This blog normally focuses on mortgage industry issues relating to fraud.  Today, however, I wanted to talk about an issue that is more personal and near to my heart, knowing some close friends who are dealing with severe anxiety and depression during these times.  They call their difficult days “COVID down days.”

COVID “down” day is a day you wake up and cannot seem to overcome the anxiety caused by another day in “lock-down.” It is the fear of even traveling outside your home with with mask and gloves because who knows if that will prevent the disease from infecting you or your loved ones. It’s the sadness of not being able to see friends, family, acquaintances and missing significant events such as weddings, graduations, birthdays and anniversaries. It is the sinking feeling that this crisis may never end, and that it will simply go up and down like a roller coaster and you will never feel safe anymore. It is confusion over statements from “experts” who say one thing one day (masks good) and the opposite another day (masks bad). It is concern that life will never be “normal” again and that “new normal” is not something you can accept.

If you or anyone you know has any or all of these feelings you are not alone. Depression and anxiety are real emotions felt by many people today around the world who are living life like an animal locked in a cage in a zoo. People who feel these emotions are not “crazy” or “sick.” They are experiencing real pain that requires us to be patient, loving, reassuring and supportive.

If you are feeling this way do not hide your feelings or mask them with drugs or alcohol. Reach out to your partner, a family member or a friend you can trust and talk it out. Talking heals. Hugging heals. Listening heals. Kind words heal. 

If you are a person of faith (and even if you are not) consider taking out a Bible and reading some passages that offer comfort, such as John 14:1-7, 27; Isaiah 43:1-3; 2 Corinthians 4:8, 9 16-18; 1 Peter 5:7-11; Psalm 46; Psalm 28:7; and Psalm 91:1-8. Reading these words you will soon realize that you are blessed and loved by God. Don’t let your heart be troubled, for He is with you and will never forsake you. Trust Him and take your cares to Him and your prayers will be heard.

LOVE TO YOU ALL!

Even the best laid plans and the most stringent controls cannot prevent every fraud loss.  When a loss does occur, where do you turn to mitigate your damages? Insurance and fidelity bonds provide a measure of recovery when losses occur; CPLs are not insurance policies as we have covered before and are not included in this post for that reason.

Interestingly there is no national mandate, rule, law or other directive which requires all settlement agents to obtain and maintain insurance.  A few states have errors and omission insurance requirements and even more have very limited fidelity bond requirements, but that’s it.  Most attorneys in the United States have no obligation to purchase insurance! This means that a lender can never under any circumstances simply assume the company or individual handling its money and documents has an insurance or a bond to covers mistakes or bad acts.

In addition to who is covered, it is important to understand what is covered and for how long.  The bond and insurance worlds are unique unto themselves. Agents for insurers offer various policies and products which are filled with jargon and terminology foreign to most people.  Policy coverage clauses are offset by limitations and outright omissions which, if you are not trained to decipher, may mean when an event occurs you have no legal right to file a claim and receive a recovery.

All errors and omissions and malpractice policies are “claims-based” meaning that a policy must be in effect when a claim is made, and prior coverage later canceled or suspended offers no recourse.  Even more daunting for lenders who try to manage insurance verification is the typical practice of  financing premium payments.  This means that coverage can be bound on an initial deposit, but later withdrawn and canceled when a payment is missed.  Unless a lender is tracking payments, there is no way to know if coverage remains in effect.

Recently insurers have been making significant and material adjustments to insurance policies, carving out previously covered areas or clarifying certain exclusions to omit liability for losses from wire fraud, email hacking and cyber fraud, and even any lender representation that would involve following closing instructions as a fiduciary of the bank and not just a representative of the borrower.  For example, we have seen insurers in Massachusetts carving out from coverage wire fraud incidents in policies covering real estate attorneys.

Another phenomenon that has come to light, because insurers are charging higher premiums for anyone acting as a settlement agent for a lender, are attorneys notifying banks that in any real estate transaction they will not act for the bank, will not follow closing instructions and will restrict all of their responsibilities to the borrower aspects of the closing.  We were obliged to notify a lender just recently that an attorney to whom they were going to wire funds, send the closing package, and bind to written closing instructions, was refusing any duty to act on their behalf at the closing table.

Because the CPL offers little to no relief when a lender is victimized by fraud at a closing, it is imperative that lenders use a tool or develop a process internally that obtains, evaluates, and manages insurance and bond coverage for all settlement agents to whom it delivers a funding wire and closing package.

