BLOG VIEW: Each Spring, many lenders find an email from MERSCORP Holdings Inc. (MERS) regarding the Annual Report, colloquially referred to as the MERS Audit. This email outlines the general guidelines under which lenders need to complete the Annual Report. For many lenders, the 2021 Annual Report will feel like a whole new world for one of two reasons.
Not only has MERS made changes to the Annual Report focus and process – including the addition of loan-level transactional testing – but due to the record volumes in 2020, many lenders have exceeded the 1,000 MIN threshold for the first time. Luckily, one of the changes implemented requires the use of an authorized MERS third-party reviewer to show lenders the whole new world, shining, shimmering and splendid as it may be.
For lenders exceeding the 1,000 MIN Records threshold for the first time in 2021, the MERS Annual Report may seem like a larger task than in the past. So what should lenders do and expect? And when should they get started? The second question is the easiest and the simplest to answer. While the deadline to submit the Annual Report is December 31, it is best to choose an authorized MERS third-party reviewer and schedule the review as soon as possible. There is no need to wait until December to complete the review for the Annual Report and no need to risk not being able to get it done.
As the review with the authorized MERS third-party reviewer approaches, lenders can begin to gather some of the documents necessary for the review and subsequent Annual Report. While this is not an all-encompassing list, these documents will serve as the foundation for the annual review process, and understanding their value can help lenders better understand the objectives of the annual review and MERS Annual Report.
Written MERS Policies and Procedures
The review ensures that the lender’s written internal procedures are designed to provide reasonable assurance that the lender is managing key items, such as reject warning reports, associated registrations, transfers, any status updates on open items and aging reports, any of the requirements for their corporate resolution management system (CRMS), in addition to any of the requirements for subservicer monitoring and oversight and the Service Level Agreement (SLA), if applicable.
List of MERS Users and a Global Address List (GAL)
Monitoring an active list of a lender’s MERS users and a GAL email address within the MERS system ensures communication between MERS and the lender is timely and user access is actively being maintained.
Proof of MERS Signing Officers Certification/Recertification
As part of the CRMS requirements, the lender’s Signing Officers must complete their certification or recertification at the required intervals within the MERS System. In addition, the Signing Officers must also complete an annual recertification process by the last day of October to retain their authority to act in the name of MERS. For the Annual Audit Report Review, lenders must supply a copy of their MERS Signing Officer Certification History Report to verify that all officers have passed the certification exam and that their certification has not expired.
Proof of CRMS Quarterly Attestation
MERS members must complete a quarterly attestation for each organization ID managed within the CRMS system to be in compliance with the MERS System rules and procedures for their Signing Officers and to ensure the currency and accuracy of their Corporate Resolution.
System-to-system reconciliation reports
This documentation provides proof that the lender is reconciling data between the MERS System and their internal system of record (e.g. loan origination system and/or mortgage servicing platform). Evidence of this reconciliation will vary from lender to lender. Additionally, this documentation must also provide proof that some sort of action was taken when discrepancies are found, when that action was taken and who undertook it to ensure discrepancies are being addressed and, if discrepancies continue to occur, identify the root cause.
Copy of current MERS Corporate Resolution
The Corporate Resolution is a foundational document in terms of the member’s relationship with MERS and must be kept current.
Any MERS Action Plan and/or Remediation Plan (if applicable)
If issues were found in the previous year’s audit, the lender is required to submit an Action Plan outlining the steps it will take to remedy the issues found, and the following year’s audit will need to verify whether the issues were rectified. This information also ensures audit continuity from year to year, as some organizations may not have met the required MIN threshold for an external audit or may have used another audit firm for previous audits.
Written policies and procedures for subservicer monitoring and oversight and the Service Level Agreement (SLA)
The fact that regulators ultimately hold the lender responsible for its subservicer’s activities is commonly known, and while MERS is not a regulator in a traditional sense, it does hold lenders to this same standard in regards to MERS-related activities conducted by the lender’s subservicer as noted in the MERS® System Procedures Manual.
When working with an authorized MERS third-party reviewer to complete the Annual Report, each reviewer is going to have a slightly different process. However, the above documents have laid out the foundation of the MERS Annual Report and what lenders can expect if they are new to this world. Additionally, with the changes made in 2021, experienced lenders will likely find comfort navigating the new world with the guidance of an authorized MERS third-party reviewer. Whether veteran or rookie to the process, the 2021 MERS Annual Report is going to feel like a new experience this year, but either way at least lenders will have a tour guide and a road map for this whole new world.
Lisa Butler is the manager for MQMR’s Specialty Services Division and possesses in-depth knowledge of and experience with federal, state, agency regulations and master servicer/sub servicer guidelines. Reach her at lbutler@mqmresearch.com
