TheMReport — News and strategies for the evolving mortgage marketplace.
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20 | Th e M Rep o RT Feature ments. For the foreseeable future, every mortgage company sending loan packages and escrow funds will review your agency's compli- ance package and require your agency to enroll in their own compliance program. With this intensifying oversight, not even the smartest agents are able to define what each lender will re- quire of them or whether they'll face an ongoing cycle of having to follow one lender compliance program after another. Most major lenders have re- sponded to these liability require- ments by drastically reducing the number of title agencies with which they are willing to work. By restricting their networks, they restrict liability. For two years, large na- tional title agencies have been T he burst of the housing bubble led to plummeting revenue and profitability throughout the title and settlement segments, just as it did in every sector of the mortgage industry. This significant drop-off in the volume of transactions also brought to light a host of compliance problems that in all-too- many cases were the result of either negligence or outright fraud. Theft of escrowed settlement and loan funds—otherwise known as defalcation—ran rampant, aided and abetted by lax regulations and slack oversight. Title companies that managed to survive the recession now face what may be an even greater challenge. Current regulatory requirements are anything but lax. Rather, these rigorous new standards for market conduct are actively enforced. So much so, that title companies and other third-party providers face another layer of de facto regulation as chastened lenders carefully vet anyone and everyone with which they do business. Ultimately, some survivors are left grasping for business as lend- ers try to avoid risk by working with fewer and fewer outside agencies. And with real estate's rebound far from robust, the current regulatory environment makes the road to recovery for these providers even rockier. Let's briefly revisit what should be familiar ground to many in the mortgage industry. New oversight requirements evolved after the creation of the Consumer Financial Protection Bureau (CFPB) in 2011 by the Dodd-Frank law. The CFPB, along with a laundry list of other federal agencies—the OCC, FDIC, Federal Reserve, FTC, to name a few—have issued rulings that remind lenders that they are in fact responsible for the market con- duct of their third-party provid- ers, title and settlement agents among them. As a result, lenders must establish evaluation standards and proactively manage on-going oversight of these third parties to ensure that they're following Dodd-Frank's consumer-protec- tion regulations and long-standing safety and soundness rules. If those outside providers violate these requirements, it's as if lend- ers are violating them too. And that's a profound change. Agents are not only account- able to government regulators and title insurance underwriters, but they also will be overseen, monitored, and answerable to the lenders with which they work. Operating under the weight of three levels of supervision is a heavy burden to bear. Now it's not merely a matter of two or three underwriters with very similar require- Dodd-Frank's Domino Effect Now accountable to regulators, insurers, and lenders, title and settlement agencies may be reaching a tenuous tipping point. By Richard M. Reass, Founder and CEO of RynohLive