MERS® Compliance Health Monitor – Keeping The Pulse

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If you completed your annual independent 3^rd party MERS review in 20 minutes or less, you did it wrong and are jeopardizing your organization’s compliance health. Less thorough reviews, likely performed by vendors who have not demonstrated an aptitude for procedural and process expertise, lead to a breakdown in overall operational compliance wellness.

Have you heard? MERS is instituting a more standardized review process for internal and external MERS Quality Assurance Compliance, effective this year.  A summary of these changes includes clear distinction on whom is qualified to perform the reviews, the need for annual reviewer certification, and for more detailed documentation collected during annual reviews. To help servicers keep a pulse on these changes, I will be reviewing them in more detail in a series of blog posts. This post will cover the changes from a high level, then we’ll take a deeper dive into maintaining a strong compliance heartbeat throughout the year.

First up in this post is “who” should review.  As defined by MERS “demonstrable expertise and experience” is now required and explicit language,  

Internal Reviewer: Can be QA Officer or Legal MERS® System contact or another employee of the Member organization that is not affiliated with the Member’s MERS^® System operations.

External Reviewer: Third-party review organization or audit firm with demonstrable expertise and experience in performing quality assurance audits of organizations in the mortgage industry.

Next, it’s important to know if your 3^rd party reviewer is on the MERS recommended list.  MERS now requires 3^rd party review organizations to successfully complete its Annual Report Reviewer Training Program to be included in its recommended list. In other words, have they demonstrated the required expertise and experience?

MERS recently reached out to vendors who passed the training for the Annual report service offering to ensure their contact information was up to date for that forthcoming list of recommended QA assurance providers. LoanLogics has passed the reviewer training program and is on the approved list.  

Prior to this requirement, many independent reviewers became lackadaisical with staying current with changing testing and review methodologies, which then increased risk for reporting member organizations.

Finally, as part of the revised review criteria, 3^rd party reviewers, and your own internal QA department, should be asking the following questions related to the six procedural review areas below.  This includes reviewing such items as MERS Documents, reconciliation exception reports, reject/warning reports, and any applicable supporting documentation.

And note, a simple yes or no won’t be sufficient.  The review organization should be requesting documentation for verification of the existence of the policies/procedures and should test the applicable controls to ensure that those procedures are being followed.  (We’ll have more about that later in a subsequent post.)

1. Member has a process in place designed to provide reasonable assurance of compliance with the requirements specified in the MERS® System Rules of Membership and MERS® System Procedures Manual applicable to Member Information and organizational changes.
   1. Do you have procedures for reviewing and maintaining your company information in the MERS System?
   1. Do you have procedures for notifying MERS of any address or company name changes should such an event occur?
   1. Do you have procedures for reviewing your MERS System contact information monthly?
   1. Do you have internal procedures for maintaining MERS System security access and at least annually reviewing all users access?
2. Member reconciles MERS® System data in accordance with the requirements of the MERS® System Procedures Manual.
   1. Are you reconciling the MERS System data against your servicing system data on the proscribed timeframe (monthly or quarterly) for your organization?
   1. Are you reconciling all required and conditionally required fields identified in the MERS Procedures Manual?
   1. Are you correcting identified exceptions within 30 days?
   1. Are you maintaining aging reports to identify outstanding exceptions?
   1. Are you prioritizing aged exceptions?   
3. Member has policies and procedures in place to ensure compliance with the requirements set forth in the MERS® System Rules of Membership and MERS® System Procedures Manual regarding the Corporate Resolution Management System (“CRMS”) and Mortgage Electronic Registration Systems, Inc. (“MERS”) Signing Officers.
   1. Do you have written policies and procedures for the Corporate Resolution Management System?
   1. Do you have procedures to ensure that all MERS Signing Officers are also officers of your organization?
   1. Do you review your MERS Signing Officer list on a routine basis to ensure that all authorized signers are current and accurate?
   1. Do you have policies and procedures in place to routinely review that no unauthorized individuals have signed MERS documents?
4. Member has a process in place to ensure that all MERS® System transactions and updates are accurate and timely in accordance with the applicable requirements set forth in the MERS® System Rules of Membership and MERS® System Procedures Manual.       
   1. Do you have controls in place to ensure that all required transaction timeframes are being met?
      1. Registrations
      1. Deactivations
      1. Transfers (Servicing/Beneficial Rights/Transfer to non-MERS Member)
      1. Assumptions
      1. Construction loan modification agreements
5. Member has a process in place to ensure MERS Documents are prepared, executed, and recorded in accordance with the applicable requirements set forth in the MERS® System Rules of Membership and MERS® System Procedures Manual.
   1. Do you routinely review MERS documents for compliance with the MERS verbiage requirements outlined in the MERS Procedures Manual?
      1. Security Instruments
      1. Assignment to MERS
      1. Assignment from MERS
      1. Substitution of Trustee
      1. Lien Releases
      1. Modification Agreements
   1. Do you review MERS documents for compliance with state-specific requirements?
   1. Do you have procedures in place to notify all internal and external parties responsible for the creation/execution of MERS documents of any changes instituted by MERSCORP Holdings, Inc.?
6. Member has a process in place designed to review MERS® System reports and take necessary action.
   1. Do you maintain copies of all MERS System reports for tracking and aging purposes?
   1. Do you have policies and procedures in place to ensure rejected transactions are corrected immediately?

If you answered “yes” to these questions, great!  You’re keeping your MERS compliance health in check. If you answered, “no” to some of these questions, I encourage you to reach out to LoanLogics this year to understand how we are helping our clients improve compliance with a vested interest in their controls with our MERS Annual Independent Review Service. 

In the next installment of this blog series, we’ll look at each review category above in more detail by outlining the types of supporting documentation a reviewer should be looking for as evidence of compliance.

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.