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

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.