include a detailed analysis of the Member’s associated recordable documents to be in full compliance.

MERS recordable documents are often not examined as diligently for compliance with the MERS requirements and standards as part of the Annual Report process. Supporting this notion, 80% of Annual Report reviews conducted by LoanLogics had some form of deficiency for recordable documents for year ending 2020. Identified errors were often the result of a lack of communication between internal MERS management, vendors, and/or various servicing departments responsible for the creation and execution of MERS recordable documents about new MERS requirements or changes in existing requirements.

What is a MERS Recordable Document and what are some of the Pitfalls and “Gotchyas”?

It is any document that creates or affects an interest held by MERS or that makes a representation by or about MERS; this includes, but is not limited to:

• Security Instruments
• Lien Releases, Assignments to MERS
• Assignments from MERS Modification Agreements
• Substitutions of trustee, subordination, legal pleadings.

It’s important to note that incorrectly worded documents, such as these, can potentially incur MERS penalties or worse, affect title or default actions.

Security Instruments (Mortgages, Deeds of Trust, etc.) are regulated by the Agencies, are uniform documents, and changes are rarely, if ever, made to these forms by a Lender. Therefore, reviewers should see no changes to these documents.

Other life of loan documents like lien releases, assignments, and modification agreements are generated by the Servicer. Because these documents are left to a Servicer’s interpretation, knowledge and authorship, these are where document deficiencies and other errors are found.  Common reasons for failure points found on these recordable documents are:

• No standard form for each jurisdiction
• Ever changing statutory and MERS requirements
• Individual interpretation.

In-house compliance, third party vendors, sub-servicers, attorneys all need to be keenly aware of the language used in these and all MERS recordable documents and be responsible for their accuracy. Sometimes errors and deficiencies are purely legacy related. For example, organizations literally using an old, outdated copy of a document type as a template for a new form.

How can you mitigate document deficiencies?

I have five simple steps that can make an impact.

1. Review the MERS Procedures Manual chapter on MERS Documents.
2. Communicate any changes to internal responsible parties.  Those responsible parties can include personnel in:
   • Default/Bankruptcy
   • Loss mitigation
   • Lien Release
   • Compliance
   • Vendor Management
3. Review reps & warrants for any 3rd party document vendor, and confirm they are aware of any new or changed requirements.
4. As part of ongoing subservicer oversight, verify their compliance with MERS policies and procedures requirements
5. Provide complete instructions regarding required elements and prohibited verbiage to outside counsel for any attorney drawn documents

MERS compliance is more than reconciling data between the MERS® System and the servicing system. MERS recordable documents create or affect an interest held by MERS or a representation by or about MERS, so it’s imperative that all documents are compliant with the MERS requirements to ensure enforceability. Regularly reviewing the MERS Procedures Manual and MERS policy bulletins and communicating new requirements or changes to all involved parties is the key to success.

If you’d like to talk with me more about you’re organizations MERS Compliance Health, please reach out to me directly at Gary.Vandeventer@loanlogics.com or at loanlogicsinfo@loanlogics.com. Let me know you read my post!

Be sure to keep a look out for my next post in this MERS Compliance health series where I will share some of the common recordable document errors LoanLogics found in its 2020 Annual Reviews. Read the series first post here.

About the Author

Gary Vandeventer

GARY VANDEVENTER has over 18 years of hands-on experience with the MERS® processes including participation in the original design of the MERS System. He is arguably the country’s pre-eminent expert on the policies and procedures within MERS. He is the Vice President, Loan Servicing Consulting at LoanLogics. Gary is a frequent panelist and speaker at industry conferences on the topic of MERS and its processes. Prior to joining LoanLogics, he held the position of Vice President, Product Division for MERSCORP Holdings, Inc. In that capacity, he oversaw the actions of the Membership, Integration, Quality Assurance & Training and Development departments.