The Trusted Adviser
November 2012 | Volume 5 · Number 8


Stormy Weather Update:

ATG and ALTA Respond to Regulatory Proposals

Jerry Gorman photoIn our September issue, we reported on the "perfect storm" of regulation that could dramatically alter the title and settlement industry in the near future. The two most significant issues on the table are the replacement of the Good Faith Estimate (GFE) and HUD-1 Settlement Statement with new loan and closing disclosures and the proposed insertion of third-party vetting companies into the process of approving and auditing title agents.

Last week, at ATG's eighth annual Harold Levine Real Estate Institute, Michelle Korsmo, CEO of the American Land Title Association (ALTA) and Justin Ailes, ALTA’s Vice President of Government and Regulatory Affairs, along with Peter Birnbaum, ATG President and ALTA Board member, updated more than 170 attendees on the current status of ALTA's response to these regulatory changes. While the final rule by the Consumer Financial Protection Bureau (CFPB) is unlikely to be implemented before 2014, lender requirements for vetting of settlement agents and processes have been proposed by some lenders to start in the first quarter of 2013. ATG has been working closely with ALTA leadership to develop an alternative certification process for title agents. This alternative certification process is designed to satisfy lenders’ concerns for escrow fund security in a more efficient and effective manner and thus avoid costly individual agent review by outside companies.

As a result of the settlement between several major banks and most of the country’s Attorneys’ General after the “robo-signing” scandal, new requirements are coming out of both the CFPB and Office of the Comptroller of the Currency (OCC) establishing 100% lender liability for actions of third parties they hire to perform services, including mortgage loan closing services. These regulations compel lenders to seek confirmation that the settlement agents they hire are financially solvent, honest, adequately reconciling escrow accounts, and maintaining proper privacy and technology safeguards. As a result, certain warehouse lenders instituted requirements that title/settlement agents have employees and procedures reviewed by third-party vetting companies, such as Secured Settlements, at high annual costs in order to be certified as closers. At the same time, Wells Fargo and other lenders began to establish their own guidelines for closing agent approval.

ATG, working with ALTA leaders, agreed that this combination of disparate lender requirements and expensive outside company review would be inefficient, costly, and ineffective. The entities with the highest vested interest in maintaining adequate controls over escrow funds and consumer data are the title agents and underwriters themselves. Therefore, ALTA set about the task of establishing uniform standards for title agents. The resulting document, Title Insurance and Settlement Company Best Practices, is in its final stages; here is a summary:

1. Establish and maintain current license(s) as required to conduct the business of title insurance and settlement services.

2. Adopt and maintain appropriate written procedures and controls for Escrow Trust Accounts allowing for electronic verification of reconciliation.

3. Adopt and maintain a written privacy and information security plan to protect Non-public Personal Information as required by local, state and federal law.

4. Adopt standard real estate settlement procedures and policies that ensure compliance with Federal and State Consumer Financial Laws as applicable.

5. Adopt and maintain written procedures related to title policy production, delivery, reporting, and premium remittance.

6. Maintain appropriate professional liability insurance and fidelity coverage.

7. Adopt and maintain procedures for resolving consumer complaints.

Final ALTA approval of the Best Practices should be concluded shortly. At that time, ALTA will meet with top lenders to gain their approval of the certification process under Best Practices, which will then allow those agents meeting the certification process to continue to conduct closings for that lender. Under Best Practices, it will be the duty of the title underwriter to conduct agent audits that will verify and certify that the agent is meeting these standards. ATG will continue its close work with ALTA in developing our audit procedures for agent compliance.

Obviously, ATG's business model of lawyers acting as title agents presents some unique challenges to meeting this certification process—especially for those lawyer agents who practice in small offices. Peter Birnbaum, as a member of the ALTA Board of Governors, has been a strong advocate of realistic rules for small agents.

If implemented as originally drafted, these rules would have made it very difficult for many small title agents to comply. We are approaching this issue from two sides: In addition to working toward manageable rules, ATG is also is working to provide practical tools that will allow smaller agents to compete under the new guidelines. ATG is already working on programs and procedures that will allow our agents to qualify. For example, ATG has been carrying fidelity coverage for a number of years at the company's expense.

Please continue to monitor email communication from ATG and our Underwriting News for further developments on this topic. Contact me with any questions.

Jerry T. Gorman
ATG Senior Vice President - Downstate Operations

View photos from the Eighth Annual Harold I. Levine Real Estate Institute
at the UBS Tower in Chicago, November 14, 2012

[Last update: 11-28-12]

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