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   ARTICLE   |   From Scotsman Guide Residential Edition   |   June 2017

An Old Dog Learns New Tricks

The title and settlement industry must reinvent itself for the 21st century

r_2017-06_Paolino_spotThe title and settlement industry has been protecting the property rights of buyers and sellers since the 1800s. It is an industry categorized by local relationships and marketing efforts that often amounted to dropping off baseball tickets and fruit baskets. Recent technology advances and government regulations, however, are causing this industry to adapt to a changing landscape.

With “time to close” and overall loan costs sharply rising over the past several years, mortgage companies are looking to their partners to help reduce costs and streamline the process. In addition, regulation has led to increased third-party oversight and risk. Settlement agents hold an important role in this process because they handle escrow funds and verify ownership rights of borrowers and sellers. This responsibility has led to increased cybersecurity risk to settlement agents and their lender clients.

An industry once defined by customer service and individual relationships is starting to see compliance and technology drive process, which is making it more challenging for settlement agents to maintain the status quo. With so much uncertainty in the industry, mortgage companies of all sizes are looking for vendors to make their lives easier through innovation at all stages of the closing process.

Accurate disclosures

The instant and accurate disclosure of closing fees is essential to keeping the closing process running on time. After a loan application is received, lenders have three days to provide the borrower with a Loan Estimate (LE) form that includes closing costs and total costs paid over the life span of the loan.

Lenders do not control many of the costs on this form, so they need to accurately collect costs from various service providers as well as local municipalities that collect taxes and fees. Many lenders and settlement agents still rely on manual processes to obtain closing costs. These processes include phone calls, unanswered e-mails and, in some cases, even fax requests.

Fees disclosed on the LE must be within a certain tolerance of the final fees given to the borrower on the Closing Disclosure (CD). Many fees, such as title insurance premiums and origination costs, need to cumulatively be within 10 percent of the value originally disclosed. Other fees, such as transfer taxes charged by state and local governments, need to match exactly what was originally disclosed. Incorrect fee disclosures can lead to closing delays, costs paid for missed tolerances and an inability to resell mortgages on the secondary market.

Fortunately this is an easy problem to solve using data aggregators and closing-cost calculators. These solutions allow mortgage companies to quote accurate guaranteed fees as soon as a loan application is received. Lenders can then set up their settlement service providers proactively, eliminating the need for phone calls and fee requests via e-mail.

“Many of our lender clients utilize our rate calculator integrated within their LOS [loan origination software] for all loan applications they receive, regardless of which company eventually closes the loan,” says Regina Braga, CEO of Res/Title, a national title agent. By integrating these tools in an LOS, mortgage companies can minimize both the time needed by staff to process loans and the risk of manual errors. Like most things, it pays to get it right the first time.

Data handling

The average time to close a loan today hovers around 50 days, but borrowers rarely see all the steps involved in the process leading to the actual closing. They often experience “radio silence,” which can lead to frustration and confusion. It is during this time that important title and settlement tasks — title search and preparation of closing documents — are taking place.

These tasks involve accessing sensitive, confidential information about a borrower. The property address alone, for example, is entered an average of 70 times during the loan process from receipt of the application to closing. Settlement agents must securely exchange both documents and data many times leading up to the closing.

It is this stage in the process where fraud is most likely to occur via phishing scams where fake e-mails are sent to the borrower emulating the attorney or the title agent containing fraudulent wiring instructions to divert funds. It is critical that this sensitive data is securely handled by all third-party venders, but especially the settlement and title agents.

Many settlement agents now offer secure collaboration tools that integrate with lender systems and allow an easy exchange of both data and documents. “By offering a mobile closing portal, we are able to keep all parties in the transaction up to date leading up to the closing,” says Braga. “Our lender and Realtor clients look good by offering increased levels of transparency to the borrower, which ultimately leads to a better closing experience.”

Closing innovations

Innovations in the settlement space even include the closing process itself. Millennial borrowers are used to flexibility and ease with any purchase, which includes buying a home. Electronic closings are quickly gaining traction in the industry, with many states and even the Consumer Financial Protection Bureau running pilot programs to get all parties familiar with the process.

To support e-closings, a greater level of integration and collaboration among all parties is needed. Although the majority of work needs to be done on the lender side to ensure the e-loan can be resold, settlement agents must be able to update electronic documents and ensure they are working with a notary who can support both “wet signing” (ink on paper) and electronic signatures at closing.

•  •  •

As regulations and costs rise, mortgage companies and lenders must look at all of their service providers to make sure they are following top industry practices. A good settlement agent can lower origination costs, reduce time to close and improve the overall experience. This not only makes borrowers happy, it helps originators build a more loyal base of future clients.


 


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