2019: The Year of Fintech in the Title Industry?
February 27, 2019
From the national companies to smaller operations that operate in one state, 2018 proved to be a year of acquisitions and expansion to gain market share. Earlier in the year, Fidelity announced plans to acquire Stewart. In December, States Title publicized plans to merge with North American Title Insurance Co. Both transactions, pending regulatory approval, are expected to close in 2019.
The deals will significantly alter the industry landscape at the underwriter level. The acquisitions will ultimately have some effect on title agencies, which are also trying to decipher how to grow their business and capitalize on the technology wave.
For Kyle Mead, vice president and chief examining attorney for Kansas-based Lawyers Title of Topeka, the past 12 months was about rediscovering the company’s core strengths and value to its customers. In 2018, the company took advantage of opening an office in an adjacent county. While the expansion is off to a decent start, Mead believes more growth is possible. To achieve that, he said the company—along with its two other sister operations—will officially change its name to Lawyers Title of Kansas Inc.
“As part of that process, we rediscovered the strength of our original brand, and decided on an official name change to reflect the business expansions we have experienced and the continued growth we are working to produce,” Mead said. “We make efforts to be proactive with our transactions. We want to get to know the preferences of our real estate agents and lenders, so that we can anticipate their needs and address concerns earlier in the process.”
Meeting the needs of customers is what it boils down to. Deborah Bailey, managing member of the Georgia-based law firm Bailey Helms Legal LLC, also sees an opportunity to serve what she calls the “do-it-yourself” (DIY) consumers. Not wanting to re-create the wheel, Bailey said her firm plans to utilize the myriad of resources available through ALTA’s Homeowner Outreach Program (HOP), which provides members marketing and educational material in various formats (Resources are available at alta.org/hop). She plans to incorporate the material into their marketing because they get “positive feedback from our homebuyers when they are provided this information.”
“When ambition and reality collide, we hope to be the experts that DIYers call to get their transaction over the finish line,” Bailey said. “We plan to robustly blend technology with top-notch customer service skills to improve the customer’s experience.”
Fintech Tipping Point?
Assimilating technology into the homebuying process seems to be on the minds of other title professionals as well. According to First American Chief Economist Mark Fleming, title agents and real estate professionals are embracing fintech to enhance the homebuying experience and prioritizing technology that secures collaboration between all parties in a real estate transaction. Additionally, millennials—the largest group of prospective homebuyers—expect greater efficiency and convenience in their homebuying experience. The past year laid the groundwork for the acceleration of financial technology (fintech) adoption. With low supply and house prices at historic highs, prospective homebuyers felt pressured to settle deals quickly, Fleming said.
Secure collaboration and communication portals, electronic closings and remote online notarization (RON), and chat bots stood out as key innovations from title insurance agents and real estate professionals who were surveyed in First American’s fourth-quarter Real Estate Sentiment Index (RESI).
“We anticipate that 2019 will bring increased adoption of these innovations,” Fleming said. “Title agents and real estate professionals are keenly aware that fintech is transforming the industry, and plan to take full advantage of specific technologies for faster and more efficient transactions. Streamlining time-consuming processes, as well as delivering an improved consumer experience, is top of mind for real estate professionals. Fintech is here to stay.”
The survey showed that according to 45 percent of the title agents and real estate professionals surveyed, the most important financial technology that helps potential homebuyers accelerate transactions is secure collaboration and communication portals.
“Survey respondents indicated that buyers would greatly benefit from a secure platform that allows them to correspond with lenders, real estate agents, escrow officers and other parties involved with the real estate transaction,” Fleming said. “The emphasis on security does not come as a surprise, given that one of the major trends affecting the real estate industry, real estate professionals and consumers is the rise in wire fraud.”
Additionally, the survey revealed that 34 percent of title and real estate professionals believe e-closing and remote online notarization are poised to transform the homebuying experience.
“Remote online notarization has already been accepted as an alternative to traditional in-person notarization in several states, and we anticipate seeing a further uptick in 2019,” Fleming said. “Similarly, e-closing, the electronic execution of mortgage loan closing documents in a secure digital environment, is a faster and more efficient alternative to the traditional paper-based real estate closing. E-closing can also reduce the risk of manual errors in the closing process, improving loan quality alongside efficiency.”
Do the RON, RON
Some title companies are already taking advantage of RON in markets where it’s legal. Houston-based Celebrity Title Company successfully completed its first remote online notarization closing shortly after the Texas Secretary of State released final regulations for the use of RON. Andi Bolin, president of Celebrity Title Company, said she is proud to have the support and forward-thinking partnership with Westcor Land Title Insurance Co., which provides RON capability to its agents. Bolin believes this technology will help drive growth in 2019.
“We now have a higher level of adaptability to the needs and requirements of our clients,” she said. “As an independent agent, technology advancements are imperative to our growth and ability to thrive in an ever-changing market. Leveraging this new closing platform allows us to further our commitment to clients and to the value we provide as an industry.”
The benefit was highlighted by how the homebuyers felt about the process. According to a release from Westcor, the husband of the couple involved in the deal said Celebrity Title and the mortgage company made “our purchase a smooth and seamless transaction. We were able to close from the comfort of my office. We never had to go to the title company.”
The availability of RON will only grow as discussions about RON bills for introduction during the 2019 state legislative sessions have already started in about 12 states. In February, Utah became the latest state to pass legislation that permits RON. Utah’s HR 52 modifies the Notaries Public Reform Act to allow a notarization to be performed remotely.
