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Best Practices

Wells Fargo Exec: ALTA’s Best Practices ‘Good Step’ in Reducing Lender Liability

July 25, 2013

Lender liability for the acts of its service providers is nothing new. In 2001, the Office of the Comptroller of the Currency (OCC) issued guidance to national banks on managing the risks that may arise from their business relationships with third parties.

The OCC guidance said a bank’s use of third parties does not diminish its responsibility “to ensure that the third-party activity is conducted in a safe and sound manner and in compliance with applicable laws.” The bulletin issued in April 2012 by the Consumer Financial Protection Bureau (CFPB) reminded the industry that lenders need to increase oversight of their service providers. While not new, the CFPB bulletin pushed the industry into a new age of lender liability. Penny Reed, vice president at Wells Fargo Home Mortgage, offered thoughts on how the CFPB’s bulletin changed the landscape of lender liability and how it’s impacted title professionals during a panel at the 2013 National Settlement Services Summit.

An outcome has been lenders increasingly auditing their service providers. To help standardize this process, ALTA created the “Title Insurance and Settlement Company Best Practices” to help title professionals highlight policies and procedures the industry exercises to protect lenders and consumers, while ensuring a positive and compliant real estate settlement experience. Reed said agent vetting doesn’t remove lender liability because they are still responsible for the vetting company. Wells Fargo is analyzing where information on service providers may already exist so new costs isn’t being added to the process.

“ALTA’s Best Practices and underwriter audits are a good step,” Reed said.

One area of concern for lenders deals with consumer complaints. With settlement services providers serving as the “face” with the consumer, lenders want to know how quickly a vendor responds to issues and how this is tracked.

“We will require this for all settlement providers we utilize,” Reed said. “You need to have this in writing and have someone in charge of it.”

The seventh pillar of ALTA’s Best Practices addresses developing written procedures for handling consumer complaints. Click here to register for a webinar on July 24 as we discuss why a process for receiving and addressing consumer complaints is important to help ensure that instances of poor service or non-compliance do not go undiscovered.

Data security and protection of non-public information (NPI) is the issue that keeps lenders “up at night,” according to Reed. The third pillar of ALTA’s Best Practices addresses NPI.

“There is window of time when the settlement statement is considered NPI and settlement and title agents should be taking precautions to protect consumer and lender information,” Reed said.

Getting back to the CFPB bulletin, Reed said that from a from a third-party perspective it seemed like a restatement of the OCC guidance. “The difference was that we knew what the OCC was looking for,” she said. “It was a risk-management exercise and you had to perform a certain level of due diligence.”

Smaller-sized service providers may not have even heard from their lender clients following the OCC guidance. While the directive hasn’t changed, the regulator has. The CFPB is intent on improving the consumer experience, but Reed said the industry isn’t sure what factors the Bureau will be analyzing to achieve this goal.

An unintended consequence of the CFPB’s bulletin may be that lenders centralize and limit the number of vendors they work with in order to reduce risk. Reed said this is a concern for Wells Fargo because “at our core we are a community bank.”

“At what point does this limit consumer choice. That is a key question,” Reed said. “The CFPB’s ultimate goal is to protect consumer. In absence of clear guidance, we can sit back and wait for enforcement and guidance, or work together and find solutions on what we think it should be.”

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