A New Lending Paradigm

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Paul-CliffordIn the current regulatory environment, especially under the Consumer Financial Protection Bureau (CFPB)’s TILA-RESPA Integrated Disclosures (TRID) rule, the lender is responsible for accurate and timely delivery of key disclosures to the borrower.

Lenders are under intense pressure to comply with these new rules and regulations. There is increased scrutiny and accountability thrust upon lenders in this new regulatory landscape. It requires lenders to rethink their lending practices, the touch points throughout the loan transaction and the communication that must take place among industry participants.

Historically, the lender prepared early disclosures, often without collaboration with the settlement agent, and the settlement agent carried the burden of preparing the HUD-1 Settlement statement. Now, due to the strict tolerances on fees and high potential fines to the lender, most lenders are preparing the new forms (Loan Estimate and Closing Disclosure forms) themselves and requiring information from the settlement agent earlier in the process.

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Currently, the limited communication is often via phone or email and not centralized or audited. Since the lenders are on the hook for completing these forms correctly, they need stricter controls and more streamlined processes to reconcile data between the lender’s main system, the loan origination system (LOS), and the settlement agent’s system, the title closing system.

In order to mitigate risk and meet these strict new compliance requirements and profitability goals, lenders have to drive new processes; but to accomplish this they need other parties to the transaction come along. Being connected to the right people at the right times throughout the loan transaction is critical and the main focal point for this new lending paradigm.

For lenders looking to do this securely and effectively, an electronic portal or document/data exchange is required. In addition, lenders are also feeling increasing pressure from investors to deliver final documents such as the recorded documents and the final title policy.

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The answer to these and many other industry challenges in this new lending paradigm is to connect lenders and closing agents in a truly collaborative manner.

For lenders to successfully navigate this lending shift, a system that is designed for adoption is critical. Collaboration can’t work in vacuum. A lender can invest in the best software but never create any efficiency if their collaboration partners, the settlement providers, are reticent to use the platform.

Lenders should be asking their TRID vendors what they are going to do to drive adoption. Will their vendor actively participate in onboarding and training of the settlement agents? Will there be a fee to the settlement agents? Does the vendor have a historical relationship with the agents? And, most importantly, if a vendor can’t deliver, can the lender freely move onto a vendor that has the mindshare of the settlement community?

Keeping collaboration open post closing is also critical. Your TRID solution should have a post closing/post tracking service that provides the visibility into the settlement agent processes after closing, along with the reception of recorded documents, fee data, and final title policy. Furthermore, in preparation for delivery of the Uniform Closing Dataset to the GSES, the system should support the ability to update final closing data so the lender has the final data for delivery.

Today these changes often never make it back to the lender’s loan origination system. Many solutions end at the closing process, which is why trailing documents continue to be an industry pain point.  Lenders need to know where the documents are and what happens to them after closing.

Lenders must find a service that allows them to share changes, deficiencies, and statuses and receive notification when activity occurs. So both parties can stay informed throughout the closing process.

A technology approach to this problem is needed, and one example of how technology can help is:

“With the TILA-RESPA changes, being able to connect lenders to their settlement agents is more important than ever to get the fee collaboration and transaction details right. Thinking ahead to October, I can’t think of how organizations would be able to remain compliant without electronic collaboration,” said Nancy Alley, vice president of strategic planning at Simplifile. “Our new services, Collaboration and Post Closing, were designed to deliver on the promise of a world where agents and lenders connect transparently.”

Simplifile Collaboration enables lenders to share, receive, and validate documents and data with their network of settlement agents. This independent service gives visibility into settlement agent processes and provides a platform for collaborating on fee data, documents, and transaction details. This allows lenders to share changes, updates, deficiencies, and statuses within one system, making it easier to audit and ensure compliance.

With lenders now responsible for the closing process, visibility is more important than ever. Simplifile Post Closing provides the visibility lenders need into settlement agent processes along with the reception of recorded documents, fee data, and final title policy.

Their post closing service is organization, system, and closing type independent. It supports all closing types including paper, hybrid, and fully electronic closings.

Over 17,000 closing and settlement companies are part of the Simplifile network. In total, over 9 million transactions go through the system annually. Also, Simplifile’s network has coverage of over 70 percent of the population from the counties. At present, 25 title closing systems and 93 land record systems are integrated with Simplifile.

This powerful, independent network already provides vast and deep relationships with closing agents and can now be leveraged by lenders to deliver critical collaboration (communication tools, document sharing, fee data sharing, notifications, alerts and audit trails) and post close tracking (recording and transfer tax fee estimates, recording status, estimated recording times, and electronic return of recorded documents and final title policy).

“Trailing documents continue to be an industry pain point,” Alley added. “Lenders need to know where the documents are and what has happened to them after closing. That is where Simplifile Post Closing comes into play and helps to solve some major problems that have existed in the industry for decades.”

Simplifile is pervasive on the settlement end, so if a lender needs to connect to the settlement end of the business, who better to work with than those people who are already there.

With the TILA-RESPA changes, being able to connect lenders to their settlement agents is more important than ever to get the fee collaboration and transaction details right. The movement of data, documents, and correspondence needs to be controlled, tracked, and audited to ensure a compliant process. In addition, the transaction doesn’t end at the closing table. Trailing documents continue to be an industry pain point. Lenders need to know where the documents are and what has happened to them after closing. If you are going to solve this frustrating problem, you have to embrace an electronic strategy that drives total transparency.

“I can’t stress enough the importance of meeting users where they already work every day. You have to start with the familiar, which means taking technology that is already in use and expanding the functionality,” stated Alley. “If you can do that, you can create a great value proposition that makes it easy for the user to take that next step. Our Collaboration and Post Closing services allow lenders and settlement agents to share, receive, and validate documents from time of application through delivery of final documents, and that’s a huge benefit. Delivering this benefit through an existing application that settlement agents, one way or another, are in every day streamlines their adoption; they don’t need new credentials to remember, and they don’t have to add or manage another vendor to start collaborating with their lenders.”

The other key to broader industry adoption is offering both partners and customers options to work with you, and you need to appeal to all sizes and types of customers. Some users want a lights-out process, so you have to offer flexible integration options. Others are seeking a ready-to-go user interface while others may prefer a hybrid of both to help them meet the October deadline and plan for the future. You have to work with everybody and make it easy for them to work with you, as well.

To embrace this new lending paradigm, lenders must collaborate with the right parties at the right time throughout the loan transaction to successfully navigate these new regulatory requirements while maintaining profitability. The time to connect lenders, settlement agents and counties is now.

About The Author

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Paul Clifford
Paul Clifford is President of Simplifile. As President, Paul manages all aspects of Simplifile’s corporate strategy. Recognized as an e-recording industry founder, Paul frequently presents at state and national industry trade shows and conferences. Prior to founding Simplifile, Paul served as the Director of Corporate and Strategic Planning for iLumin Corp., where he was responsible for researching, modeling, and creating strategic business plans and projects, including an automated mortgage transaction initiative for Freddie Mac and Fannie Mae.