Who Is Closing Your Loans?

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TME-Alec-CheungLenders are finding it increasingly beneficial – in fact, necessary – for them to know precisely who is closing their loans and disbursing funds. This continues to be one of the least transparent parts of the lending process for lenders and borrowers alike. It is a point in the process where someone other than the lender interacts with the borrower. It is also where lenders are the most vulnerable to the results of bad actors in the settlement industry. So lenders not only want to know who is closing their loan, but they want some way of assessing history, credentials, associations, and associates.

The need for more transparency was re-emphasized in 2012 when the Consumer Financial Protection Bureau (CFPB) issued Bulletin 2012-3, stating that lenders will be held responsible for the actions of the third party service providers they use. The CFPB went on to say that they expected institutions to conduct a thorough due diligence to ensure that service providers complied with the law and monitor ongoing compliance, as well.

In addition to pressure from the CFPB (or arguably as a result of the CFPB!), lenders are also remaining very selective about whom they lend to. With low volumes, every customer has become more critical to retain. With so many channels and opportunities for customers to write reviews, post comments and share purchase stories, a bad experience with a closing agent can reflect poorly on the lender and cost them future business.

Other Drivers

Lenders are not the only ones that need to know more about who is closing a loan. Settlement agents frequently get a bad rap because of the actions of an unscrupulous few who commit some form of escrow fraud. The vast majority of settlement agents are trustworthy and professional, but there hasn’t been a universal way to differentiate themselves from the bad actors in the industry and in a cost neutral (to agents) manner.

Challenges

One of the challenges to validating the status of settlement agents is that information about individuals closing loans is not static. A recent analysis by eLynx showed just how volatile information about settlement agents is. There is an average of 62 new closing professionals with a variety of closing roles, and approximately 165 updates to existing profile information every week.

Another challenge is that there is no universally adopted common repository for registering and tracking all closing participants that include independents and attorneys. Title underwriters have information about their direct agents. Third party services have watch lists or white lists developed from public and/or proprietary data. But there isn’t a standard way to uniquely identify a settlement agent across all repositories, making it quite difficult, if not impossible, to create a complete, accurate snapshot of a particular settlement agent.

Early Progress

There are industry leaders that have introduced solutions and programs to address these challenges. eLynx launched a closing platform in 1999, which began collecting limited information about who was participating in the loan closing. Significant updates throughout the years culminated in the introduction of the eLynx Closing Network (eCN) in 2009. A key component in eCN is Settlement Agent Management (SAM), which requires closing professionals, including settlement agents, processors, escrow agents and attorney agents, to register with eCN before retrieving closing packages sent by lenders. As part of the registration process, prospective closing agents must provide risk mitigation information about themselves, their business, and their role in the closing workflow. To date, there are over 98,000 registered professionals, including independents and attorneys, representing a variety of roles in the closing process. The objective of adding the SAM feature into eCN was to provide some level of transparency into the closing workflow. SAM was the first third party service in the market designed to confirm that the closing professional lenders entrust with their closing documents and disbursing funds is who she says she is, and possess the right assets to mitigate risk throughout the mortgage transaction.

Another example of how the industry has responded so far is the Stewart Title Guaranty Company’s Trusted Provider Program, which vets all of the agencies and attorney agents in their network. To qualify as one of Stewart’s Trusted Providers, the agent must pass an intensive initial due-diligence screen, submit to a third-party audit, pass an extensive review of their experience, business, policy loss history, and licensing. Stewart Title has described the intent of the Trusted Provider program as an effort to raise the bar for independent agencies and attorney agents in their network, to elevate the professionalism and credibility of the title industry as a whole, and to protect the investments of their customers.

Enter ALTA

As the industry organization for settlement agents and title underwriters, the American Land Title Association (ALTA) works to help establish credibility for their members. ALTA’s Best Practices is their most recent initiative to create a standard of practice for settlement agents. These Best Practices were codified in response to CFPB’s 2012-3 bulletin, and include a certification component where members can validate their adherence to the established best practices.

For ALTA to make Best Practices work, there has to be a common and reliable way to uniquely identify each title and settlement professional. While every title underwriter assigns their own identification number, the challenge has always been ascertaining whether “Joe Smith” at Underwriter A is the same “Joe Smith” at Underwriter B, or an entirely different person.

ALTA Universal ID

To solve this, ALTA has formed a working group of industry volunteers, including title underwriters, title agents, lenders, vendors, and software providers, to develop a registry for a Universal ID for title agents and settlement service companies. Within the current scope of the effort, ALTA will host certain demographic and ALTA-specific program data such as ALTA Best Practices Certification and Policy Forms License compliance. ALTA will not be serving as a repository for data owned by others.

The ALTA Universal ID, will be based on a unique ID used in ALTA’s constituent database. Adoption of this ID by lenders, settlement agents, title underwriters, and technology vendors across the industry will be critical to getting this off the ground successfully. As such, ALTA has enrolled key participants from all areas to jointly bring life to the Universal Agent ID. Access to the ID will be facilitated using the MISMO eAgentValidation specification, which allows trading partners to develop standards-based programmatic access to the data repository.

Building on the Universal ID

The ALTA Universal ID and the MISMO eAgentValidation project are significant milestones but they are just the foundational layer needed by the financial community. For over a decade, eLynx has worked with lenders, settlement agents, title underwriters and others in the mortgage industry. Our experience has led to a number of insights about how to build upon the work being completed with the ALTA Universal ID. Following are additional considerations that have to be addressed in order to enable the kind of thorough and actionable validation lenders seek from the title community:

>> One standard integration with all the TUs and title production systems so that lenders don’t have to learn/use a separate validation process for each TU.

>> Expanded data fields in the MISMO eAgentValidation specification and broader adoption as the standard with which to facilitate that universal TU integration

>> Normalizing how the agent or closing professional is validated across the lender and underwriting community is required for a consistent outcome

>> Automating collection of the closing protection letter (or CPL reference) and establishing the legal acceptance of the “eCPL” to streamline the workflow process and provide a transparent audit trail

>> Evaluating key metrics post close to ensure that the lender approved transaction was what was actually used during the closing process

The amount of change that actually takes place in the normal course of title business is far greater and more intricate than one would initially think. Supporting that volume of change in order to provide a usable and valuable database of settlement professionals is complex and difficult. The more centralized that data is, the easier it is to manage. The Universal Agent ID is a fundamental first step that enables key services to function more effectively, and eventually, the question of “Who is closing my loan?” will be much easier to answer confidently and with assurance.

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