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Closing Problems Lenders Can’t Control

It has been nine months since the TRID disclosure requirements were activated. During that time period the industry has had the opportunity to resolve issues such as the potential for delays in loan closings, problems with accuracy of the disclosures and the corresponding ramifications. Recently issues emanated from the secondary market concerning the potential of assignee liability for secondary market investors.

While all of these issues are generating numerous news articles and commentaries denigrating the requirements, forcing lenders to delay closings and increasing the overall costs of originating a loan, it has also exposed the fact that our partners in this process are less than knowledgeable, and in many cases, downright ignorant of the new disclosure requirements and documents. I had the pleasure, or rather the displeasure of experiencing this over the past several months as my daughter and her husband sold one house and purchased another. We all recognize that these new requirements are intended to provide accurate financial information to the consumers in order to ensure that they “know before they owe”, but is that really happening. Here is just one example of what borrower’s experience.

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My kids sold their then current home with no problem and found a home that they wanted to buy. Their loan officer was very knowledgeable in presenting various mortgage options and provided guidance to them for completing the application and they were able to understand the LE when it arrived. Now here I must admit that my daughter, having lived with a mortgage banker for most of her life, was much more knowledgeable than other borrowers. None the less, they found the LE very easy to understand.

The trouble began when the home inspection occurred and the inspector found a problem in the air conditioning. While this was obviously the sellers’ issue, the seller’s realtor increased the sale price of the property to cover the cost and told the kids that they could pay it with a personnel check at closing. Furthermore, she stated that if they didn’t do it that way, the lender was going to have to reissue the LE and that it would delay closing. Her reason she explained was because lenders had eight years since the mortgage meltdown and still couldn’t follow the new requirements. Of course, that didn’t happen.

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Once the loan was approved and scheduled for closing this same realtor called them directly to “warn” them that they better make sure their buyer had received her closing disclosure and that it was accurate or they would not be able to close on their current home. Meanwhile they had received their CD from their lender and using the amount they would have to pay, had made all the final arrangements. The call about the buyer’s CD created a panic when they were not able to reach their buyer and the buyer’s agent didn’t seem to know anything about a “required closing disclosure”. They finally got this straightened out only to get a call from the closing attorney with their “final figure” which of course did not match the CD. It seems that he had taken it upon himself to charge them for different “inspections” that their lender had not required or included in their fees because they were actually the sellers. After much back and forth discussions with threats from both the realtor and the closing agent, the CD was deemed correct. Confident that everything was now “OK” they proceeded to closing only to find out that the realtor fees were five thousand less than they had been told. So at the end of the day, despite the lender’s requirements to give these borrowers’ the exact amount of their closing costs, the overall amount required at closing was wrong. More importantly, it was wrong not because of the lender but because of realtors and closing attorneys. And here in lies the problem. The fact that these entities are ignorant of TRID requirements, have no regard for what is best for the buyer but are only interested in getting paid, and have no oversight but are free to manipulate buyers and borrowers, negates anything the lender is required to do. While I have been told that the realtor lobby is the strongest one on Capitol Hill it is time to stop harassing lenders and start requiring that these parties bear their responsibility in ensuring that consumers do “know before they owe.”

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Ernst, eLynx Link Systems to Enable Faster, More Compliant and Accurate Closings

Ernst Publishing Company, a provider of technology and closing cost data information for the real estate and home finance mortgage industries for the past 26 years, and eLynx, the pioneer and leader in on-demand compliance services for Data-Validated Mortgages, have linked their software systems to enable lenders and settlement agents to close mortgage loans more accurately, quickly and compliantly, to the ultimate benefit of consumers.

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The alliance creates a tighter integration between Ernst’s Settlement Agent Gateway, a collaborative fee management system that guarantees TRID compliant fees for both lenders and settlement agents, and eLynx’s Electronic Closing Network (eCN). eCN gives lenders transparency and control of the closing process while significantly reducing the risk of loss due to fraud and non-compliance. Both platforms were built according to Mortgage Industry Standards Maintenance Organization (MISMO) data standards.

