Consumer Financial Protection Bureau
Title Agents, Settlement Service Providers Respond to Requests from Third-party Vetting Companies
|September 18, 2012
This is the second article in a series ALTA is writing about new market and regulatory demands on lenders and how it’s impacting the title insurance industry.
In July, Scott Stevenson received a letter from one of his lender clients informing him of a new policy requiring closing agents to register with a third-party company and pay an annual fee in order to qualify to continue closing loans.
The president of Northwest Title in Ohio wasn’t alone. Title and settlement agents across the country received letters from lenders indicating they must apply for certification with a third-party vetting company.
Vetting Companies Emerge
The emergence of third-party settlement agent vetting companies has been spurred by recent bulletins and comments from the Consumer Financial Protection Bureau (CFPB), oversight by lenders and servicers and directives from the national mortgage servicing settlement that all point to an increasing trend of holding lenders liable for actions of their service providers. While lenders have been responsible for their service providers’ actions for years, it’s only been recently that enforcement actions have been doled out along with corrective actions that the banking organizations are expected to implement.
The most visible of these vetting companies has been New Jersey-based Secure Settlements, which requires closing agents to pay $299 per year and provide confidential information including personal and business information, professional licenses, trust accounts, professional liability/E&O insurance, fidelity bond insurance, three lender references, and history of any civil lawsuits or criminal convictions.
Angered by the letter he received from warehouse lender First Tennessee Bank and the information required by Secure Settlements, Stevenson posted the information on ALTA’s LinkedIn group, creating a firestorm of concern from the agent community. However, after weighing the pros and cons, he decided to go through the process and register with Secure Settlements.
“One of my mortgage brokers was furious about this and indicated he would find another warehouse lender,” Stevenson said. “I find it funny that they are providing a service to lenders and charging us and I’m concerned about what happens if multiple companies pop up requiring this, but another side of me is willing to be a guinea pig and see how this shakes out.”
Secure Settlements founder Andrew Liput said he got involved in the industry 10 years ago as a closing attorney working with banks on the East Coast. He became concerned that lenders wire large sums of money to people they don’t know.
“I started thinking about the need to have some uniform approach to vet closing professionals,” Liput said. “Anytime you are going to change or implement a new process, it can create fear and confusion, but if you look at the details of our system, it all makes sense. Lenders should know who they are dealing with.”
“Our software system generates a matrix of data that creates a rating for lenders to review on their own,” he added.
In addition to having issues with providing personal and business information, many agents are concerned about the additional expense that they will incur signing up with these vetting companies. While closing professionals must pay a $299 annual fee for Secure Settlement’s vetting service, notaries and settlement company employees who do not handle trust funds, but only attend closings and manage documents, must pay $99. Meanwhile, abstract agencies, settlement companies and law firms must pay a fee for each employee who will be conducting closings. Title agencies must also have their licensed title producer vetted, whether or not they actually close loans, according to Secure Settlements.
Similar Impact to Appraisers
Steve Crone of Justice Title and Escrow LLC in Florida, believes this type of system will have the same negative impact similar to what happened in the appraisal industry with the creation of appraisal management companies (AMC). AMCs were created to ensure security and confidence in appraisals, but Crone said “most have proven the opposite resulting in higher prices.”
“All it has shown is that they have instituted a new company that can slow the process down and they usually just take money from either the end users or servicers, who are the title companies in this case,” Crone added.
A mortgage broker in Ohio reached out to Jeffrey Auker of Talon Title Agency warning him of the requirements coming down the pike. Auker went online to learn more about what the vetting company required and started setting up an account. When it asked for his Social Security number, Auker decided against proceeding. He then reached back out to his broker.
“I merely talked to the local mortgage broker who said that he would not require us to enroll and that if it became a problem for him, he would use a different warehouse lender,” Auker said. “I told my broker that he already gets copies of our errors and omissions and fidelity bond policies. These third-party vendors are essentially requiring me to pay them money to review information I already send the broker to get approved.”
Is More Vetting Helpful?
