Data reconciliation processes were an ongoing hurdle for MERS members in 2019, according to a MetaSource analysis of its third-party QA audits provided to MERS member clients.
The audits, part of the preparation process for the MERS eAnnual report due each year on Dec. 31, include a thorough review of MERS members’ operational policies and procedures. Third-party audits are required for member companies having more than 1,000 mortgage identification numbers in their servicing portfolios on March 31 of the current year.
Top MERS QA Findings for 2019
Our findings for 2019 documented three main areas of MERS QA in need of improvement:
- Written internal policies and procedures were not detailed enough to comply with MERS requirements
- Failure to conduct monthly data reconciliation or doing data reconciliation that is not sufficiently thorough
- Members’ internal quality assurance audits, or their subservicer or third-party vendor process audits did not meet MERS standards
In some cases, problems were the result of internal employees using a Portfolio Analysis Report as the basis of their QA review for MERS compliance, said Leighcie Gregg, MERS Services Supervisor at MetaSource. A portfolio analysis does not include all of the files needed for reconciliation, such as co-borrower status.
“The Portfolio Analysis is an excellent tool to sample from for internal QC,” Gregg said, “but it’s not sufficient for doing MERS-compliant reconciliation.”
In other cases, reconciliation processes came up short due to lack of knowledge or because a small department came up short-handed as the result of turnover or absences.
“Some people do what we call ‘stare and compare’ – attempting to reconcile an entire portfolio by hand,” Gregg said. “A lot of people don’t know the requirements in-depth, so they take their best guess.”
Companies with fewer than 1,000 mortgages can do an internal audit but often are unaware of the correct procedures needed to comply with MERS. Servicers with more than 1,000 monthly MINS are required to use a third party for MERS QA. That includes servicers whose portfolio is 1,000 or more MINS as of March 31. The obligation continues at that point, even if the portfolio drops below 1,000 MINS subsequently – a commonly misunderstood provision, Gregg says.
To avoid audits, fines, and penalties, Gregg says it is important to have a checklist of policies and procedures that can be implemented by anyone, so that in the event of employee turnover or absence, someone else can easily step in and maintain compliance.
“If you don’t document it, how will others know how to do your job?” she said.
On a note of improvement, Gregg says a growing number of servicers seem to be following the best practice of getting their documents and reviews pulled together in October in preparation for the end-of-year reporting requirement. That gives an auditor time to identify any areas where a member may be out of compliance in time to correct it before the final report.
Best Practices for MERS Compliance in 2020
Procrastination, not surprisingly, is perhaps the biggest enemy of MERS compliance efforts. Here are some key best practices that Gregg recommends:
- Start the review process early so that errors can be corrected in advance of the December annual report filing date. Third quarter is ideal.
- Reconcile accounts monthly or, at the very least, quarterly to ensure that errors are corrected early. Frequent reconciliations can also help prevent the correction backlog that can occur as a result of portfolio acquisition and/or runoff.
- Take advantage of software that can identify and prompt corrections and remind you when the MERS reconciliation window is open for submissions.
MERS Compliance Made Easy
MetaSource has a full suite of MERS compliance solutions and services including quality control audits, preparation of the annual report and, the mintrak®2™ platform, which takes much of the work out of the process.
Servicers who use mintrak² have the advantage of a user-friendly platform that provides incremental, monthly or quarterly reconciliation with prompts for needed corrections, real-time compliance tracking, and automated file submission.
To learn more about third-party MERS audits and how the mintrak² platform can make MERS compliance effortless, give us a call or click on the link below. MetaSource solutions enable clients to focus on their core business while MetaSource does the rest.