Mortgage servicers are sometimes failing to adequately document the reasons behind a decision to move forward with a default for bankruptcy or foreclosure, the annual MERS quality assurance review report from MetaSource shows.
The QA reviews are required by MERS for companies having more than 1,000 mortgage identification numbers (MIN) in their servicing portfolios as of March 31 of the current year, as part of the eAnnual Report process which must be completed by the end of every year.
This is just one of several ways that servicers are not meeting MERS standards. However, the annual review notes that, in general, servicers have solid quality assurance programs in place.
Kelly Jensen, manager for MERS operations, MetaSource, says the issue of failing to provide greater detail in documentation related to defaults is newly discovered, and is the result of MetaSource taking a “deeper dive” in its annual MERS QA audits.
When asked a new question regarding the triggering event that led to a default determination, a “surprising number” of servicers could not answer, Jensen says.
Conversations with MERS officials over the year led MetaSource to focus more deeply in areas that had not been previously seen as a priority, including defaults, Jensen says.
Another issue that often popped up in 2018 was lack of proper oversight of subservicers with regard to MERS compliance.
“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 says. “That isn’t happening.”
A higher than normal turnover of MERS-related personnel within the companies reviewed was likely to blame, she says.
Servicers tended to fall into the category of either very high quality assurance or almost no quality assurance at all, which Jensen says 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 says.
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 says. “We have smaller companies where MERS is a very small part of what they do, and someone moves on and they lose oversight.”
MetaSource was recently named to the Standard & Poor’s list of approved third-party providers for due diligence for U.S. residential mortgage-backed securities.