If you’re new to the MERS reconciliation process, you’re not alone in feeling overwhelmed. Getting it wrong carries real financial risk. MERS compliance penalties include a fee of $1,000 per loan for reconciliation failures that result in inaccurate data on the MERS System or eRegistry. For servicers managing large portfolios, that can add up fast.
The good news: a well-structured reconciliation program doesn’t have to be complicated. Once you establish the right processes, assign the right people, and choose the right tools, it becomes routine. This guide walks you through each step of building a solid MERS reconciliation program.
Step 1: Define Your Reconciliation Requirements
To begin, determine how often you need to reconcile, taking MERS’ frequency requirements into account. Reconciliation frequency is based on portfolio size, with Members servicing fewer than 1,000 active registered MERS loans generally completing reconciliation on a quarterly basis.
When a Member services 1,000 or more active registered MERS loans as of March 31, MERS requires reconciliation to be performed on a monthly basis.
Step 2: Request Your MRE
Next, request your Member Reconciliation Extract (MRE). MRE reports are used to compare servicing system data against MERS’ system data for reconciliation purposes. MRE files are only available for a certain period of time, so it’s critical to export them promptly each month.
You can find a Quick Reference Guide on requesting this report on the MERS Member website.
Step 3: Identify Your System of Record
You must then identify the “system of record” you will use to build your MERS Member data reports. This could be your loan servicing platform or a sub-servicer’s system. If you maintain relationships with multiple sub-servicers, this also needs to be taken into account.
Step 4: Build Your “Member Data” Report
Extract a report from your system of record that includes all required and conditionally required fields. It’s important to understand that conditionally-required fields are compared when applicable, based on MERS requirements.
The required fields list is located in the MERS System Procedures Manual on the MERS Member website. If you’re utilizing a sub-servicer, contact them and inquire about whether or not they have a reconciliation report format they can provide you with.
Step 5: Compare Your System Data to Your MRE
There are many methods for comparing your system data to MERS data. You should choose your comparison method wisely. Many servicers use applications like Excel and Access.
While these applications may suffice when comparing small data sets, there are limitations that you should be aware of. For instance, at 18 characters in length, mortgage identification numbers (MINs) are easy to “break” in Excel, which is accurate only up to 15 characters. Numbers that include more than 15 characters must be converted to text.
Additionally, some programs may pose a problem when it comes to flagging discrepancies. What MERS considers a discrepancy may differ from what is flagged when you conduct a 1:1 match. In such an instance, if “Street” is in one data set and “St” is in the other, a discrepancy will be flagged. However, MERS would not consider this a finding.
Ensuring only true MERS discrepancies are flagged can be daunting for Members, which is why many outsource the process to vendors who have the expertise and reconciliation software necessary to accurately flag “true MERS defined” discrepancies.
Step 6: Maintain Evidence of Comparison
Members need to retain evidence that all mandatory fields were reconciled at the required frequency. Most provide this evidence in the form of a findings report. If your findings report doesn’t indicate a field was compared because there were no discrepancies to note, you should include your compared field list in your procedures.
You should also regularly track and clean up aged items, so time is not wasted reviewing the same discrepancies during each reconciliation cycle. For the eAnnual Review and to ensure MERS compliance, Members are required to keep a history of reconciliations for at least 12 months.
Step 7: Identify Who Will Complete the Process & Make Corrections
Be clear about who is responsible for completing each reconciliation. Begin by designating someone responsible for completing the comparison. This may be IT, someone data savvy in any number of internal departments, or your sub-servicer.
Appoint someone responsible for making corrections to the identified exceptions as well. Often, this is best delegated to someone in QC, post-closing, servicing, or MERS departments. While you can assign this to anyone you choose, you want someone who recognizes the information and understands why an error might appear.
While the number of people assigned this responsibility can vary, we recommend having at least two people trained and up to date on your reconciliation processes. Whoever is designated to make corrections must be well-equipped to utilize the MERS System, documents, and your system to determine how and where to make necessary corrections.
Step 8: Document Everything
At the end of the process, there should be a record of how to pull and compare data, who is responsible for each part of the process, and what should be done when discrepancies are discovered.
Common Barriers to Achieving a Successful MERS Reconciliation Process
Knowing the steps to implement a MERS reconciliation program successfully is one thing. Staying ahead of common pitfalls is another.
Even experienced teams run into issues with timing discrepancies, data reviews, and sub-servicer coordination. The following tips address the recurring challenges we see most often, and what to do about them.
Expect Timing Issues
It is not uncommon during the comparison process to come across unmatched MINs that exist only in the MERS data or your Member data. Usually, these are the result of timing issues in the data sets being compared, but they should be reviewed regardless. Keep in mind that every reconciliation includes timing issues. These are discrepancies that will cure themselves and are often the common cause of unmatched MINs. Timing issues may also appear in investor-related field updates in MERS.
Prepare for Your MERS Data Review
MERS will pull you for a Data Review at some point. This is a reconciliation performed by MERS, typically every two years. If you need assistance, be sure to let MERS vendors/sub-servicers know when you get selected. Keeping up with corrections will make the Data Review easier as well. Most annual report findings are related to reconciliation. Be sure you’ve got your processes buttoned down.
Communicate with Your Sub-Servicer
If you choose to have a sub-servicer complete the reconciliation process and make corrections, be sure to work closely with them. You’ll need to understand how long it takes for them to make updates and how they would like updates reported to them.
Never Miss Your MRE Deadline
To avoid missing your MRE deadline, consider using a reconciliation software solution like mintrak2®, which reminds you when it’s time to pull down your MRE.
Don’t Substitute the Portfolio Analysis Report
The Portfolio Analysis Report is not an acceptable report for MERS reconciliation as it does not include co-borrower data, which is conditionally required.
Build a MERS Reconciliation Program That Holds Up
A MERS reconciliation program is an ongoing discipline that needs to evolve as your portfolio grows, your team changes, and MERS requirements are updated. MetaSource can help you ensure yours does with our trusted reconciliation and remediation platform, mintrak2.
The platform flags true MERS-defined discrepancies, stores up to 15 months of reconciliation history, sends corrected flat files directly to MERS, and keeps your team on schedule with automated MRE reminders. Whether you’re building a program from scratch or tightening one up, our team is here to help. Contact us to get a demo today.