“This is a perfect fit for both companies and delivers a huge benefit to both eLynx customers and our own,” said Gregory E. Teal, president and chief executive officer of Ernst Publishing. “We’ve spent the last 26 years creating software and systems that provide guaranteed accurate mortgage closing cost fees to lenders. And eLynx’s eCN platform is one of the best vendor management systems for closing agents. Together, we now offer a complete solution that removes the compliance pain from the closing process at the same time it guards against fraud and improves the borrower’s overall experience.”

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“Today, eCN gives lenders the confidence to work with over 100,000 registered closing professionals, the largest verified network of closing attorneys, partners and agents,” said Andy Crisenbery, senior vice president of business operations for eLynx. “By incorporating Ernst’s closing cost data to eCN, lenders now have easy access to guaranteed accurate fees long before the deal approaches the closing table. This is a very strong alliance that offers significant benefits to loan originators and their partners.”

A Wakeup Call

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TME-TGarritanoThe mortgage process is still a mystery to many. ClosingCorp, a provider of residential real estate closing cost data and technology for the mortgage and real estate services industries, released the results of a nationwide survey which reveals that approximately two-thirds of Millennials, adults between the ages of 18-34, who plan to buy a home are unaware of closing costs. The survey also found that across all adult age brackets, more than one-third of potential homeowners are “Not Very” or “Not At All” aware of closing costs.

“Much has been written about Millennials because they are the largest generation so far in U.S. history, and their longstanding impact on the real estate market and economy is going to be huge,” said Brian Benson, CEO of ClosingCorp. “Their buying behaviors are much different than previous generations, and of particular concern to the industry is that they are waiting longer to buy their first homes.

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This study emphasizes the need to better educate Millennials, and really all consumers in general, on the real estate closing process. While interest rates are often the driving force in initiating a real estate transaction, the realtor, lender, title and other settlement fees also have a significant impact on the down payment and cash outflow from the borrower perspective. Not understanding how everything is related can be a real impediment for first-time homebuyers who want to get into the market.”

The “ClosingCorp National Closing Costs Survey” of more than 1,000 adults, also showed that most people learn about closing costs from realtors, or by doing their own research. In fact, Millennial homeowners are more likely to learn about closing costs from a realtor as opposed to a lender by a ratio of nearly two-to-one.

“This study is very interesting in that it shows Millennials are more dependent on realtors than previously presumed,” said Benson. “We know they are more tech-savvy than their predecessors, so we believe this really highlights the complexity of a residential real estate transaction. Whether they are researching a home on their own or getting help from an interested third party, the bottom line is that people need access to the correct information, and it needs to be simple for them to understand. With the upcoming changes to the disclosure process being made by the Consumer Financial Protection Bureau this August, we as an industry should be stepping up our proactive education efforts to ensure homebuyers are fully prepared to make the most significant financial transaction of their lives.”

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Closing costs are paid when a real estate transaction closes and the title to the property is transferred to the buyer. They typically equal 2 to 5 percent of the total purchase price of a home. The fees are incurred by either the buyer or the seller, and typically cover everything from appraisal, inspection and attorney’s fees to home warranties.

I find all of this very troubling. Borrowers shouldn’t be in the dark about closing costs or other parts of the mortgage process. The best way to improve this is to automate the origination process with technologies like e-signatures. For example, Capsilon has launched a new version of its flagship product, Capsilon DocVelocity, that includes support for the electronic delivery, signing and vaulting of borrower disclosures and other mortgage-related documents.

This new version of DocVelocity gives users the ability to automatically assemble disclosure packages and email them to borrowers to sign electronically. Borrowers access the new DocVelocity Signing Table, an intuitive user interface for electronic signing of mortgage-related documents, to provide consent to receive electronic disclosures and to review and e-sign the documents.  Compliant with the Uniform Electronic Transaction Act (UETA) and the Electronic Signatures in Global and National Commerce Act (E-Sign Act), the new DocVelocity electronic transaction capabilities further Capsilon’s vision of straight-through processing (STP) of mortgage loans by reducing the labor associated with printing, assembling, packaging and shipping documents that need to be signed by borrowers.

