How Some Companies Wading Through Heightened Regulations and Operational Barriers Are Navigating Their Way to Title and Closing Success
By Xhevrije West
Lenders and servicers are not the only ones finding themselves wading through the murky waters of regulatory compliance. Recent rule changes germinating in the mortgage industry have shaken up business as usual at title and escrow companies.
For the sake of simplicity, title companies issue title insurance policies to assist in real estate transactions by ensuring that the acquisition or transfer of property interest can be affected with a maximum degree of efficiency, security, and safety. An escrow agent is responsible for the transfer of property from one party to another. They also secure the property and examine documents to make sure that the terms of the sale are met from both the buyer and seller during the transaction.
As another (and valuable) piece in a borrower’s mortgage origination journey, title and closing companies have felt the effects of a prosperous housing market and new regulations from the Consumer Financial Protection Bureau (CFPB). Some have had to adapt their businesses to the new way of life while still meeting the expectations of closing mortgage deals with speed. Although the path to compliance has not been easy, many have managed to stay ahead of the curve.
Swimming Upstream in a TRID-Rich Environment
It wasn’t a surprise that the 1,888-page TILA-RESPA Integrated Disclosure (TRID) rule would result in administrative delays. But many didn’t anticipate the repercussions of the delays to be so wide sweeping. The results of a study released in April by Washington-based Callahan & Associates found that a whopping 96 percent of the 200-plus credit union executives surveyed reported closing delays related to TRID over the past six months.
Surveyed across 46 states, Callahan found a variety of reasons at the heart of the delays in the TRID implementation period. Half cited new lender workflow between title companies and members, as well as a refinement of processes and procedures as the primary catalysts in closing delays. A quarter cited compliance issues related to settlement, systems, members, and mortgage disclosures. Sixteen percent said that their own mortgage loan origination and core processing systems were not fully equipped to handle necessary updates, while 6 percent said their members were unable to provide documentation and other information in a timely manner.
Additionally, open-ended survey responses noted timing issues with disclosures, difficulties integrating mortgage origination systems with core processors, and challenges with title companies, realtors, and other settlement agents, Callahan stated.
All told, more than half of the respondents said new TRID regulations have added five or more days to mortgage closing, while the average number of days to close, according to respondents, is 42. The industry’s ideal average closing goal is 31 days.
The title insurance and escrow settlement industry is experiencing a two-fold shift in its business environment: an exponential growth in local and federal regulatory oversight, coupled with unprecedented technological change, according to P.J. Ruokis, VP of Sales/Marketing, ATA National Title Group.
“The lending and title industries have made great strides towards resolving those conflicts. Just as importantly, however, TRID has required substantial process changes and those will likely take much longer to fully implement,” Ruokis stated. “While these regulatory and technological changes are challenging, they are not insurmountable. The best settlement providers are mastering them while retaining their ability to provide dependable, timely and accurate service to their customers.”
Larry Zielke, President of First Financial Title Agency of Minnesota, Inc., and managing partner of Shapiro & Zielke, LLP, and Tom Paschen, of the LOGS Group, noted that “TRID, and the changes necessitated in the processing of closings, is a significant challenge to the title and closing industry.”
The Consumer Disclosure Form (CDF) and the redesigned settlement statement are confusing for many borrowers and lenders, and they cause (sometimes significant) delays in the closing and funding of new loans. There is a considerable amount of confusion on the TRID and CDF data, and its accuracy.
New regulatory requirements are also causing title and escrow companies to continually update their procedures and workflows as lenders work to become compliant with TRID and the changes that it has brought to the loan origination process.
“As standards for TRID compliance are more established and widely agreed upon, we should have a new ‘business as usual’ and that impact should decrease,” said Chad Mosley, COO of MCS Solutions. “The most lingering effect of TRID has centered on the lender preparation of the closing disclosure, and the operational changes that it has mandated.”
Navigating the Muddy Sloughs of TRID Upkeep
Keeping up with TRID has not only posed closing challenges at title and escrow companies but has cut into operations, costing more time, labor, and resources, which could result in cuts in revenue, according to Steven J. Melmet, Esq., CEO of Vendor Connect, LLC.
