Last spring, the Office of the Comptroller of the currency issued consent orders outlining a quality assurance mission for Merscorp and the nation’s largest servicers. The mission was designed to ensure the data accuracy within MERS could effectively support its role in securitization. Specifically, the OCC outlined a scope of review that encompasses a “three-way” data reconciliation between the MERS System, the servicer’s internal data and the originating documents.
The stress test that the industry has been under since 2007 has exposed a host of weaknesses in loan production, especially as it relates to data. However, the onus to rapidly evolve the quality of that data has initially fallen squarely on loan administration—aka servicing—which often had little or nothing to do with the loan’s origination. This is evidenced in the MERS QA requirements, the October HUD Mortgagee Letter related to the False Claims Act and with single point of contact obstacles.
While MERS QA is neither unreasonable nor unexpected, the challenges uncovered in the race to comply are significant. Never before has the industry asked servicers to ensure the data of originators. Servicers face regulator scrutiny because they deals with the difficult roles of foreclosure management, prevention and remediation. Now, data must be verified from the bottom up.
The current regulatory focus is all about data—where it comes from, how it’s used, the level of integrity it retains throughout the origination process and who ultimately bears responsibility when something goes awry. This foreshadows the fact that data integrity and accuracy will be a driving factor in short- and long-term risk mitigation, compliance and subsequently, profitability. Origination should expect a candid response from servicing as they adapt from needing quality data as a function of customer service to requiring it as a legal and regulatory mandate.
On the bright side, this is real, honest-to-goodness transformation. It is the only conceivable outcome for our industry if servicers are required to take responsibility for data integrity at the most granular level and ensure that meaningful consequences ensue. Merscorp QA is a seminal moment for the renewal of a robust, nontoxic market. If servicers have to get it right, one can be assured that their expectations of lender-originated data will be elevated. So, as goes loan servicing, so goes origination.
