Implementing ALTA’s Best Practices Can Be Marketing Tool to Grow Business
|December 31, 2013
Since the financial crisis, lenders have focused on reducing settlement risk. Some have considered taking settlement work in-house, while others pondered centralized disbursement. These changes along with stronger enforcement actions against lenders for the actions of their service providers have resulted in a new business environment for anyone handling settlements.
Implementation of a set of industry best practices developed by ALTA, however, can help title professionals meet these new market demands by proving regulatory compliance and that funds and information are being protected, which could help capture increased market share.
After releasing an initial draft in October and receiving feedback from the Board of Governors, executive committees, membership, lenders and other stakeholders, ALTA has published its enhanced “Title Insurance and Settlement Company Best Practices”
to help ensure the industry’s important role in the settlement process.
The standards include seven main categories designed to help members highlight the policies and procedures the title industry uses to ensure a positive and compliant real estate settlement experience for lenders and consumers.
“These Best Practices are the culmination of work and discussion with agents, underwriters, lenders, regulators and other stakeholders,” said Michelle Korsmo, ALTA’s chief executive officer. “It is our hope ALTA members can use these best practices as a way of telling lenders and consumers all the policies and procedures that are followed to reduce settlement risk.”
Meeting the Best Practices is a voluntary decision by title insurance and settlement companies. ALTA expects that those companies that choose to adopt the policies and procedures will use their compliance as a way to market their business.
“By policing ourselves, and demonstrating high ideals for the performance of our duties, we build a firm foundation of trust and confidence with those working with us as well as those seeking to regulate us,” said ALTA President Frank Pellegrini, CEO of Prairie Title. “In many ways, adopting the Best Practices will result in better management, tighter controls and even greater efficiencies within a title and closing operation.”
The seven main Best Practice categories urge title and settlement professionals to:
- Establish and maintain current license(s) as required to conduct the business of title insurance and settlement services.
- Adopt and maintain appropriate written procedures and controls for Escrow Trust Accounts allowing for electronic verification of reconciliation.
- Adopt and maintain a written privacy and information security program to protect Non-public Personal Information as required by local, state and federal law.
- Adopt standard real estate settlement procedures and policies that ensure compliance with Federal and State Consumer Financial Laws as applicable.
- Adopt and maintain written procedures related to title policy production, delivery, reporting and premium remittance.
- Maintain appropriate professional liability insurance and fidelity coverage.
- Adopt and maintain procedures for resolving consumer complaints.
The Best Practices should be viewed as an evolving document that should change as market practices and demands change, according to ALTA past President Chris Abbinante. The standards offer a starting point to help agents and underwriters formalize the policies and procedures many already follow. While there will an adjustment period, “the gain will far outweigh the pain,” Abbinante said.
“In the end, this effort will benefit our industry and allow for opportunities for both agents and underwriters—regardless of size,” he added. “If done right, we will be a better industry resulting in more transparency and professionalism.”
Diane Evans, chair of ALTA’s Abstracters and Title Insurance Agents Section Executive Committee, shared Abbinante’s thoughts that the Best Practices make it more clear the many processes the industry follows to safeguard funds and personal information.
“ALTA agent members now have a vehicle to describe the value that we bring to consumers and their lenders in each and every transaction,” said Evans, who is vice president for Land Title Guarantee Co. “Many of the Best Practices are exactly what is done in our members' offices but as written these standards allow a more transparent and specific description of the processes in place, the systems designed to protect the sanctity of the real estate transaction and the delivery of our title insurance product.”
Pellegrini agreed with others that implementation of the Best Practices will reap positive results for the industry at large, but also for individual members. The standards, however, will not be a “quick fix” and implementation of some of the Best Practices may not be an easy process for some.
“But a strong commitment to adhere to them will reshape how the industry is viewed by our customers, by consumers, and by regulators and legislators,” Pellegrini said.
Over the next several months, discussion about best practices will illuminate why agents are important to every real estate transaction and how the industry plays such an integral part to the health of the economy.
“I think most agents will say ‘I follow the Best Practices every day,’” Evans said. “I look forward to helping agents across the nation tell their story to consumers, lenders, regulators and policymakers.”
Hurdles to Implementation
According to a survey ALTA conducted in September, an overwhelming majority of members already follow the different categories of the Best Practices. They key is improved written documentation of the processes.
“Some of the Best Practices will require additional time and expense to implement and hopefully agents will have adequate time to implement these items,” said Brian Pitman, president of Independence Title Co. and a member of ALTA’s Agent Executive Committee.
