Having spent nearly a decade as corporate counsel to MERS (Mortgage Electronic Registrations Systems) prior to joining Falcon Capital Advisors, I know that loan servicers across the country right now are preparing to submit their MERS Annual Report, which is due on December 31. I also know that every year a number of servicers will find themselves needing to engage a third-party review firm (TPR) for the first time to sign off on their Annual Report and this sometimes takes them by surprise. This year, the potential for confusion about this requirement, and resulting delays, is higher than ever.
There are several reasons for this. Many lenders, that in the past have sold their loans' servicing, decided to hold their loans or MSRs this year, because they didn’t like the price fluctuations in the market. Also, lenders originated record volumes this year, and this surge in business may have pushed them into a different category for purposes of the Annual Report (servicers with 1,000 or more serviced MERS loans are required to use a TPR).
The good news is that the Annual Report process can be completed — from start to finish — in about 2 or 3 weeks for a small or medium-sized servicer. The biggest challenge and headwindis getting access to the loan documents, data, and policies and procedures that must be reviewed.
For the document and data components of the Annual Report, the review sample doesn’t have to be large, but it should be representative of the servicer’s use of its MERS® membership. When scoping the review, the TPR (or internal reviewer if under 1,000 serviced MERS loans) should ask questions such as: Does the servicer process payoffs? Does it process foreclosures? Does it utilize a subservicer or any vendors? Does it service loans in mortgage and/or deed of trust states or in any states with specific MERS document requirements?
The Annual Report doesn’t have to be a heavy lift, but it needs to be done to avoid penalties and even possible loss of MERS® membership.
5 things to do now
1. Confirm if you had 1,000 or more serviced MERS loans as of March 31, 2021 (and therefore need a TPR)
You can confirm how many loans named your organization as Servicer on the MERS® System as of March 31, 2021 by logging into the member side of MERS’s website (mersinc.org), going to the Quick Links that appear and selecting "QA Requirements."
2. Gain a better understanding of the content of this year’s Annual Report
MERS published Annual Report Reviewer Recommendations to help TPRs and internal reviewers understand the conditions they will be signing off on in the Annual Report and to provide recommendations on how they can get comfortable that those conditions have been met by the servicer. You can download this document from the member side of MERS’s website.
3. Learn how the 2021 Annual Report differs from previous years
For the first time, MERS is requiring TPRs to complete a training to qualify as a reviewer for the Annual Report. Falcon is one of only 14 firms to do so. Also, for the 2021 Annual Report MERS recommends reviewers go beyond simply confirming that a servicer has processes in place for transacting on the MERS® System and for the preparation and signing of MERS documents. TPRs should be reviewing a sample of documents and data to confirm compliance with applicable MERS requirements.
4. Coordinate with subservicer and vendors to obtain documentation
Think about any partners you use to help with the servicing of your MERS loans, such as subservicers and vendors. You may need to coordinate with them to obtain policies, procedures, MERS documents, and other artifacts for review by your TPR or internal reviewer. Begin this outreach as early as possible to avoid delays in completing and submitting your Annual Report.
5. Choose the right TPR
The right TPR should have expertise in the MERS quality assurance requirements and experience serving as a TPR. It should be able to conduct an efficient and timely review that will not be too disruptive to your day-to-day operations. And it should perform its review at a price that is reasonable and tailored to the size of your MERS portfolio.