At Secure Insight we verify insurance and bonds at the source of issuance, track payments and cancellations, and evaluate coverage to uncover unusual carve-outs, limitations and omissions from coverage.  This is only one of the reasons that for nearly 10 years we have successfully managed millions of loan closings without a lender loss.

The current COVID-19 health crisis presents the mortgage industry with a unique dilemma when it comes to risk management and crisis leadership.  For those of us who lived through the 2008 financial meltdown, this feels very different.  In fact it is a lot different.

In 2008 banks and mortgage lenders faced somewhat unprecedented losses when a combination of a bear market on Wall Street, a sour economy, rising interest rates, and increased unemployment caused massive foreclosures.  Lenders were overwhelmed with loss mitigation efforts.  It felt like the industry had burst a success bubble that had been growing and growing for 5-7 years on the backs of a mini economic boom and great rates.  Relaxed lending standards and high risk loan products further fueled the growth until it all collapsed.  The result, which triggered the Wall Street Reform/Dodd-Frank Act, was very different than today.

The problems of the 2008 collapse were somewhat centralized.  While the consequences did effect other nations and other industries it was not universal. Banks needed propping up and some sectors of the population faced financial stress however not everyone felt the pain.

COVID-19 is a threat to the entire world.  As of today 184 nations have reported the health threat in their populations.  The threat is the same to everyone, every industry has been impacted, every community has faced the threat, and the risks have been medical, financial, supply chain, economic, and psychological.  The risk has been a moving target, so that the normal approach to risk management (identify the risk, assess the consequences to your business, and manage a response to mitigate losses) has been difficult if not impossible.

Whereas in 2008 the issues on Main Street boiled down to “will I save my house?”, and for lenders,  “will I regain my profits?,” today they are more dramatic.  Today the worries for many people are “will I survive?, “when can I leave my house and get back to a normal life?”, and “do I have enough food to feed my family?”

Still, a crisis demands crisis leadership.  It requires us to apply a systematic approach, to adapt and overcome through innovation and creativity, and to embrace forward thinking.  The current situation has inspired a multiplicity of effective responses:

• Businesses had to establish key priorities to allow them to continue to conduct business as an essential industry.  Many lenders addressed this by (a) creating remote work environments, keeping folks employed, keeping business going and adapting to new workflow and operational processes based on all available technology platforms.
• Companies have been forced to embrace innovation and create new ways of doing things.  Digital mortgages have been around for years but never received the love they are getting right now.  The rush to embrace eMortgages and eClosings has been overwhelming to many of the providers of these services.  Overnight they have become important and they are responding.  Likewise remote notarization, a concept that gained little traction nationwide before COVID-19 is now taking off, with several states simply issuing executive orders allowing something they never permitted before this crisis.  The rush to train and prepare closing agents for a digital mortgage world is ongoing and important.
• Government intervention was needed which included the executive orders previously mentioned, Federal Reserve intervention, small business assistance, and tax and income assistance are all positive responses to the economic gut punch this “silent enemy” has driven into the American economy.
• Business leaders have had to adjust to a “new normal.” High stress, high stakes executive leadership  where the focus is to overcome as well as one possibly can making the best decisions in a changing environment without precedent and without a clear picture of an end game. Will this last a few more weeks?  Will it take a few more months?  Could it last a year?  The healthcare and economy experts all differ in their responses, which does not give business owners much comfort.

Some of you may be familiar with the “Stockdale Paradox,” named after Vietnam prisoner of war and Medal of Honor recipient Admiral James Stockdale (also Ross Perot’s VP running mate for trivia buffs).  During his imprisonment Admiral Stockdale won praise from fellow prisoners for establishing and maintaining a crisis communications process to maintain morale and discipline under very trying circumstances.

The Stockdale Paradox looks at crisis communications as a fine balance between honesty and hopefulness.  It employs a combination of clear and open honesty of circumstances, expressing realities and avoiding false hope, while on the other hand projecting a basis for rational hope and positive thinking (“we will all get through this”).

Business leaders in the mortgage industry can easily adopt the Stockdale Paradox approach by establishing regular communication channels.  Many lenders open each work day with a teleconference with key managers to review the previous day’s work, to discuss issues and problems and to solicit and discuss ideas to move their companies forward.  These events help to keep employees calm, focused, informed, organized and supportive.  The key managers are encouraged to take the overall message back to their departmental employees thereby maintaining a line of communication from the very top throughout the entire company.

