SVB Failure Starts Aggressive Regulation Talk in Washington, IMBs Take NoteThe Need for Uniform Certification of Settlement Agents!

February 21, 2018
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

Now that the settlement industry has come to terms with the Consumer Financial Protection Bureau’s third party service provider directives (I admit, there are a few holdouts), the industry needs to take the management of settlement agent risk to the next logical step.  There is a need for the uniform certification of settlement professionals.

When I began to research and consider the issue of risk to banks and consumers at the closing table way back in 2002 the biggest issue that struck me was the lack of uniformity among those entrusted with funds and documents.  This problem stemmed from the fact that those empowered to manage the settlement of a residential mortgage loan closing were very diverse.  The group included lawyers, title and escrow agents, notaries, closers and real estate agents. Each of these disciplines had (and still does have) its own licensing, insurance, training, continuing education, and professional disciplinary process.  Some, like lawyers, are highly skilled, trained and supervised yet because closings are often conducted by real estate attorneys they include people who know allot about contracts but not much about mortgages.  Others, such as notaries, can face either a very stringent licensing process or merely file an application and pay a fee to gain access to a consumer’s records, closing table checks, and even a consumer’s living room. Licensed title producers are highly skilled, independent contractors they send to a closing may not be.

In the absence of a uniform set of expectations, standards and practices, the lending community has for years received varying degrees of professionalism in services, and their consumer clients have likewise observed uneven closing table experiences.  So how do we address the matter?

I believe that the various associations such as the American Bar Association, ALTA, Independent Escrow Association, and National Notary Association should come together to create a multi-disciplinary Certified Closing Professional program that takes into consideration the foundations of knowledge, training, experience and education relevant to each group.  The program should cover mortgage lending 101, how to spot, prevent and report mortgage fraud, preparing the closing disclosure, handling document review and closing table questions by consumers, typical closing table issues and problems and how to address them, data privacy and security expectations, and ethical and professional communications with borrowers, among other topics. The designation would require ongoing education and an annual re-certification.  Recipients would carry a photo ID card with their identification information and a unique identifier.

Some of these ideas have been addressed by ALTA but to be successful a program must cross all disciplines and establish uniform expectations for lenders and consumers.  Now that we all agree that settlement agents should be vetted for risk, the time is now to address their performance and professionalism.



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