The mortgage transaction involves many moving parts. A typical residential purchase home loan can be touched by five, 10 or even more separate service providers before the loan closes and the deed is recorded. Too often, redundant processes or poor communication lead to delay, unnecessary cost and even error. That’s the way it has been for decades, unfortunately.
The past few years, however, bear witness to a push — whether intentional or not — toward better collaboration in the name of the consumer. TRID, Dodd Frank and the CFPB’s enforcement actions are well-known examples of regulation driving mortgage-related businesses to collaborate more harmoniously.
With lenders directly on the hook for the actions of their service providers, and with settlement services agents playing a larger role in the process thanks to TRID, what are lenders seeking from their service providers today to mitigate risk and ensure success? And are lenders up to the task of more stringent and intensive vendor management?
The run up to the Oct. 3 “live” date for TRID could be a case study in client-vendor relations in the mortgage industry. Mortgage lending firms and banks have long relied on title and settlement companies to, essentially serve as the traffic cop in the weeks leading up to closing. Although the Realtor and/or the loan officer are usually the focal points for the home sale and loan, it’s often the title agent or settlement services firm that becomes the hub of activity after the sales contract is signed.
Until now, originators and real estate brokerages have been, more or less, content to allow the title company to handle much of the settlement process, occasionally checking in for status updates. TRID however, changes that. Recall the disruption caused by the decidedly less complex implementation of new closing forms in 2010. TRID, in contrast, demands new timelines, new communication policies and, in general, greater collaboration between lenders, Realtors and settlement firms. This is not a change that can be managed solely by technology developers. It will require a hands-on effort by all firms involved at multiple levels of every organization.
We saw a wide range of approaches being taken by lenders in preparation for the TRID implementation deadline. Some took much or even all of the settlement process “in house.” However, this is an expensive option, especially for smaller lending companies and banks. Others ramped up their vendor management resources and carefully selected partners able to help them manage the new requirements of TRID.
Still others consolidated their vendor network, selecting one or two larger partners to serve, in essence, as vendor managers for them. Some, believe it or not, did little or nothing effective in advance of October, relying mistakenly and solely on their technology partners to prepare them. While those technology partners are certainly a necessary and dependable element of the transition, they cannot and will not be the only element.
The new mortgage landscape also requires firms within the same specialty to take a fresh look at how they do business. More compliance and more client requirements means more costs in the form of new technology, training and personnel. It often means disruption in the workflow, adding time to the transaction (at least, initially). We are seeing title companies begin to pool their resources with former competitors, forming alliances to leverage their resources and assets and thereby cutting costs (e.g. with “back office” functions). This is less likely a trend than it is a new “normal.” As an industry, we all need to seek ways to become even more efficient.
Whether or not regulatory and market stimuli will kick-start a new atmosphere of collaboration and harmony among the different firms involved in finalizing a mortgage transaction remains to be seen. What we can depend upon, however, is the reality that lenders that wish to remain in the mortgage business will need to rely upon and communicate more effectively with their partners in the transaction. Realtors as well will likely be more dependant on information provided by the various mortgage service providers when it comes to settlement and closing. The varying timelines associated with the pre-disclosure requirements imposed by TRID alone could be a rude awakening for those real estate agents unfamiliar with the new requirements.
So what will lenders (and Realtors) look for in new and existing mortgage service providers?
As they always have, they’ll look for best price and convenience to their own clients (the buyers and sellers). But they’ll also need to more thoroughly screen the processes service providers use to push a mortgage to its closing. What kind of technology is being used — not only to complete the function assigned to that particular service provider, but to streamline communications and data exchange between the various firms involved? What kinds of processes are in place to ensure minimal delay and fewer chokepoints at the stages of the transaction most traditionally expected to result in hiccups and mistakes? How familiar is the service provider with regulatory requirements — at the federal, state and local level? What can the service provider bring to the table in terms of easing the most common traffic jams where lender, Realtor, closer, appraiser, inspector and the like come together?
We have no assurances that the mortgage transaction is about to become smoother. If anything, we’ll probably see a fair amount of disruption in these early months of TRID. However, it is now becoming very apparent that the firms which will thrive in the mortgage business in the coming years will be the ones who make the transaction easier on the consumer, but do in a regimented compliant manner. That means collaborating more effectively with all of the professionals needed to make the mortgage become reality.