Beyond good communication what else can leaders in crisis do to help their businesses and their employees?  Continue to lead.  Make decisions through keen and careful observation of the current circumstances.  Be innovative.  Be flexible.  Remain confident while also being on guard for unexpected consequences and unplanned events.  No one knows what the near and far term holds for us all, yet we must keep moving forward.

Lastly, do not neglect your employees as they are fearful and rightly so.  Encourage them with emails.  Plan morale building activities (send in photos outside your window, guess the baby picture are just two I have heard about among your peers) and send them a care package to let them know that even if they are remote and out of sight they are not out of your mind as a leader.  We sent each employee a bag of chocolate covered pretzels last week.   This was a small gesture to be sure, but one which was appreciated by every employee because the gift, with a short note of thanks and encouragement, was a pleasant interruption from the daily routine at home.

Lastly, remember your core business values.  These concepts that have guided your organization for years do not stop when employees work from home, nor should they be abandoned in this time of crisis.  I might argue that the opposite is true: core values are most important when times are stressful, difficult, and uncertain.  These values are a foundation for resilience and continued success.

Be well.  Be strong.  Please remember we are all in this together!

Recently we have heard about states rushing, by way of executive order or rule change (NY, NH, CT) and with hastily passed legislation (NJ), to permit remote online notarization in their states.  The motives are clear and the intentions are good: the ability to close loans while limiting human interaction is critical at this time of the COVID-19 health crisis.

However in the rush to do something to help the mortgage industry continue to thrive and close loans, there is some fallout occurring.

First, because the rules and laws are state-determined there is no uniform consent nor uniform approach to how eNotarization, eClosings and RON may occur in each state. Thus lenders who lend in multiple states need to research whether these transactions are permitted where they are lending, whether there are  qualified settlement professionals in the state to conduct them, and whether they have the right technology platform to manage the process.  With the already disrupted work flow, this is straining compliance departments who are struggling to get up to speed on the legal and operational differences between eNotarization and RON for example, who has the best tool to deliver the documents, and just who is going to manage, supervise and verify that these processes are taking place properly.

Second, because eNotarization and RON impact the legality of important recorded instruments and documents, beyond whether a state will permit the process, title underwriters and their agencies must agree to insure title where electronic and remote notarization occurs. The State of Connecticut’s new rule changes, for example, which  essentially “deputizes” “every attorney in that state as a RON seems to have caught  many people by surprise, not the least of which are the real estate attorneys themselves who may not even know what RON even means. Furthermore, it is unclear whether title insurers have immediately flipped the switch to allow these professionals to conduct RON on documents they must record and insure in CT.

Third, a key part of the mortgage manufacturing process is the end game of selling loans to the secondary market.  This means in states with fast changing rules, investors must be up to speed and also be willing to accept a loan package where deeds, mortgages and notes are executed with non-traditional notarization when they have never seen those appearing in loan packages up to now.

Eventually, as with most things that see drastic change, the people and the processes will catch up and the industry as well as the consumers they serve will be better for it.  One thing is certain, when this crisis is over the way lenders close loans will likely change forever.

Here at Secure Insight we remain committed to doing our part to help lenders adapt to these changes.  Our staff continues to verify which of the professionals in our nationwide database are eNotries, RON trained and have eClosing experience and that information is being added to our agent profiles.  Beginning next week our clients will see these new designations to help them search and locate trained, licensed and qualified people who can assist them as they transition to electronic transactions.

If you are not a client and wish to gain access to our database please reach out.

The mortgage lending industry has faced severe financial threats and incurred significant financial harm due to data security and data privacy breaches.  These breaches have resulted in wire fraud, data theft and identity theft in the past few years.  The industry has previously come together and incorporated tools and policies to combat the issue, however the government’s stay at home orders are now taking many into uncharted waters and raising risk concerns.

Those professionals now sheltered in place at home, who include mortgage industry processors, underwriters and closers, as well as settlement professionals, including attorneys, title agents and escrow officers, need to adopt measures to protect banks and consumers from harm.

Just as they would in their offices, these important workers who have daily access to consumer personal and financial data, and are transmitting information, files and even wire instructions via email, must maintain strict policies to avoid fraud.  This means to only use company email addresses when conducting business, turning off home computers when not working, destroying hard copies of files instead of simply throwing them in the trash (via shredder or simply tearing them up), avoiding talk about consumer personal information within earshot of family or friends who may be about, and not leaving laptops and hard files in their vehicles when traveling or simply sitting in the driveway.

