Mers, the mortgage industry's electronic system for tracking loan servicing rights, is stumbling at the starting gate, observers said.

The system, operated by Mortgage Electronic Registration Systems Inc., has been up and running since April, when Norwest Mortgage and Allied Group Mortgage began registering loans on it.

Mers is expected eventually to save the mortgage industry $200 million annually by automating many paper-based processes. But it is having trouble getting on its feet-mainly, according to Leilani Allen, a consultant at Tenex Consulting in Boston, because lenders are finding start-up costs unexpectedly high.

"Business process reengineering is not easy," Ms. Allen said. "Now that it is here and a reality, companies are trying to figure out how to integrate it into their day-to-day processes."

Ms. Allen helped develop Mers and evaluated responses to the Mortgage Bankers Association of America's initial request for proposal before the system was built.

Electronic Data Systems Corp. won the contract to build Mers and remains its lead vendor.

In a telephone interview, Paul Mullings, chief executive officer of Mortgage Electronic Registration Systems, downplayed the issue of high costs. But he acknowledged that implementing the system is a challenge for many lenders, and said his company is "prepared to help members with integration planning and management."

The company hired Richard Bryan as a consultant this month to help lenders adapt their operations to the system.

Mr. Bryan, who has worked for Freddie Mac and most recently with PMI Group, a mortgage insurer, said he is not surprised that some lenders are having trouble putting Mers into action.

"There was an expectation that Mers would be adopted much more quickly, but the mortgage industry doesn't adopt anything overnight," Mr. Bryan said. "We're getting a little reality check that way."

Costs to implement the system have not been a major problem, he said, but lenders have had difficulty on the originations side with Mers because they use so many different channels to generate loans.

Mr. Mullings said the transition to Mers on the servicing side has been smoother because Alltel Corp., whose loan servicing system is the most widely used among large mortgage companies, has made the necessary adjustments for its customers.

Mortgage Electronic Registration Systems is owned by a consortium of industry players including Fannie Mae, Freddie Mac, and lenders and mortgage insurers such as HomeSide Inc. and MGIC Investment Corp.

The system's data base tracks mortgage servicing rights over the life of the loan. Mortgage companies using the system communicate with each other through electronic data interchange, which is the exchange of business documents and other information in standard computer formats.

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