ALL MAJOR FINANCIAL FEDERAL AGENCIES ENTER CEASE AND DESIST ORDER AGAINST MERS

Posted on April 13, 2011 by Neil Garfield

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ALL MAJOR FEDERAL AGENCIES JOIN IN ORDERING MERS TO STOP CURRENT PRACTICES

Just released. Thanks to Dan Edstrom our senior securitization analyst for alerting me.

SEE MERS_Cease_and_Desist_2011_04_13

MERS AND MERSCORP ENTERED INTO A CONSENT CEASE AND DESIST ORDER FINDING DEFICIENCIES IN THE PRACTICES AND PROCEDURES THAT POSE A RISK TO THE MEMBER BANKS.

ABSTRACT OF ORDER

The Agencies find, and MERS and MERSCORP neither admit nor deny, the following:
(1)    MERS is a wholly-owned subsidiary of MERSCORP. MERSCORP’s shareholders include federally regulated financial institutions that own and/or service residential mortgages, including Examined Members, and other primary and secondary mortgage industry participants.
(2)    MERSCORP operates a national electronic registry that tracks beneficial ownership interests and servicing rights associated with residential mortgage loans and any changes in those interests or rights. There are approximately 5,000 participating Members, of which 3,000 are residential mortgage servicers. Members register loans and report transfers, foreclosures, and other changes to the status of residential mortgage loans on the MERS System. There are currently approximately 31 million active residential mortgage loans registered on the MERS System. Examined Members receive a substantial portion of the services provided by MERSCORP and MERS.
(3)    MERS serves as mortgagee of record and nominee for the participating Members in local land records. MERS takes action as mortgagee through documents executed by “certifying officers” of MERS. MERS has designated these individuals, who are officers or employees of Members or certain third-parties who have contractual relationships with Members, as officers of MERS. By virtue of these designations, the certifying officers execute legal documents in the name of MERS, such as mortgage assignments and lien releases.
MERS Consent Order
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(4)    In connection with services provided to Examined Members related to tracking, and registering residential mortgage loans and initiating foreclosures (“residential mortgage and foreclosure-related services”), MERS and MERSCORP:
(a)    have failed to exercise appropriate oversight, management supervision and corporate governance, and have failed to devote adequate financial, staffing, training, and legal resources to ensure proper administration and delivery of services to Examined Members; and
(b)    have failed to establish and maintain adequate internal controls, policies, and procedures, compliance risk management, and internal audit and reporting requirements with respect to the administration and delivery of services to Examined Members.
(5)    By reason of the conduct set forth above, MERS and MERSCORP engaged in unsafe or unsound practices that expose them and Examined Members to unacceptable operational, compliance, legal, and reputational risks.
Pursuant to the authority vested in them by the Federal Deposit Insurance Act, as amended, 12 U.S.C. §§ 1818(b), the Bank Service Company Act, 12 U.S.C. § 1867(c)-(d), and the Federal Housing Enterprises Financial Safety and Soundness Act, 12 U.S.C. § 4631, the Agencies hereby ORDER that:
ARTICLE III COMPLIANCE COMMITTEE
(1)    Within twenty (20) days of this Order, the Boards of Directors of MERSCORP and MERS (the “Boards”) shall each establish and thereafter maintain a Compliance Committee of at least three (3) directors, of which at least two (2) may not be employees or officers of MERS or MERSCORP or any of their subsidiaries or affiliates. In the event of a change of the
MERS Consent Order
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membership, the name of any new committee member shall be submitted to the OCC Deputy Comptroller for Large Bank Supervision (“Deputy Comptroller”). The Compliance Committee shall be responsible for monitoring and coordinating MERS’ and MERSCORP’s compliance with the terms and provisions of this Order. The Compliance Committee shall meet at least monthly and maintain minutes of its meetings.
(2)    Within ninety (90) days of this Order, and within thirty (30) days of the end of each calendar quarter thereafter, the Compliance Committee shall submit a written progress report to the Boards setting forth in detail its actions taken to comply with each Article of this Consent Order, and the results and status of those actions.
(3)    The Boards shall forward a copy of the Compliance Committee’s report, with any additional comments by the Boards, to the Deputy Comptroller and the OCC Examiner-in- Charge within ten (10) days of receiving such report.
ARTICLE IV ACTION PLAN
(1)    Within ninety (90) days of this Order, MERS and MERSCORP shall jointly develop and submit to the Deputy Comptroller an acceptable plan containing a complete description of the actions that are necessary and appropriate to achieve compliance with the terms and provisions of this Order (“Action Plan”), as well as the resources to be devoted to the planned actions, with respect to services provided to Examined Members. In the event the Deputy Comptroller requests MERS or MERSCORP to revise the Action Plan, they shall immediately make the requested revisions and resubmit the Action Plan to the Deputy Comptroller. Following acceptance of the Action Plan by the Deputy Comptroller, MERS and
