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MERS Reveals New Requirements

Members of the Mortgage Electronic Registration System, Inc. (MERS) are facing new and challenging requirements regarding their quality assurance programs. These requirements include the submission of an annual report of quality assurance standards compliance and an updated quality assurance plan. New requirements could force institutions to use an external independent auditor or consultant for their annual report attestation.

Who is MERS?

MERS is a wholly owned subsidiary of MERSCORP Holdings, Inc., whose shareholders include federally regulated institutions and other secondary mortgage industry participants. MERS operates a national electronic registry, the MERS System, which tracks beneficial ownership interests and servicing rights in mortgage loans registered by their members. MERS serves as mortgagee of record and nominee or agent for the owner of the promissory note. Since MERS is a common agent among its members, recording an assignment of the mortgage is not necessary when ownership of the promissory note or servicing rights transfer between members. This helps streamline the mortgage process by reducing work and cost. In addition, homeowners can access the data on their mortgage loan registered on the MERS System online or by phone.


In 2011, MERS launched an effort to strengthen business practices and minimize reputation, legal and compliance risk to MERS and its members. This was a response to a consent order issued by the U.S. Department of Treasury and other agencies, as well as legal challenges. These announcements included an enhanced quality assurance review process and issuance of an annual independent report of quality assurance standards compliance. The first annual report was due on December 31, 2011, and could be completed by an internal control function inside the member organization.

The annual report is required from the executive sponsor for each member servicer or subservicer each calendar year and confirms the following:

  • Member has implemented procedures that provide reasonable assurance it has submitted data for all MERS-required and conditional fields.
  • Member has conducted system-to-system reconciliations of all MERS-required and conditional fields at the required frequency.
  • Required and conditional fields entered into MERS match the values in member’s internal system; discrepancies and corrections are tracked on aging reports until cleared.
  • Member has implemented procedures to provide reasonable assurance it has conducted daily capture of all reject/warning reports associated with registrations, transfers and status updates on one-item aging reports.
  • Member has procedures in place to comply with the rules and procedures applicable to MERS signing officers.
  • Member has monitored its performance against its quality assurance plan and reviewed the plan at least annually for effectiveness, revising it as necessary.

New Requirements

MERS Announcement Number 2012-04, issued in May 2012, incorporated additional changes related to the 2012 quality assurance requirements. The most significant change is related to the annual report requirements. Starting in 2012, all members listed in the MERS System as servicing 1,000 or more Mortgage Identification Numbers (MINs) must use an external independent auditor or consultant for their annual report attestation. All members listed as servicing less than 1,000 MINs have the option of using an independent internal or external review party. Institutions registered with MERS as “lite members” are not required to submit an annual report. In addition to the audit report changes, MERS also announced that all members, including lite members, will be required to submit an updated quality assurance plan in 2012.

Both the annual report and the updated quality assurance plan can be submitted any time by the end of 2012. Templates for the quality assurance plan, as well as the quality assurance procedures manual, can be found on the MERS website. These requirements can be complex and time-consuming, so getting an early start is crucial in meeting the annual deadline.

For more information on this issue or related matters, contact your BKD advisor.

This post was written by:

Gordon, a manager in BKD’s Houston office, has more than six years of experience providing audit and attestation services to financial institutions, financial service companies, law firms and not-for-profits. His financial institutions experience includes audits, directors’ exams, trust procedures, internal audits and information systems procedures.

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