Roughly 65% of all active mortgages are registered on MERS, so having a deep understanding of the “ins” and “outs” of the MERS system is critical in managing compliant lien release and assignment activity. In this edition of “Coffee Talk” we’re sitting down with two of NTC’s leading subject matter experts on MERS and doc prep for lien releases: Brian Ernissee, and Jeremy Pomerantz, Vice President of Document Production and Senior Vice President of Strategic Business Development, respectively.
Q. MERS was developed to make it easy for lenders, servicers and investors to keep track of transfers and modifications to servicing rights and ownership of the loans. But is it fair to say that it isn’t always easy to work within the MERS system when it comes to preparing loans for lien release or assignment?
Brian: MERS was a big step forward for our industry. It was the first national database that tracks who owns what, and it makes the origination, servicing and transfer processes much more efficient. Having said that, if you are not intimately familiar with MERS rules, with the wording and the nuances of how different states interact with MERS, it is easy to make mistakes that can cloud title and cause members to fail MERS audits. This is not to say MERS is difficult to work with. In many cases the process goes smoothly. But in a significant number of cases “exceptions” must be dealt with, often outside of the MERS platform, before the loans can compliantly exit MERS and the releases can be recorded. These are some of the reasons why it is difficult to fully automate the deactivation and lien release processes for MERS loans.
Q. Can you give us a sense of how often “exceptions” crop up and how severe they are?
Brian: NTC is the industry leader in lien release and assignments of mortgage, we handle hundreds of thousands of transactions each year for both MERS and non-MERS loans. Recently, we looked at MERS loans where releases or assignments were prepared through July of this year and found an exception rate in the 25-30% range. These exceptions fell into 95 different categories with an average severity of 2 on a 1-3 scale. Severity is defined as the complexity to cure the exception.
At NTC, we are set up to handle these exceptions and to do it at scale. We review the loan and the documents and then procedurally, if it’s good to go, we’ll release it as MERS. If there’s an exception, we research and cure it or go back to our client and have them fix it. We’ve been working within MERS for many years, so we have the knowledge, best practices and procedures in place to detect and correct issues. We have automated everything that makes sense without sacrificing the integrity of the diligence needed for a sound process.
However, there are limits to what we can correct.
For example, suppose a loan was never transferred properly to the client. If it’s still active in MERS when it should be paid in full, the client is obligated to go into MERS to fix it. That’s because the way MERS is set up, the seller’s transfer and the buyer’s acceptance must take place within the MERS system. Think of it as a mutual handshake. So, in these instances all we can do is keep our clients informed and in check with MERS requirements and standards.
If lenders are handling releases in-house or trying to rely exclusively on technology, they need to make sure they have good procedures in place or chances are they’re going to make errors.
Q. You mentioned technology and its limitations when it comes to MERS releases. Could you expand on that, Jeremy?
Jeremy: As Brian mentioned, exception-clearing is the biggest challenge in trying to automate MERS releases, but it is not the only one. Different types of securities and transactions require specific MERS verbiage, and so the technology would need to be able to identify these situations and respond with the correct MERS verbiage.
In addition, there are nuances in how different states interact with MERS that need to be taken into consideration. For example, in Oregon, Washington and Montana, MERS is referred to as the designated nominee of the beneficiary. Meanwhile in Louisiana and Colorado, the investor or the servicer is listed as the beneficiary on MERS releases instead of MERS, because MERS or the state itself does not allow members to sign lien releases as MERS in those states.
Most of the competitive technology platforms—and there are only a few of them—aren’t set up to handle these challenges with automated controls. They are designed for smaller servicers and meant for basic manually managed releases.
NTC’s new PerfectDocs platform supports and advises on a jurisdictional level additional requirements that cannot be easily automated – examples would be reciting assignment chains, any recorded modifications, PIN/TIN, options for short or long legal descriptions, etc. It calculates recording fees along the way based on each county’s nuances for that document and allows you to track how much was collected and if any refunds are due to borrowers. We’ve continued to add functionality to provide a comprehensive solution for the entire payoff workflow or related assignment process, not just the document itself.
When we built PerfectDocs we designed it to be a system of record for MERS and non-MERS loans. We incorporated the MERS requirements into our system so that based on the type of security instrument and type of transaction and state, whether it’s an assignment or a release, the system recites the appropriate MERS verbiage accurately. For example, the correct use of grantor and/or beneficiary based on the type of security instrument. It also recognizes states that require special handling.
When an exception is identified in PerfectDocs, it alerts the client and provides curative options. In more complex situations, the clients can elevate the exception to NTC and have our full-service team further research and/or cure it.
Q. What has PerfectDocs meant to clients?
Jeremy: PerfectDocs was designed to give our clients more options when it comes to doc prep and lien releases. It lets them balance their workload by deciding what releases they want to handle and what they want push to NTC during periods of high demand.
It complements our full-service offering, and it incorporates the 35 years of experience that NTC has in perfecting document preparation for lien release and assignments of mortgage. The unified reporting on pipelines allows clients to be able to retire other legacy systems and save overall costs.