It seems that every day another servicer is asking the StoneHill Group for compliance help with Rules 6 and 7 of MERS System Rules of Membership, which requires servicers to file an annual report or be subject to a potential financial penalty.

Basically the requirements state, except for Lite Members, each Member named Servicer on one or more active MIN Records, as of March 31st of the current year, is required to submit an Annual Report to MERSCORP Holdings by December 31st of the current year. A Member’s Annual Report must cover activity under its Org ID and any Affiliate Org IDs it may have.

With servicing portfolios growing, an increasing number of servicers are entering the realm of third-party assistance for compliance with Rules 6 and 7. Rule 6 is for Procedures and Rule 7 is for Disciplinary Actions. Yet many are hardly aware of the rules.

Here are three things you must know. First, you’ll need a plan. MERS requires servicers to not only submit annual reports, but also submit annual quality assurance plans. Without a plan servicers can’t reach their goal. Even worse — if you have no QA plan in place, you’re likely making the same mistakes again and again.

The MERS eQA Plan is a MERS Template that members complete online via the MERS Member website. Also, in addition to the MERS eQA Plan, Members are required to have policies and written internal procedures in place to ensure compliance with all MERS requirements and procedures. Further, Members are to integrate those internal policies and procedures into their daily business practices. The Annual Report confirms all of this.

Finally, you need to follow your plan. To the surprise of some, a QA plan is not only supposed to sound good — it needs to be followed, constantly checked and reviewed to ensure you are meeting the goals that have been set. Compliance with Rule 6 must be documented and tracked; this is why monthly reconciliations are so important. Besides the fact that MERS requires them, reconciliation reports are an important tool for monitoring quality.

We’re just guessing, but you’ll probably need help. There are two basic reasons why servicers aren’t complying with the Rules 6 and 7 requirements: time and money. Many servicers simply don’t have access to qualified staff that can devote time to monthly reconciliations, let alone perform annual reviews and submit the annual QA plan. We’ve found many servicers would outsource their needs if they could and in some cases they have no choice. If a servicer has over 1,000 loans registered with MERS, a third party is required to perform the annual review. However, servicers are concerned about cost, plus they don’t know who to trust.

While there is no shortage of available third parties who can help with MERS compliance, there is, however, a shortage of very good providers. How can you tell the difference?

Obviously, third-party providers must be approved by MERS. In addition, a quality MERS compliance provider must be able to provide cost structures that make administrating any size portfolio manageable. A good provider should also be able to demonstrate it meets strict quality control standards that ensures data integrity, such as showing compliance with SSAE 16/ SOC 1 audit rules.

Most importantly, a quality outsourcer provides the full range of MERS compliance services. These include Annual QA reviews, Monthly or Quarterly reconciliations, assistance with filing quality assurance plans and QA plan reviews. Finally, third-party providers should have the resources to provide these services on-site or remotely.

How do we know all this? The StoneHill Group’s relationship with MERS dates back to 1998 and, since then, we have helped countless servicers with MERS compliance. In fact, MERS is one of our clients and we currently process their QC work.

If you would like to find out how easy Rules 6 and 7 compliance can be, give us a call today. We’d love to be of assistance.

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