Talk in the title industry has centered on two topics over the past year: ALTA’s Title Insurance and Settlement Company Best Practices (and the larger issue of lender liability for service providers) and, of course, the implementation of the TILA-RESPA Integrated Disclosures rule (TRID). While the industry will sooner or later adapt to TRID, we believe that in 2016, the issues which spurred ALTA to propose the Best Practices in the first place will continue on as a common topic. More specifically, as the Consumer Financial Protection Bureau (CFPB) begins to crack down on the third-party service providers of mortgage lenders, title and settlement agents will likely see even more requirements from their lending clients mitigating their risk and increasing the agents’ costs associated with maintaining compliance. From requirements for data security to centralized disbursement, consumer complaints and closing requirements, the title community in 2016 will be forced to find new ways to decrease or offset their already burgeoning costs. In many cases, they’ll be considering ideas or concepts they might not have accepted even five years ago, all in the name of adapting to a rapidly evolving mortgage regulatory environment.
Competitors on some fronts. Partners on others. Let’s face it. Ours has always been a competitive industry. For the most part, title agencies cannot compete on price. Legal and regulatory requirements make it extremely difficult to go too far “out of the box” in creating a title-based product. We are limited to promoting a few elements of our products and services, which are the same things our competition is promoting. Furthermore, it’s not always easy to convince a prospective client that one’s service or efficiency is better than that of a competitor. As a result, we can sometimes pay perhaps too much attention to what our competitors are doing as we claw for market share.
In the coming year, that focus will begin to shift for many agents. For some, it already has. Even during the best of times, the typical business model for a title agency has never been about strong margins. With increasing demands from investors, lenders and regulators leading to exponentially increased expenditures on technology, expertise, staffing and more, a fair number of agencies are hitting their limits. For some, that means selling the business or even closing up shop altogether. But not everyone wants to (or can) exit the game. Accordingly, some of us are engaging in strategic partnerships, alliances and other similar agreements in order to pool similar resources and eliminate redundancies.
The goal is to cut costs without completely forfeiting the independence we’ve worked so hard to establish. While the individual agencies participating in such arrangements maintain a fairly autonomous focus on new business, marketing and the like, each participant simultaneously eliminates costly redundancies in the back office, production or support functions. If five agents can share a single technology platform or full-time staff position with no noticeable diminishment of the firms’ capabilities, why not cut one’s associated costs?
It goes without saying that some competitors will never share resources on principal (or pride) alone. But for those who can co-exist, partnering and networking can be an outstanding means for sharing mushrooming costs and maintaining profits.
Get rid of the last of your manual or bolted-on processes and paper files. Some in our industry continue to do business the old fashioned way: paper files, ad-hoc processes, minimal technology. That is about to end. If the market alone doesn’t drive the Luddite agent out of business, a CFPB eager to see the “paperless mortgage” could finish the job. A title agency that isn’t using efficient processes held together by integrated technology is treading on thin ice. TRID alone will likely test that practice. The demands will continue to grow. Agents who aren’t flexible, adaptable and efficient will soon become dinosaurs.
Don’t forget that there are many types of technology that can assist an agent in staying compliant. If nothing else, the tech-enabled agency can show documentation to clients or regulators proving that they are making good-faith efforts to comply (and, in so doing, keep their clients compliant with regard to third-party culpability). That reason alone should be grounds for reviewing your technological capabilities and processes with a skeptical eye.
If you’re not sure where to start, there are more than a few firms and consultants out there who have extensive experience retooling agencies needing work in the streamlining department. Talk to your peers and trusted advisors for recommendations. Your underwriter or your trade associations may also have some suggestions. Chances are that you will have to give up some processes and equipment you’ve used for years or even decades. The process could, at first, be costly and even a bit painful. But if your agency isn’t as lean and efficient as possible, it’s probably a matter of time before the “next TRID” or next new lender policy puts your business into the red.
Let someone else do it. For a number of reasons, the title industry has long viewed outsourcing (especially offshore outsourcing) with a bit of disdain. Ironically, many of those who steadfastly refuse to outsource some job functions or processes to a third party have no objection whatsoever to making use of outside legal counsel or accounting services. The fact is that outsourcing is not what it was even 10 years ago. There are numerous entrants to the space, each vying to prove they can assist your compliance efforts, maintain quality and reduce your costs.
It’s time for us to accept that costs will not go down on their own. Not in the near future. Some of that is inherent to the way our industry came into existence. Ours is one of the few insurance segments to collect its fee only after investing its time, money and labor into the new policy. This is not the ideal collection model, but it is reality. The successful agents have already purged unnecessary expenses from their operations. Positions requiring little or no skill, time-consuming reporting and other functions that can be done faster and cheaper should really, in today’s climate, be outsourced as much as possible.
With each increased requirement placed on the title agent comes a cost. The game can no longer be solely about revenue. It has to be about margin and profit. Although most forecasts suggest that 2016 will bear similarity to 2015 as to loan origination volume, it is not likely that the “fish will jump into the boat” as they did during the refinance boom. Right now is the time for the title agent to be thinking ahead for ways to trim expenses without cutting quality. It could prove to be one of the most effective competitive advantages available in years.
Beyond TRID, What Should Be Next The CFPB wants it. The title industry has tried it before. What has changed? What are we talking about? The online, virtual closing is once again the new frontier. Yes, we know it has been tried before and multiple attempts have failed miserably. Attempts to build an online settlement platform have been less successful than the dozens of attempts to launch and certify new very light jets. So what is different? Frankly, the reason most of these virtual systems failed to gain any traction is twofold:
Lenders could not deliver loan packages in advance of the closing. In the past, it was typical to receive the packages minutes before or even hours after the closing was scheduled making it impossible to generate a HUD-1 Settlement Statement in advance. This rendered most attempts to deliver this to the borrowers in advance pointless;
Most of these systems were too ambitious. Various systems tried to incorporate all electronic delivery systems, document signing and e-notarization. Now that lenders are required to deliver the Closing Disclosure at least three days in advance of the consummation, we are able to consider delivering the full package electronically to the borrower with document-by-document audio and textual help. Now, the borrowers can relax at home and review their entire loan package with detailed help well in advance of the actual consummation.
Let’s leave it at that: 90 percent of the utility in such systems is accomplished. Don’t try to overreach for 100 percent. This allows for simplicity and economy.
Mike Bell and Elliot Liss are principals for Closeline Settlements, Alexandria, VA.