It did not take long after the Silicon Valley Bank failure for politicians in Washington to rush to the next available microphone and lament the “loosening of bank regulations”. Instinctively the finger pointing began, and in many quarters ended up in the direction of the prior administration’s policy to generally roll back stringent business regulations and allow free market decisions to govern various industries. Chief among the complainants (no pun intended) was Sen Elizabeth Warren, who emerged out of the 2008 crisis as an architect and advocate for the Wall Street Reform Act and the creation of the vaunted Consumer Financial Protection Bureau ( CFPB), which she briefly directed. Just yesterday in DC’s The Hill publication, Sen Warren was reported as blaming the the collapse of Silicon Valley Bank on Republicans in Congress, which in 2018 helped pass a law to ease bank regulations put in place following the 2008 financial crisis. “No one should be mistaken about what unfolded over the past few days in the U.S. banking system: These recent bank failures are the direct result of leaders in Washington weakening the financial rules,” Warren is quoted as saying. According to The Hill piece, Warren, who voted against the 2018 bank deregulation bill, said that the crises would have been avoided if the banks were required to hold more liquid assets because the bill exempted banks with less than $250 billion in assets from rigorous Fed stress tests. Warren and other Democrats say the old rules could have caught the issues at SVB sooner. Given that politicians generally “never let a crisis go to waste,” many now suspect that the banking industry is about to be slammed with heightened regulatory scrutiny, tighter operational rules, more audits and exams, and larger and very public fines, penalties and consent orders. What does this mean for independent mortgage bankers (IMBs)? It means that they have to get back to the compliance mindset they were frightened into adopting between 2008 and 2018, and before the bottoming out of interest rates led everyone to believe that easy money was here to stay and that self-regulation meant hiring more loan officers. Keep those risk management officers and compliance directors close by folks, we are all in for a bumpy ride on the regulatory

One of the biggest concerns that mortgage lenders have had for years is that they send their mortgage funds and collateral security documents to complete strangers who gather together and manage a process where there is no seat for them at the table.

Even though the closing of a mortgage loan involves significant sums of money important legal agreements and disclosures, and sensitive personal information, the lender must wait and hope that the event took place on time, with the proper parties present, and without incident.  Then the lender must wait and hope that money was properly disbursed and the documents properly executed, recorded and returned.

When mistakes are made or outright fraud takes place who can a lender rely upon to notice and to take measures to protect its interests and those of its borrowers?

The men and women who manage the closing of mortgage loans are generally experienced, honest and trustworthy.  However a lender has little idea whether the person assigned to handle its funds and documents and manage the process for any one transaction is going to also be its advocate against errors and fraud.

One of the problems for a lender is that there are no uniform rules or education and training requirements to establish common expectations of professionalism.  A closing can be managed by an attorney, a notary, a title agent employee, an escrow officer or even a real estate agent in some states.  Each of these have different levels of minimum education, training, licensing standards, insurance and bonding requirements.

Lenders are also hampered by the absence of generally accepted principals of agency and fiduciary duty.  Title agencies who issue closing protection letters disclaim any agency relationship established by the letter between the closing agent and the lender or borrower. Courts have no universal opinion whether a closing agent acts as an agent of the lender or the title company beyond their duties to act for their buyer or seller clients.

Where does all of this leave lenders?  Waiting patiently post-closing hoping that the loan package returns completed and the mortgage proceeds went where they were intended to go.  After years with increasing numbers of title and closing fraud incidents, it seems about time that the lender has an advocate and seat at the closing table.