The documentation of default triggers for foreclosures and bankruptcies, subservicer compliance, and turnover among staff with MERS responsibilities were among the top challenges for MERS QA in 2018, according to a MetaSource analysis of its third-party audits for compliance with MERS® quality assurance guidelines.
The audits include a thorough review of a MERS member's operational policies and procedures as part of preparation for the required MERS eAnnual Report.
Our findings, based on audits of approximately 100 companies with between 1,000 and 250,000 MINS monthly, showed that many servicers could not adequately document the reasons behind a decision to move forward with a default for bankruptcy or foreclosure, according to Kelly Jensen, MetaSource's manager for MERS operations.
Jensen said that MetaSource's annual MERS QA audits took a "deeper dive" in 2018 that revealed a documentation issue that had not been previously surfaced.
A "surprising number" could not answer a new question around the triggering event that led to a default determination, Jensen said.
Jensen said that conversations with MERS officials over the year had led MetaSource to focus more deeply in areas that had not been as high a priority in past years and defaults were among them.
Subservicer Monitoring Challenges a Hurdle for MERS Compliance
Problems resulting from a failure to adequately monitor the work of subservicers were also a problem in 2018, Jensen said. "You are required to have the same level of diligence and oversight of subservicers that you would exercise if you were doing the servicing yourself," Jensen said. "That isn't happening."
Jensen said a higher than normal turnover of MERS-related personnel within the companies reviewed was likely to blame.
Jensen said however, that clients tended to fall into the category of either very high quality assurance or almost no quality assurance at all, which he said could also be the result of under-staffing and turnover.
Under-staffing led to other problems for some servicers, including the failure to have a dedicated staff person in the role of MERS security and the failure to conduct regular reconciliation of MERS data. "We had several companies that did not do any reconciliation at all," Jensen said.
MERS compliance requires the designation of a primary and secondary administrator, but in some cases companies still had names on their books months after the person in that role had left the company.
"In my opinion you need someone at the management level dedicated to overseeing the process and at least one or two people to do the daily reporting," Jensen said. "We have smaller companies where MERS is a very small part of what they do, and someone moves on and they lose oversight."
The Good New: More Servicers Getting an Earlier Start on MERS QA
At the same time Jensen said there was a bright note: a growing number of companies seem to be doing a better job of getting an early start on their MERS documentation – a best practice that Jensen emphasizes year after year. "We would like to do most of our QA audits in the third quarter," Jensen said. "That gives us time to get issues shored up and avoid a 'no-answer' on the MERS annual report."
MERS QA 2018: Here's Where the Trouble Was
Here's an overview of the trouble spots identified for MERS compliance in 2018:
- Written internal policies and procedures were not detailed enough to comply with MERS requirements
- Members not completing monthly data reconciliation, were not reviewing all required data fields, or were not using the MRE report for comparison
- Members' internal quality assurance audits, their subservicers' process audits and third-party vendor process audits did not meet MERS standards or were inadequate to ensure compliance
- Default account triggers for bankruptcy and foreclosure were either poorly documented or missing
- Missing or inadequate documentation of the appointment of officers as officers of the member corporation before appointing them as signing officers for MERS
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