Delaware AG Settlement Secures MERS Audit Reports, But Little Else

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Merscorp Holdings will provide the state of Delaware's Department of Justice Consumer Protection Unit a semi-annual report detailing results of its internal audits, according to the terms of a settlement agreement that resolves the state attorney general's October 2011 lawsuit against the private loan registry.

In addition, the settlement calls on the Reston, Va.-based company to agree to a number of quality control and transparency requirements. While the semi-annual reports will include information about Merscorp's progress in implementing the settlement, the audit details and a description of any material changes to Merscorp's policies and procedures, the Delaware Justice Department will only be allowed to share the information with certain authorized state and federal law enforcement officials.

Delaware's lawsuit claimed MERS engaged in deceptive trade practices. The complaint cites a review of 100 foreclosures in New Castle County during 2010 that showed discrepancies between MERS records and the entities that participated in the foreclosure. In also cites multiple excerpts from an interview with Merscorp President and CEO Bill Beckmann, who spoke exclusively with Mortgage Technology in his first, and so far only, media interview after joining the company in April.

An announcement of the settlement on Friday asserts that the office of Delaware Attorney General Joseph "Beau" Biden III "secures reforms" from Merscorp, but many of the stipulations are processes that Merscorp has already implemented since becoming the focus of intense scrutiny and legal challenges to its business model, including:

• Providing borrowers whose mortgages are recorded in public land records in the name of MERS with access to information about their servicer, subservicer and investor. (Merscorp began providing borrowers with investor information in June 2009 and its ServicerID website has allowed borrowers to search for both servicer and investor details since July 2010.)

• Ensuring that preforeclosure mortgage assignments from MERS to servicers are executed in the proper jurisdictions and not allowing servicer members to file foreclosure actions in the name of MERS, the later of which was banned by Merscorp since March 2011.

• Enforce enhanced controls over the selection and training of so-called signing officers, the employees and attorneys of MERS members who execute lien assignments and foreclosures in the name of MERS, although this too was a practice that Merscorp has previously implemented, as a term of its April 2011 consent order with regulators.

• Conduct annual reviews of at least 100 documents from each of Merscorp's 25 largest servicer members to ensure signing officers compliance. While not specifically required in the consent order, a Merscorp spokesperson confirmed that this practice was put in place earlier this year to comply with a broader requirement about document accuracy.

"MERS' inaccurate and unreliable records raised serious questions about who owns what in America. The steps MERS will now take will help answer those questions," Biden said in his office's release Friday.

The audits Merscorp conducts consist of a data reconciliation test of mortgage and promissory note ownership information stored on the Mortgage Electronic Registration Systems, or MERS, System with the corresponding data on mortgage servicers' own systems. This, along with servicers' own audits, were provisions included in the consent order agreed to six months before Biden's office filed its lawsuit.

The only new requirement for Merscorp will be the semi-annual reports to Delaware's Justice Department, which under the terms of the settlement, will be confidential and prohibited from public disclosure.

In addition, Merscorp does not admit to any wrongdoing or the allegations brought in the lawsuit and the state of Delaware "does not concede that the allegations of the Complaint lack merit."

In a separate release from Merscorp, Beckmann said, "We are pleased to have come to an agreement with the State of Delaware that both serves the best interests of Delaware homeowners and protects the value Merscorp Holdings brings to its members."

"The agreed upon measures are consistent with steps we've taken nationally to improve offerings to our constituencies and are natural outcomes of our responsiveness to the rapidly changing market-reform environment," the statement adds.

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