The DocVelocity E-Vault, a secure location where legally binding, authoritative copies of electronically signed documents and their related transaction documents are stored and managed, is also new in this latest release of DocVelocity. Fully integrated with DocVelocity, the DocVelocity E-Vault protects assets using robust encryption, time-stamps documents and wraps them with a tamper-evident sea, maintains an audit trail for every stored asset and controls access to these documents with customer-defined user privileges.

These new E-Signing and E-Vaulting capabilities also help lenders demonstrate compliance by providing tracking and evidence of electronic delivery, proof that disclosures were delivered within the required timeframes and support for the authenticity and non-repudiation of electronic signatures.

In addition to the new electronic transaction capabilities, this new version of DocVelocity includes significant enhancements to the document management and document workflow capabilities of DocVelocity. These document management enhancements include a myriad of new capabilities to speed the workflow required for Capsilon’s vision of straight-through processing of mortgage loans. These enhancements include:

>> The ability to assign tags to documents to enable richer contextual information about documents. Document tags provide structured data that can be leveraged for automation.

>> A new document review workflow that gives users the ability to review and mark documents as “Accepted.” Once accepted, the document is locked and further changes to the name or contents are prevented.  This ensures the integrity of documents throughout the workflow.

>> The ability to mark a document as a “Decision Document.” This identifies which documents were used for making underwriting decisions, speeds workflow and ensures loan integrity.

>> Document-level security that enables role-based access control to documents. The ability to view, sort and deliver specified document types, along with a number of other actions, is granted only to users assigned to specific roles.

“The pressure on mortgage lenders to reduce loan production costs while maintaining loan quality and compliance has never been greater,” said Sanjeev Malaney, chief executive officer of Capsilon Corporation. “Our goal is to deliver the technology that lenders need to realize an exception-based model of straight-through processing of mortgage loans, where up to 80 percent of labor is eliminated. This new version of DocVelocity delivers on that promise with support for electronic transactions and improved document management and document workflow capabilities that speed loan turn times and reduce labor-related loan costs, while ensuring compliance.”

This new version of Capsilon DocVelocity is expected to be available to customers in the second quarter of 2015. Current DocVelocity customers can access the new product features as part of their SaaS subscriptions, though some new features and services are available at an additional cost.

The bottom line is that we all have to do our part to make the mortgage process better.

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Who Is Closing Your Loans?

You Can Download This Full Article As A PDF HERE

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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Change The Way You Think

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TME-RGudobbaOrganizations are facing a multitude of challenges forcing them into making more decisions, and faster, every day. The ability to recognize complex situations and resolve them is a critical skill. The best decision makers accept the challenge and face it head on rather than avoid it. Most of us believe we are capable and impartial decision makers. Unfortunately, the research indicates otherwise.

In ‘The Design of Business’, Roger Martin offers a compelling and provocative answer: we rely far too exclusively on analytical thinking, which merely refines current knowledge, producing small improvements to the status quo. To innovate and win, companies need design thinking. Roger Martin unveils a new way of thinking that balances the exploration of current knowledge (innovation) with the exploitation of current knowledge (efficiency) to regularly generate breakthroughs and create value for companies.

The Four Stages of Design Thinking: In ‘Designing for Growth’, Jeanne Liedtka and Tim Oglivielaid out a simple process for using Design Thinking. Whether your focus is growth, redesigning internal processes, launching new products or expanding into new markets, the basic methodology remains the same. The design thinking process examines four basic questions, which correspond to the four stages of Design Thinking. What is? Explores the current reality. What if? Envisions multiple options for a new and better future. What wows? Makes some choices about where to focus first and What works? Moves into the real world to interact with actual users through experiences.

Five Contributions Design Thinking has made to business. In the Fall, 2013 issue of Rotman Magazine, Jeanne Liedtka listed the following.

1. The Power of Re-framing: Design Thinking helps us ask better, deeper questions that expand the boundaries of the search itself. One of the most serious challenges we fac in our quest for innovation is our own impatience, which makes us rush to solve instead of taking the time to understand. Spending time at the front end of the process to explore the question and it’s context can pay big dividends in producing more effective solutions.

2. Collaboration. How many of us have been trapped in seemingly endless debates between ‘quant jocks’ and ‘intuitives’ or between those advocating the ‘customer case’ versus those insisting on the ‘business case’? Design thinking refuses to get caught up in debates and either/or thinking. Instead, it insists that we develop shared insights and ambitions before generating ideas, and that we use data from experiments (rather than theoritcal debates) to determine the most effective course of action.