“The industry is experiencing a lack of consistency in compliance requirements from one lender/investor to the next. There is significantly more scrutiny and paperwork required,” Melmet said. “Obtaining lender pre-approvals while gaining an appreciation for individual lender requirements is time-and resource-consuming which requires new disciplines for title and closing specialists”.
While the industry has been able to absorb the battery of regulatory changes, TRID has completely changed the name of the game. Cristy Ward, Chief Strategy Officer focused on consumer experience at Mortgage Connect, LP, explained that TRID upkeep and operational maintenance continues to be the center of focus for lenders and their associated title and closing partners.
“TRID has been tough on the industry as a whole. Many lenders are still struggling with technology platforms and forced to create manual workarounds to process their transactions,” Ward said. “The title and closing companies that were committed to training their employees, used technology as a tool and not the solution, and focused more on TRID knowledge, education, and timelines did well.”
Looking For Transparent Direction
According to Mark Myers, CEO of Meridian Title Corp., and Laura Levi Francesconi, SVP/Director of Meridian’s Corporate Development, the title industry’s very nature is to protect the public and the consumers it is serving. “Because our industry takes that seriously, it’s been a challenge to work with heightened regulations that do not provide transparent direction to the industry on how to comply,” both said in an interview.
Regardless of TRID obstacles and operational challenges, title and closing companies remain focused on one common goal: Get closings done in a timely and compliant manner.
Prior to the housing crisis, the title and closing landscape experienced a more competitive environment, more products were being launched by the underwriters, and technology was largely well received and leveraged in order to keep swimming. Since the crisis, there has been a retrenching of innovative products and technology, as well as companies becoming hyper focused on creating processes to comply with the CFPB’s regulatory guidelines.
“The future is promising for those who choose to innovate in the title and closing space,” Ward said. “The lending process as a whole is overly regulated and that regulation has caused disruption to innovation. Those who will flourish in the industry must embrace innovation to meet the demands of growing demographic segments.”
The title industry was more segregated prior to new regulations, Mosley added. Moving forward, we see the most success occurring when partnerships with lenders are solidified to provide customers with the highest level of service on their transactions,” he said. “That supports the ultimate goal of TRID, which was to create more transparency and a better customer experience. Ultimately, that will help the industry.”
Weeding Out Bad Actors Makes For a Better Customer Experience
Post-crisis, title and closing companies who always operated “above board” will continue to operate and strengthen the industry, albeit with operational adjustments to their labor costs and profit margins.
“There is a sense in our industry that the heightened oversight could put some longstanding, smaller entities out of business due to the additional burdens, but it’s still too soon to tell,” Myers and Francesconi explained. “Those who knowingly succumbed to the less-than-ethical schemes pre-crisis have hopefully been weeded out of the industry, and we’re confident with the new regulations, will be more quickly identifiable moving forward.”
The success of the title and closing industry will be highly dependent on building solid relationships, effective communication, technology innovation, and regulatory compliance.
Vendor Connect’s Melmet says that the title and closing specialists have no alternative but to embrace changes brought about by the new regulations. “Companies need to be proactive in ensuring for success in our new regulatory environment,” he said. “Invest in personnel and IT resources to stay one step ahead of the ever changing regulatory demands of our industry.”
Small companies rarely have the technological or regulatory knowledge or resources necessary to effectively compete in rapidly changing real estate markets.
“The result of these challenges is that the trend towards title and settlement company consolidation will escalate,” Ruokis noted. “Economics will drive the trend but service flexibility will be improved through the process. Mid to large companies will simply have greater resources to meet the ever increasing technological and process requirements of their customer groups.”
Communication is still of utmost importance among all the players to the transaction.
Looking ahead, progressive thinking and planning will be key in helping title and closing companies comply with both state and federal regulations at the most affordable level.
“Knowing the expectations of your lenders is key in this new regulatory era, then finding ways to meet the lenders’ expectations will be another key factor to success,” Myers and Francesconi said. “As millennials emerge as homeowners, it’s important that they understand the importance of having title insurance from a reputable, financially stable title company.”
Ward added that title and closing companies will be successful in the future if they innovate in their service offerings by developing unique solutions through technology, process flow flexibility, and creativity in how they can enhance the consumer experience. “I believe there is a tremendous amount of opportunity in this space to make a difference,” he said.
Editor's note: This select print feature appears in the May 2016 edition of MReport magazine.