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

Settlement agents, the men and women who manage the closing of residential mortgage loans, carry a great burden with them.  Each time they close a loan they have access to mortgage proceeds, lender documents including the important collateral security instruments (note and mortgage) and borrower personal and financial information (in the final 1003 and other closing table documents). No other third party that participates in the mortgage loan assembly-line process has greater authority, greater responsibility and greater opportunity to commit fraud.

Because fraud risk is elevated during periods of high purchase volume, as opposed to a boom in rate and term refinances, lenders are faced with the potential for serious losses when the managing of closing agent risk fails to occur.

It was not until about 2011 that the FBI and FINCen began to report title and closing fraud as a subset of overall mortgage fraud.  Since that time the numbers have consistently demonstrated that fraud at the closing table is more than 20% of overall fraud.  With the annual reported mortgage fraud numbers in excess of $4 Billion this means that the actual reported losses are in the $800,000-$1 Billion range.  This is an enormous problem for the industry and one which only recently has been addressed with heightened vendor management scrutiny.

While it is certainly true that the vast majority of settlement agents (attorneys, title agents, escrow officers and notaries) are professional, competent and trustworthy there are many who are not.  One reason for this is that the different disciplines have varied education, training, licensing, insurance and bond requirements.  The second is that there are no performance standards or uniform, cross-disciplinary training programs to ensure that everyone has a base of key knowledge about all things consumer protection, mortgage loan and title insurance. Another issue is the lack of required training in regulatory and compliance for this group of professionals so that they have an understanding of what investors, the GSEs, HUD, the CFPB and state regulators expect from lenders in the nature of risk compliance and loan quality assurance.

While the industry has come a very long way since Secure Insight began in 2012 and created a storm of controversy over settlement agent vetting, much has yet to be done to assure lenders and borrowers that the single largest financial transaction of their lives has been fully vetted and managed for risk.   We continue to strive to enhance our tools and to find means and methods to assure both of these groups that they can trust a process that poses so much potential for financial harm.

For more information reach out to us at in**@se***********.com and visit our website at www.secureinsightsales.com