An example of a hurdle an agent may face in meeting all the Best Practices is utilizing positive pay, which is a part of the best practice addressing procedures and controls for escrow accounts. Some local lenders and community banks may not provide the automated fraud detection tool that matches the checks a company issues with those it presents for payment.
Craig Haskins, a member of ALTA’s Agents Executive Committee, said utilizing positive pay, and Automated Clearing House (ACH) and international wire blocks should be required due to the spike in cyber fraud.
“I've heard that it's no fun trying to get your escrow funds back from someone’s basement in China,” said Haskins, who is executive vice president of Knight Barry Title. “Setting up the appropriate blocks is a no brainer. The problem here is that some smaller banks don't have the ability to initiate these blocks, so the agent has to evaluate if they want to continue banking at their local bank, which could be their best customer versus establishing a more secure account.”
Additionally, Haskins said agents may have the most difficulty complying with the section of Best Practices addressing information security and protecting non-public personal information
“If you have an iPhone that you charge at the office or connect to your office's wireless internet connection, you likely need some new protocols in place since the smartphone is a form of removable media that virtually everyone carries into the office,” Haskins said. “Agents must also use secure methods to transmit non-public personal information—meaning you better not email a loan app or any private information to anyone. The lending community needs to tighten this up on their end too since some lenders still fax and email loan applications to closing departments, both of which are unsecure.”
While the Best Practices are voluntary, agents must remember it’s important to talk to their lender clients and learn about their requirements and then discuss all the steps and processes agents already have place to protect transactions. Pellegrini added that agents should look past any burdens they feel in conforming established routines to these practices.
“The marketplace is demanding change and we must deliver if we are to remain at the vital center of the real estate transaction,” he said. “Ultimately, those who are willing to seek greater heights will succeed. Being certified in best practices, professionals will set themselves apart and this will allow them to leverage continued growth.”
With the CFPB holding lenders liable for the actions of the service providers they do business with, it’s essential title professionals understand the urgency implementing the best practices. Recent enforcement actions against service as notice the CFPB will penalize financial institutions when their third-party vendors’ actions harm consumers. Because of this, Abbinante stressed that this is an industry issue and is blind to business models.
“I know there are concerns that some agents and small underwriters feel this is being pushed by the major underwriters,” he said. “This is unfortunate and I hope that good-faith participation by all will allow the sense of ‘our’ future to take over.”
Leveraging the Best Practices
While voluntary, Haskins views the Best Practices as a requirement. He said national and regional lenders seem to want some type certification of an agent before sending title and closing orders.
“We've already watched a handful of national lenders run to underwriters because of some unscrupulous acts of bad agents,” Haskins added. “So while the adoption of the Best Practices is voluntary, our company is adopting them all, then seeking certification before we voluntarily watch the business leave us because of the acts of a few bad guys.”
Until a certification process is in place, Haskins said his company will proactively self promote its implementation of the Best Practices. Other agents should consider this as well. Companies could consider redesigning their website and utilizing social media to highlight best-practice compliance.
“We are a large agent and we've worked very hard over the years to convince lenders that not all agents are alike,” Haskins said. “We don't want to be lumped into the category as some of the agents who have stolen funds or blown up closings with poor practices. It's actually tough for lenders to separate the good agents from the bad ones, but this certification will certainly help as long as the auditing process is strict and thorough.”
ALTA’s Internal Auditing Committee is creating model audit standards for the industry to use so outside vendors can audit and attest to an agent having the best practices in place.
Call for Sample Policies
In the meantime, ALTA is looking for members to submit sample policies already in place. Submissions will be anonymous and distributed to a related ALTA committee in order to produce standard policies or guidelines for the industry. Click here
for information on how to submit your sample policy.
Over the coming months, ALTA will provide a number of member benefit tools and educational opportunities including sample policies and procedures. In addition, ALTA will focus on each best practice in future editions of TitleNews Online
and in webinars to offer clear examples and helpful solutions to meet these standards.
“While we have developed a set of voluntary best practices, it’s important you talk to your lender clients about all the steps and processes you already have place to protect transactions,” Korsmo said. “Providing professional service to consumers and safeguarding funds is paramount for our industry. ALTA members should be proud of the role they’ve played in the real estate process. The title industry has a long tradition of protecting the integrity of the real estate transaction, and there is a strong role for the title industry in the future. As we have in the past, and will in the future, ALTA and its members will work hard to meet market demands, and continue to play a key role in helping people achieve the American Dream of homeownership.”