3. Curation. Design thinking helps us to drill down to the essence of an issue and see what really matters. This is an increasingly important role in today’s environment. Wired magazine has announced that we have entered the “age of curation,” where we are “surrounded by too much music, too much software, too many websites, too many feeds,too many people, too many of their opinions and so on…” The problem: research demonstrates that too much information actually degrades the quality if our decisions. But it is unlikely that this information bombardment is going to let up. We predict that the future will place even more value on the ability of the design process to cut through complexity to find nuggets of wisdom.

4. Comfort with Emphasis. Design is comfortable with ’emptiness’ – with leaving space in the emergence of a solution so that many can contribute to it. Managers are often taught the importance of finishing something, making it complete; but artists and philosophers know better. “To finish a work?” Picasso said; “What nonsense! To finish it means to be through with it, to kill it, to rid it of its soul.” In organizations, employees want to be pa of works in progress, too, to feel the sense of discovery as it unfolds. Design thinking builds these possibilities into every step of the process.

5. Speed. The final contribution is an outcome of the previous three: when you combine the engagement and alinement that design’s affinity for collaboration and emptiness makes possible with skilled curation, you get another invaluable asset for any organization trying to move innovative ideas through bureaucracies: speed. Design’s ability to deliver engagement, alignment nd curation greatly enhances speed by removing the friction and subsequent drag created by trying to unite people with different views of the world around a new idea.

Design Thinking: Whatever label it goes by, this approach to problem solving is distinguished by a few key attributes:

>> It emphasizes the importance of discovery in advance of solution generalization using market research methodologies that are empathic and user-driven.

>> It works to expand the boundaries of both our problem definitions and our solutions.

>> It is enthusiastic about engaging partners in co-creation.

>>It is committed to conducting real-world experiments rather then running analyses using historical data.

Let’s explore this further by looking at a recent RFI (https://federalregister.gov/a/2013-31436). Specifically, the Consumer Financial Protection Bureau (CFPB) seeks information on key consumer “pain points” associated with mortgage closing and how those pain points might be addressed by market innovations and technology.

Consumers and Closing

1.)What are common problems or issues consumers face at closing? What parts of the closing process do consumers find confusing or overwhelming?

2.)Are there specific parts of the closing process that borrowers find particularly helpful?

3.)What do consumers remember about closing as related to the overall mortgage/home-buying process? What do consumers remember about closing?

4.)How long does the closing process usually take? Do borrowers feel that the time at the closing table was an appropriate amount of time? Is it too long? Too short? Just right?

5.)How empowered do consumers seem to feel at closing? Did they come to closing with questions? Did they review the forms beforehand? Did they know that they can request their documents in advance? Did they negotiate?

6.)What, if anything, have you found helps consumers understand the terms of the loan?

Errors and Changes at Closing

7.)What are some common errors you have seen at closing? How are these errors detected, if at all? Tell us about errors that were detected after closing.

8.)What changes, diverging from what was originally presented at closing, often surprise consumers at closing? How do consumers react to changes at closing?

Other Parties at Closing

9.)How, if at all, do consumers typically seek advice during closing? In person? By phone? Online?

10.)Where and to whom do consumers turn for advice during closing? Whom do they typically trust?

Closing Documents

11.)What documents do borrowers usually remember seeing? What documents they remember signing?

12.)What documents do consumers find particularly confusing?

13.)What resources do borrowers use to define unfamiliar terms of the loan?

Improving Closing

14.)What, if anything, would you change about the closing process to make it a better experience for consumers?

15.)What questions should consumers ask at closing? What are the most important pieces of information/documents for them to review?

16.)What is the single most important question a consumer should ask at closing?

17.)What is the single most important thing a consumer should do before coming to the closing table?

The CFPB has been very open and shows a strong willingness to collaborate with the mortgage industry in addressing consumer’s concerns. I encourage and challenge everyone to consider the Design Thinking concepts when formulating your response to the RFI. This is the time for some progressive ‘thinking outside the box’.

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