January 2017 - The World's Local Bank

TheMReport — News and strategies for the evolving mortgage marketplace.

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8 | TH E M R EP O RT TAKE 5 Signaling a Shift John Keratsis is the CEO of Boston National, a North Carolina-based national provider of title and settlement services. After a decade in business, Boston National was acquired in late November by Incenter, a Minnesota-based provider of capital markets and fulfillment services for mortgage lenders. Keratsis spoke with MReport about what the acquisition means for the industry and what is ahead for the title and settlement services sector of the industry. M // What is the significance of Incenter's recent acquisition of Boston National for the industry at large? KERATSIS // In general, the acquisition signals a shift in where mortgage service providers are headed. In our particular case, having an integrated servicing platform drives a lot more value from a mortgage asset, because it optimizes the processes for our lenders. It creates a tighter alignment between the market, the investors, and the banks. I think that trend is going to continue, mostly because compliance in vendor oversight third-party management is very expensive for lenders. So if they can have a smaller roster of vendors, they can offer more than just one mono- line. It's much more attractive. If you can do that—and do it while maintaining a stellar service record—and with an eye on your service level agreement, then I think you really have a home run. M // How has the heightened regulatory environment affected the title and settlement services business? KERATSIS // There is a need for those companies to try and match the compliance standards that all lenders out there are mandating, even if they are a smaller regional title company. That need is expensive. I don't think most of these title companies are in a position where they can deploy the capital necessary to have the security, privacy, compliance standards that are needed to maintain their business. So I think there will be a level of attrition and a level of consolidation. Ultimately, I think product lines are sort of the next challenge that come into play. I think if you can offer more than just title and settlement, I think it's a more attractive model. There are a lot of positives that come out of the heightened regulatory environment. I think the new TRID regulation has been an opportunity for Boston National to increase value. A lot of well-run companies out there can offer a lot more value to the clients by understanding that TRID regulations are there and lenders are being driven by CFPB and other regulatory agencies to make sure they fully comply. They have ultimate oversight over their third-party vendors. M // How has the role of technology changed in the title and settlement services business in the last few years? KERATSIS // It hasn't changed as much as it can and should. On the horizon, there are collaborative platforms in particular that are helping to drive inefficiencies out of the process. There's more transparency and easier compliance, but I think because we've had such an overlay of compliance over the last five years, the particular focus has been on how to produce a loan with the understanding that compliance is the No. 1 focus, as opposed to how to drive technological efficiencies through integrations, et cetera. The next stage of where this industry needs to go is a little more analogous to what credit cards have done. If a lender needs a credit bureau pull, they simply reach out to the credit bureau. It's fully integrated, it's fully automated, there's no paper, it's inexpensive, and they get that. M // What is a challenge currently facing the title and settlement services business? KERATSIS // Our business is so closely tied to lenders and mortgage rates that we always have to be proactive to address the inevitable ups and downs of the market. If mortgage rates go up, we're quickly descaling our processes and our overall business model. If rates go down, we're quickly scaling up, and that's challenging. M // What is the outlook for title and settlement services in 2017? KERATSIS // There are a lot of macro trends going on with the market. If you look at homeownership today, it's the lowest it's been since 1965. That offers an opportunity for title and settlement companies to gain some traction in commercial title business, because there are a lot of multifamilies that are being sold. Obviously, if homeownership is down, people are renting because population is going up, and that's interesting. Where rates likely will go up, home equity will probably grow. Reverse mortgages will probably grow, too, because you have an aging population, as well as non- agency. There's a clear expansion in near-prime, and I would sug - gest that will provide other op- portunities for title and settlement companies. But there are probably going to be some headwinds in 2017, and I think you'll still see a little more attrition and a little more compression in the market.

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