The bill follows the key principles of the ALTA-MBA model legislation. Utah joins Indiana, Michigan, Minnesota, Montana, Nevada, Ohio, Tennessee, Texas, Vermont and Virginia with laws explicitly allowing the practice. Another 19 states have pending RON bills. To monitor other RON bills, check out ALTA’s state legislation tracking map. You must be an ALTA member to access the map.
Other title professionals are still prepping their operations for the digital wave in markets where RON is still not legal.
“We currently do not have the legal infrastructure in our market to do a full digital closing,” Bailey said. The firm spent 2018 diligently digitizing its processes where possible and hopes “to continue that trend in 2019 and beyond.”
That’s a similar sentiment held by Mead. He said digital closings are not common in his market. Despite the lack of demand for the service, Mead is still prepping for when the time comes.
“We are looking into the available options to be able to provide the best service for our clients,” he said. “We were one of the first companies in our area to provide e-recording and had been among the first to be e-sign certified when that technology was first introduced years ago. However, e-sign never caught on in our market area. We expect and intend to be at the forefront of the service if and when it becomes common in our area.”
Rise of the Bot
Chat bots can also be used to automate certain tasks and make the process more efficient, according to 18 percent of those surveyed by First American.
“With more and more prospective home buyers searching for homes and information online, chat bots can help real estate agents engage potential customers in real time as they are browsing online listings, at any time of day,” Fleming said. “This technology has great potential to serve the real estate industry.”
While it’s clear title professionals understand the need for technology, according to First American’s survey, more than a third of title agents and real estate professionals anticipate needing software support for remote online notarization and secure collaboration and communication portals in the next seven to 12 months.
Market Projections
As these companies navigate technology options and the positive outlook for the potential of fintech, they’ll be doing so in a tightening market spurred by rising mortgage rates and high house prices.
CoreLogic Chief Economist Frank Nothaft reported that economic growth in the United States only needs to last six more months in order to set the record for the longest economic expansion in the country’s history, based on business cycle dates going back more than 160 years.
Nothaft sees growth starting to slow, but still pushing unemployment to 3.4 percent—marking a 50-year low. As unemployment creeps down, interest rates will continue to rise as the Federal Reserve continues to normalize the level of interest rates and keeps an eye on inflation. CoreLogic expects long-term yields to rise as well, nudging 30-year fixed mortgage rates up to an average of about 5.25 percent by next December—the highest in a decade. This will ultimately affect the housing market and title order volume.
“At the margin, homeowners who currently have low-rate mortgages will be incented to stay in their home rather than sell, keeping the new-listings flow relatively low,” Nothaft said. “The larger monthly payments that come with higher mortgage rates will likely soften buyer demand, leading to less pressure on home prices.”
For mortgage lending, higher rates mean even less refinancing in 2019. The Mortgage Bankers Association (MBA) predicts $1.24 trillion in purchase mortgage originations in 2019. This is a 4.2 percent increase from 2018. In addition, the MBA anticipates refinance originations will continue to trend lower next year, decreasing by 12.4 percent to $395 billion. Overall in 2019, total mortgage originations are forecasted to decrease to $1.63 trillion from $1.64 trillion this year.
“We are seeing some deceleration in the rate of home price growth, but believe this is a healthy pause for the market, as it will allow income growth to catch up to the recent run-up in home values,” said Mike Fratantoni, MBA chief economist and senior vice president for research and industry technology.
He added that housing demand should continue to grow over the forecast horizon, with the pace of home sales held back primarily by the constrained pace of new building. He expects that home purchase originations will increase each year through 2021, and that pace should continue to increase given the wave of millennial buyers beginning to hit the market. Nothaft added that growth in home equity and homeowners deciding to stay put rather than sell, should increase home remodeling expenditures and the origination of HELOCs for home improvement purposes.
“While the macroeconomic and housing market backdrops are, and should remain quite favorable, the mortgage industry continues to be challenged by the drop in origination volume, coupled with significant margin compression,” Fratantoni said. “Lenders of all types and sizes are seeing elevated costs, coupled with intensely competitive pricing, to capture more volume. This in turn is depressing revenues.”
Control What You Can
While title professionals can’t dictate market conditions and remain reliant on housing and origination volume, companies can actively build a team that can weather market cycles by improving employee engagement and empowering them to make decisions. According to Gallup, 87 percent of employees are not fully engaged at work. However, studies show companies with a highly engaged workforce outperform their peers by 1.5 times. This highlights why cultivating a positive culture and developing company values are so important to driving long-term success.
Bailey said her firm’s values are focused on the individual, adding they are passionate about being ethical in every phase of the transaction. “It is hard to defeat values that are centered on ethics and love,” she added.
Mead said his company developed a mission statement and statement of core values over a period of four to six months. In staff meetings, team members are encouraged to share examples where they have observed co-workers exhibiting one of these values. Supervisors work to identify and provide individual recognition when observing staff embodying their values.
“As a small, family-owned company, it was important to include our staff in the discussion as we considered and formulated the core values statement we have today,” Mead said. “Over the course of monthly staff meetings and day-to-day interactions, we were able to identify and clarify those aspects of service that we believe define our business: Connect, Commit, Complete.”
Jeremy Yohe is ALTA’s vice president of communications. He can be reached at [email protected].
Contact ALTA at 202-296-3671 or [email protected].