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MERSCORP shall not take any action that would constitute a significant deviation from, or material change to the requirements of the Action Plan, or this Order, unless and until MERS or MERSCORP have received a prior written determination of no supervisory objection from the Deputy Comptroller.
(2)    The Boards shall ensure that MERS and MERSCORP achieve and thereafter maintain compliance with this Order, including, without limitation, successful implementation of the Action Plan. The Boards shall further ensure that, upon implementation of the Action Plan, MERS and MERSCORP achieve and maintain effective residential mortgage and foreclosure- related services on behalf of Examined Members, as well as associated risk management, compliance, quality control, audit, training, staffing, and related functions. In order to comply with these requirements, the Boards shall:
(a)    require the timely reporting by MERS and MERSCORP management of such actions taken to comply with this Order and/or directed by either Board to be taken pursuant to this Order;
(b)    follow-up on any compliance issues with such actions in a timely and appropriate manner; and
(c)    require corrective action be taken in a timely manner for any non- compliance with such actions.
(3)    The Action Plan shall address, at a minimum: (a)    the capability of the Boards and senior management to ensure that MERS
and MERSCORP are operated in a safe and sound manner in accordance with applicable laws, regulations and requirements of this Order;
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(b)    development and implementation of a strategic plan to include a comprehensive review of business operations, including the risks associated with each business line, and recommendations to implement the strategic plan;
(c)    consistent with the strategic plan, development and implementation of a financial plan to ensure that MERSCORP and MERS have adequate financial strength to support business operations related to Examined Members. The financial plan, at a minimum, shall address:
capital;
and liquidity risk; and
(i)
(ii)
any need for additional capital, including the amount and source of
the identification, measurement, monitoring and control of funding
(iii) discretionary expenses and improve and sustain earnings, as well as maintain adequate reserves for contingency risks and liabilities;
(d)    development and implementation of a comprehensive litigation strategy to effectively manage lawsuits and legal challenges involving MERS and MERSCORP, regardless of whether MERSCORP or MERS is a named party, including early identification and tracking of such lawsuits and challenges;
(e)    development and implementation of a communication plan to communicate effectively and in a timely manner with MERSCORP’s shareholders, Members including Examined Members, and relevant external parties;
(f)    development and implementation of a compliance and quality assurance program for ensuring that Examined Members implement and follow all of the Rules, including
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a profit and budget plan to include specific goals to reduce
adherence to the requirements set forth in MERS Announcement 2011-01, dated February 16, 2011;
(g)    development and implementation of a plan to ensure that MERS certifying officers are transitioned expeditiously onto the Corporate Resolution Management System (“CRMS”) in accordance with MERS’ current certifying officer policy and process;
(h)    development and implementation of appropriate standards to maintain separation of corporate functions between MERS and MERSCORP;
(i)    review of the effectiveness of the Rules, and related Procedures, Terms and Conditions to determine what, if any, additions, amendments, or deletions are appropriate;
(j)    development and implementation of enhanced information reporting practices to senior management from lower levels of each organization, and from senior management to the Boards to ensure that significant issues are properly identified and escalated, and that corporate actions are considered, taken in a timely fashion, and properly documented;
(k)    any Matter Requiring Attention in the OCC Supervisory Letter No. MERS 2011-01, dated January 19, 2011, that addresses an issue that is not otherwise covered by provisions of this Order; and
(l)    development of contingency plans to address issues that arise with respect to any of the foregoing elements of the Action Plan, including plans that address operational continuity issues in the normal course of business and in a stressed environment.
(4)    The Action Plan shall specify timelines for completion of each of the requirements of this Order. The timelines in the Action Plan shall be consistent with any deadlines set forth in this Order.

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