Despite the whirlwind of a year 2020 was for the mortgage industry, more of MetaSource’s MERS QA clients managed to meet MERS requirements in full than last year. In this article, you’ll uncover why this is, what MERS Members struggled with the most in 2020 and how you can improve your processes to avoid exceptions in 2021.
The Pandemic’s Effect on MERS QA
In a year full of COVID-related changes and record loan volumes, the need for cross-trained employees to help with MERS reconciliation processes was especially acute. And unfortunately, this need was not easily fulfilled in 2020.
“Everybody scrambled to figure out how to work from home, and some servicers even decided at the onset of the pandemic, they needed to reduce their workforce,” said MetaSource MERS Supervisor, Leighcie Gregg. “These decisions, combined with the extraordinary surge in volumes, meant there wasn’t enough backup for some processes.”
Staff shortages, pandemic-driven office closings and high volumes contributed to a year in which insufficient data reconciliation was the leading cause of exceptions, she said.
Despite the challenges, however, MERS officials reported seeing overall improvements, with fewer exceptions in 2020, as part of a steady trend year over year.
An annual analysis of MetaSource’s third-party QA audits for MERS Member clients showed overall improvement as well. The analysis showed that only 11% of audits had exceptions in 2020, while 19% had exceptions in 2019.
The third-party audits, required of MERS Member companies with more than 1,000 mortgage identification numbers (MINs) in their servicing portfolios as of March 31, include a thorough review of MERS Members’ operational policies and procedures in preparation for the MERS eAnnual report due each year on Dec. 31.
MERS QA Audit Findings for 2020
Our audit findings for 2020 showed three familiar MERS QA challenges:
- Failure to conduct monthly data reconciliation or conducting 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.
- Written internal policies and procedures were not detailed enough to comply with MERS requirements.
According to Gregg, staff shortages contributed to our #1 finding, having impacted Members’ ability to complete required monthly reconciliation. The Member Reconciliation Extract (MRE) files are only available during a 10-calendar-day window. Failing to obtain these reports within that time period results in a missed reconciliation and two annual report exceptions: one for failing to reconcile all the required fields and one for failing to reconcile monthly. With less staff present to complete the work, more deadlines were missed and more exceptions were filed.
The good news is that in a difficult year, “more of our Members are meeting those MERS requirements in full,” Gregg said. Gregg added that MERS will take pandemic-related difficulties into account, but that cases of recurring exceptions are not likely to go unaddressed. Ultimately, she said, MERS wants to help its members meet the requirements and views the reporting and exception process as a means of doing so.
Best Practices for MERS Compliance in 2021
Here are some key best practices that Gregg recommends MERS Members follow in the new year:
- Start the review process early so errors can be corrected well in advance of the December annual report filing date. Third quarter is ideal.
- Reconcile accounts monthly or, at the very least, quarterly to ensure errors are corrected on time. Frequent reconciliations can also help prevent the correction backlog that can occur as a result of portfolio acquisition and/or runoff.
- Make sure you have back-up help in the form of additional employees who are cross-trained and can step in in the event of turnover or dedicated MERS staff absences. Create checklists and detailed step-by-step procedures to ensure that processes can be carried out efficiently by these back-up employees.
- Take advantage of software that can identify and prompt corrections and remind you when the MERS reconciliation window is open for submissions.
- Take advantage of the learning materials provided on the MERS Member site, which include sample documents and detailed how-to’s for everything from registration to deactivation. This three-year-old e-learning platform is a tremendous resource for training new employees or finding the answers to process-related questions.
- Work closely with third-party vendors and subservicers early in the year to ensure that MERS requirements are being addressed specifically. MetaSource reviews revealed that some Members used QC vendors whose audits did not include any questions related to MERS compliance.
- Take advantage of MetaSource’s new MERS Compliance Audit Service to ensure that your documents and processes meet MERS-specific QC standards.
Take the Work Out of MERS Compliance
MetaSource has a full suite of MERS compliance solutions and services that take most of the work out of the process. Our offerings include quality control audits, third-party reviews and an industry-leading MERS QA compliance, data reconciliation and auditing platform, mintrak®2™.
Our MERS Compliance Audit Service is the newest addition to our MERS solutions. This service can help ensure that you are on track for meeting your MERS QC requirements. It includes document and timing reviews, which—contrary to popular belief—are not included in the reconciliation process.
Document reviews can include security instruments, assignments and lien releases for requirements, including valid MERS Signing Officer. Timing reviews can include registration, transfers and deactivations.
MetaSource’s mintrak² provides a user-friendly platform for monthly or quarterly reconciliation with prompts for needed corrections, real-time compliance tracking and automated file submission.