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Best Practices

Warehouse Lenders Postpone Vetting Requirement

November 15, 2012

ALTA has learned warehouse lenders First Tennessee Warehouse Group and Texas Capital Bank have postponed requiring that title and settlement companies obtain certification from third-party vetting companies by Jan. 1, 2013 in order to continue receiving business from them. This was first reported this in a special Advocacy Update sent today by ALTA CEO Michelle Korsmo.

In a letter to its customers, First Tennessee Warehouse Group indicated that until further notice it would continue to fund loans for transactions that were being handled by un-vetted settlement agents. Bob Garrett, executive vice president of First Tennessee, said the lender believes vetting is “prudent and required, and we intend to incorporate a vetting requirement into our warehouse lending program in the near future.” His letter indicated a 90-day notice would be provided before the vetting program is re-established.

Donald Martin, senior vice president of Texas Capital Bank, indicated it had postponed implementation of its evaluation process because its third-party provider had not vetted enough settlement agents “to support a smooth implementation.”

“We will continue to perform our existing in-house settlement agent vetting process,” Martin wrote in a letter.

Martin added that eliminating risk is important and that the lender is interested in working with stakeholders to determine best practices to protect all parties.

Korsmo previously reported in last month’s special Advocacy Update that the January deadline was arbitrary and warehouse lenders did not plan to lose business or have deals fall through because a settlement agent wasn’t signed up with a vetting company.

The letters from the warehouse lenders reconfirm lenders’ desire to know more about the companies they work with and a willingness to work with the industry and other organizations to design programs like best practices, new certifications and more expansive closing protection.

“These same warehouse lenders have been looking at possible insurance products that may require agent vetting and there may be changes if such an insurance product comes to market,” Korsmo said. “That is why it continues to be our priority to implement ALTA’s Title Insurance and Settlement Company Best Practices and ensure that title professionals have the tools necessary to meet their clients’ needs and allow title and settlement agents to continue serving as the vital independent third party to the real estate transaction. You can be sure our conversations with lenders will continue.”

In his letter, Garrett acknowledged there are multiple ways to vet closing agents, including internal vetting and third-party service providers.

“We are working with several groups in an attempt to standardize the minimum required vetting process,” Garrett wrote. “We want to be certain that the vetting we require meets the minimum standards for insurance purposes and is a cost-effective and workable solution for everyone involved.”

Garrett said once the insurance product First Tennessee is pursuing to potentially replace or augment coverage provided by a closing protection letter is closer to being secured, the lender would once again pursue its vetting requirements.

In a letter, Deborah Bortner, director of consumer services for Washington State’s Department of Financial Institutions, expressed concern about third-party vetting companies. In addition to having privacy concerns, Bortner said the department already completes “criminal and credit backgrounds checks on all escrow agent owners, the officers and directors, and individual escrow officers. We also periodically perform on-site examinations of their businesses and take appropriate enforcement action when they violate the law or rules.”

Bortner said the department encourages nonbanks to take steps to ensure they work with honest service providers, “but adding unnecessary duplicative processes and their related costs to the system will eventually make mortgages more expensive for consumers without any additional benefit.”

ALTA will discuss this development as well as its best practices during a webinar at 2 p.m. ET, Tuesday, Nov. 20. Joining Korsmo will be ALTA President Frank Pellegrini, of Prairie Title, and ALTA Immediate Past President Chris Abbinante, of Fidelity National Title Group. Part of the discussion will address industry implementation of the ALTA best practices and crucial next steps. Click here to email your RSVP for the webinar. Instructions on how to access the webinar will follow in an auto response to your RSVP.

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