In addition to these simply personal practices, sheltered at home workers must be even more diligent regarding wire fraud.  Whenever there is a breakdown or interruption in a well conceived and executed workflow, there is the possibility for exploitation by criminals.  With so many conducting work at home it is only natural to let one’s guard down a bit, to skip strict compliance and operational policy steps, and even perhaps in an early morning or late evening state of tiredness, miss a phishing communication that can open the door to financial disaster.

As we all learn to adjust to the new normal when it comes to the mortgage industry, let us not forget to focus on the potential harm that data privacy and security breaches can cause to everyone.

In the midst of the current COVID-19 health crisis, lenders and settlement agents who schedule and conduct mortgage loan closings where a small group of people typically gather to sign documents and finalize a transaction should consider adopting a process that offers a safe place to conduct business.  A suggested checklist might include the following:

1.  Speak with all parties who intend to appear at a live closing and inform them that you will be implementing a clean and safe environment;
2. Make sure that anyone who is displaying ANY symptoms of illness (coughing, sneezing, runny nose, fever) does not appear and where possible send a substitute professional (realtor, attorney, title agent, notary, escrow officer).  Where a seller or buyer is ill consider, with proper legal advice, whether you can close with a duly executed power of attorney.
3. Restrict the numbers of persons in the closing room. If necessary mail checks to realtors, limit family members attending, and ask anyone not directly involved not to appear.
4. Clean the closing room thoroughly, clean all table surfaces, all chairs and the door handles (this must be done before each closing if more than one is taking place that day);
5. Make hand sanitizer available for everyone;
6. Make sure that the room is properly ventilated, and open a window if possible;
7. Offer (new, unused) masks to anyone who may want to use one;
8. Be prepared so that the participants can get in and get out quickly.  Have all documents ready to sign and notarize,  have all copies made,  have all checks cut and ready to distribute;
9. Have everyone bring their own signing pens so they are not shared around the table;
10. Ask the seller to clean keys, garage door openers and anything else being handed over to the buyer at the closing.
11. Keep the atmosphere pleasant, despite all the precautions the idea is not to create a “war room” environment but simply to create a safe place where people can feel comfortable without being scared.
12. Lastly, consider learning more about e-mortgages and e-closings as well as remote notarization.  These platforms are the wave of the future and will allow complex mortgage transactions to be managed seamlessly from a distance.  Lenders and closing agents need to learn the e-process however it is not to difficult it just requires a change in the way you think about documents and signatures and notarization.

Secure Insight and DocMagic have been working for a year on developing an e-closing training program to help settlement agents understand the process and be qualified to conduct e-closings using the DocMagic platform.  Given the current interest in expanding the use of e-mortgages and e-closings, we are working very hard to launch an online education and qualification site very shortly. If you wish to know more reach out to us.

In the meantime, get out the cleaning products and masks and keep closing those loans!

With the latest news that towns, cities, counties and in some places entire states are shutting down as a precautionary measure to prevent the spread of COVID-19, concern is rising that the inability to record notices of settlement, deeds, mortgages and mortgage satisfactions will upend the closing industry.

In order to successfully conclude the closing of a mortgage transaction several important things must occur. Loan documents must be executed and in some cases notarized. Prior liens must be extinguished and discharged of record. New ownership instruments (deeds and leases) must be properly recorded. In addition, the new mortgage instruments must also be recorded. The timing of recordings is also critical to the proper structure of legal rights in and against a property.

In most places in the United States today these key transfer and lien documents must be submitted manually and then converted to digital files allowing for property history records to be catalogued and then reported publicly. If an office is closed for business due to the health crisis this may mean that these recordings will not take place or may be significantly delayed.

Lender’s rely on these public records, as do title agents and their title insurer partners, to provide an accurate report of the ownership and debt condition of a property in the mortgage evaluation and closing process. Lenders also rely upon title insurance policies to issue within a reasonable time following closing (in some states at the closing table) in order to complete the loan file and prepare it for sale into the secondary market.
Potential chaos in recording also raises the level of risk from closing and title fraud, as the inability of lenders, and title agents to know the current status of a property invites criminals to hide liens, manipulate ownership records, and potentially close more than one loan on the same property through multiple transactions.

Diligence throughout the mortgage process has become customary today, with more lenders than ever adopting comprehensive closing fraud processes backed by effective technology tools to root out potential criminals. As this health crisis extends throughout the United States diligence in financial transactions must increase, especially in the face of rising refinance volume due to low rates and the emerging Spring purchase market.

If you would like to know how Secure Insight can assist you in managing closing table risk, please give us a call for a free demo.