Diane Cipa of The Closing Specialists in Pennsylvania sees it differently. As a former mortgage banker before entering the title industry more than 20 years ago, she was “astounded at the lack of regulation and oversight and the fact that consumer confidential data and money moved through the hand of title agents and law offices with practically no vetting.”
“I am happy to see someone being more careful about whose hands they place their consumers’ most private financial data and cash,” Cipa said. “The ‘good guys’ will always survive the vetting process. Let's applaud any process that allows us to step into business where the bad guys can't go.”
First Tennessee Bank, which has more than $25 billion in assets, was one of the first lenders to sign up with Secure Settlements. Bob Garrett, executive vice president for the Texas-based warehouse lender, said his company has been hit with some recent losses, and when fraud occurs, “it almost always involves a closing agent.” While he said this doesn’t make their “brokers pure as the snow,” lenders are looking to prevent losses in this area.
“Proper vetting and evaluation of mortgage closing professionals is not only a smart business move, it may also be required of mortgage originators under recent federal regulations,” Garrett said.
Garrett believes the closing protection letter (also known as an insured closing letter), where available, does not provide lenders enough protection. That’s why he’s intrigued by the alternative insurance product Secure Settlement is attempting to secure. In its marketing materials, Secure Settlements claims it will provide a CPL alternative, backed by protection from losses up to the entire amount of lender and consumer funds brought to the table up to $1 million.
“The concept is to insure closing with a true closing insurance contract,” Garrett said. “In order to do that, closing agents need to be vetted.”
An underwriting counsel in Ohio said the service “doesn’t appear to be anything much more than a pay service to end up on a list of “Approved Closing Agents.” The underwriting counsel also believed the company’s offering of a CPL alternative would violate Ohio law because only licensed title insurers may offer this coverage.
State Land Title Associations Get Involved
State land title associations have been active in this area as well attempting to learn more information. The Florida, Ohio and Texas land title associations surveyed membership to see if they had been contacted by a vetting company. Additionally, the TLTA sent a letter to the Texas Department of Insurance (TDI) outlining its concerns with third-party vetting companies.
“As you know, in Texas, escrow officers are licensed by the state, required to take continuing education, and to undergo background checks,” the letter states. “Any perceived benefit to lenders or consumers from the requirement that a private third party firm duplicate the efforts of TDI may be illusory.
Whatever course of action title and settlement agents take, Francis Riley of the law firm Saul Ewing LLP said it’s important to begin preparing for potential examinations by the CFPB and audits by mortgage lenders and mortgage servicers.
“Title agents should begin to work with their compliance attorneys to determine exactly what next steps should be taken before they are behind a curve that will be extremely hard to get around,” he added.
Communicate With Lenders
Michelle Korsmo, ALTA’s chief executive officer, stressed the importance of communicating with lender clients to learn more about their needs and concerns.
“It’s crucial that you talk to your lenders to understand this pressure and how you can work with them to meet their needs,” Korsmo said. “We are asking all ALTA members—even those that have not been contacted by any third-party vetting company—to reach out to their lender clients or mortgage brokers and ask questions.”
Questions title and settlement agents should ask include:
- What banks/investors/warehouse lines do you write business for?
- How much of your business do you do with those entities which are enrolled in these vetting programs?
- What types of pressures are you facing from investors, regulators and the public? Specific laws, bulletins or investor guidance is helpful to give us a fuller picture.
- Are there any specific programs that help you alleviate those pressures? This includes asking whether lender clients have been examined by a regulator and what recommendations the regulator made to reduce risk in the settlement space.
- What do you believe the settlement industry needs to do—above and beyond what we are doing today—to help lenders meet these pressures? This includes asking about why things like state licensing or the CPL may not be sufficient for their concerns.
- What the lender needs from you to continue to do business with your company in the future?
“These conversations are great starting places for you to tell your lenders about your processes and the work you do to protect their money and ensure that your mutual consumer has a good and compliant settlement experience,” Korsmo said. “In many instances, lenders do not know about what you do to protect them.”
You can join the discussion regarding agent vetting on ALTA’s Linked In Group