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14 | Th e M Rep o RT cover story manageable when you have two sets of eyes—the lender and the AfBA title company—on the ven- dors being utilized. I suspect we will see even more title agency acquisitions this year and next by those on the servicing side who have the compliance standards in place to migrate to the origination side of the business." Riley of Saul Ewing said that af- filiation offers lenders greater con- trol over consumer interaction and, ultimately, costs and fees charged to the consumer, "which is exactly what the CFPB is looking for." Whether captive, reactive or proactive, mortgage settlement companies have a choice on how to negotiate the new regulatory order. Kosofsky breaks down into three groups the title industry's reactions to the CFPB's wave of regulations: old school, industry veterans, and the entrepreneurs. The first camp is likely to have the "deer in the headlights" reac- tion and simply look for an exit. The veterans see the regulations as a challenge and the entrepre- neurs view it as an opportunity. "The title industry changed on January 15, 2014, and I do not recognize the workflows that are now being used in my office today," said Kosofsky, who moved from the day-to-day REO, title- curative, and closing attorney work to become the compliance counsel for his law firm. "If forced back to the table today, I would be a huge liability to my firm, the rules have changed so much." Based in the Charlotte, North Carolina, metro, Brady & Kosofsky may have started out as a relatively small firm, but its innovation and preparation were certainly not. "From our first day of busi- ness, we have prided ourselves in creating what we believed would become the prototype of the new closing law firm," Kosofsky said. "We invested an incred- ible amount of time, effort, and resources to assemble an in-house IT department and a paperless work environment. Our first big step was when we started doing e-closings in 2008 and developed various title and closing products, which were novel at the time, but following the recent CFPB announcement of its e-closing in- centive, these novel concepts will likely become the new normal in the title and closing industry." Black said the CFPB's interest in electronic signatures or e-sign technology is certainly something to monitor. He noted that while e-sign capabilities have existed in the title industry for more than a decade, the adoption rate has been very slow—less than 1 percent of all loans according to a report. "The CFPB sees e-sign tech- nology as an additional means to improve the closing process through reduced errors, a stream- lined process, and reduction in closing-related surprises when the consumer is given an opportu- nity to review a closing package electronically in advance of the closing," he added. "For firms like ours, which had the foresight to see these changes coming, the implementa- tion stage has been difficult and at times overwhelming," professed Kosofsky, who recounted how last fall he opened an attachment from a lender that contained a 650-ques- tion security audit and document request, including terms like "penetration tests," "acceptable use policies," and "target data." "For the members of the indus- try who have not embraced this or have only recently learned of these changes, they are in for a very long 13 months. Even though we were ahead of the curve in these con- cepts and ideas, it has still taken our firm nearly two years and a considerable financial investment to fully develop, draft, and imple- ment the policies prescribed by the ALTA Best Practices and the stan- dards necessary to become SSAE 16 SOC 2 (Service Organization Control) compliant." Best Practices Make Better Business A LTA released its "best prac- tices" for title and settlement companies at the start of 2013 and revised them six months later. Black highlighted one of the best practices that focuses on ensuring the security and privacy of non-public personal information (NPI). Title agents must demonstrate extreme care in the collection, storage, and disposal of NPI. "The impact of this guideline can affect access to a title agent's physical office space, storage of files, security of computer systems, and requires additional programs to encrypt emails," the Accurate Group of Texas president said. "This may prove to be challenging to title agents that may not have the resources to adopt these best practices. However, this appears to be the future cost of doing busi- ness under the CFPB." To help lenders and servicers manage risk, title and settlement companies must manage new challenges, not the least of which is financial. ALTA's best practices, which also cover business licenses, escrow trust accounts, liability insurance, customer complaints, settlement procedures, and policies, help the companies meet market demands and demonstrate the appropriate skills and knowl- edge to manage the risk of a real estate transaction while protecting lenders and consumers. "At the end of the day, it all comes down to where the lender decides to place its liability, so it's a smart business decision for set- tlement service providers to show lenders that they are concerned with expectations, comply with the ALTA Best Practices, and care about protecting consumer money and information," Evans said. "Earlier this year, Wells Fargo issued a statement supporting and encouraging the adoption of the best practices." At the MBA's Legal Issues and Regulatory Compliance Conference in May, several lenders told The Sterbcow Law Group that they were going above and beyond the association's guidelines. "ALTA's best practices weren't enough for them, they wanted more to ensure that a title agent or title underwriter couldn't pose a systemic risk to their financial institution," Sterbcow said. "In order to stay ahead of the curve the title industry needs to study the compli- ance requirements that foreclosure law firms are now subjected to under the mortgage settlement in New York. The large foreclosure law firms have been on the front lines with respect to very strict and expensive standards. Also, the title industry should be looking at what the credit card and healthcare industries are implementing as far as meeting minimum security and privacy standards." Vendor management will con- tinue to be a constantly evolving area of compliance for the title industry. Implementation of SSAE 16 SOC 1 should be an immediate priority for everyone in the title industry, followed by the SOC 2 certification. "Lenders in the past few months have told my clients that if you want to continue doing business with us you have to have the SOC 1, and by the end of 2014 you have to have an SOC 2 certification," Sterbcow reported. "The second biggest aspect of staying ahead of the curve is making sure you have a compliance management system in place so that you can prove to lenders that your operation is actively engaged in managing the public, the lenders, and your own risk, in addition to getting all the certifications that are or will be expected of you." Kosofsky likens the major change in the title industry to travel after 9/11. The one-time NASCAR photographer and sports agent used to race through security to catch a plane. Now, as every air traveler knows, the process is quite different, requiring much more planning and patience. "This is what will happen with the new [title] regulations," he said. "It will become the new normal, and we won't even remember the good ole days of the HUD-1 ever again. The medical community has been dealing with HIPPA for many years, and medical care has not suffered. The title community will deal with these new regulations, and like HIPPA and TSA check- points, it will be just a part of the day-to-day industry."