by Joseph Drum
Title agents face challenges today on multiple fronts – an uncertain economy, new regulations and new technologies among them. But the “big picture” question agents must address, Patrick Stone, chief executive officer of the Williston Financial Group, believes, is how they will remain relevant in an industry that is changing rapidly and dramatically around them.
Speaking at the 10th annual National Settlement Services Summit sponsored by October Research, Stone offered three answers to agents wondering how to secure their future:
- Embrace compliance.
- Reduce real estate transaction costs.
- Define yourselves broadly as financial services providers.
In the compliance area, Stone noted, the Dodd-Frank financial reform legislation put the regulatory focus squarely on consumer protection, and that emphasis has “created a whole new way of doing business” in the home finance sector, he said.
The Consumer Financial Protection Bureau (CFPB), created by Dodd-Frank, has produced reams of new regulations aimed at prohibiting practices that are harmful to consumers, Stone noted. Title agents have felt the impact of these regulations indirectly, he said, because regulators have said they will make lenders legally responsible if the “actions or inactions” of their service providers harm consumers. And lenders are conducting extensive due diligence to verify that their vendors understand and comply with consumer protection rules.
Consumer privacy and data protection have emerged as primary concerns for lenders and regulators, Stone noted, so title agents, he suggested, should “obsess” about both. “You should embrace compliance enthusiastically,” he said, recognizing it as an opportunity to demonstrate the significant role agents play in real estate transactions.
Partners in Compliance
“Settlement services companies manage the closing, which is one of the most vulnerable and sensitive elements of the entire transaction,” Stone said. “We take part in a great deal of interaction with the consumer. We are responsible, in many cases, for managing the escrow account—the borrower’s and the lender’s money. We are entrusted with sensitive data. We are sentinels against mortgage fraud. And now, if we choose to embrace the role, we can be partners with our clients in the compliance effort. This is an opportunity for the title industry at long last to demonstrate that we have a vital function in the real estate transaction.”
Compliance issues may represent the largest near-term challenge for title agents and other financial services providers, Stone said, but the economics of real estate transactions pose a serious threat to their survival.
Taking issue with much of the conventional wisdom today, Stone dismissed predictions that the decline of first-time buyers reflected in recent statistics portends long-term disaster for the housing industry. The first-time buyer problem is temporary, Stone said, and it will cure itself. Household formation rates, stalled by the economic downturn, will rebound, he said, creating the demand that will fuel home sales and new home construction.
The more fundamental problem, Stone said, is not a shortage of home buyers but the cost of processing their transactions. Loan origination costs are 25 percent higher today than they were a year ago, he noted. As a result, loan originators who made $3,000 per loan last year are averaging $300 per loan today. Non-financial mortgage originators alone lost nine basis points on their transactions.
Changing the Process
“Lenders aren’t making money in this process, Realtors aren’t making money and consumers are confused,” Stone said. “This isn’t sustainable. Lenders won’t stop making loans,” he continued, “but they will [have to] change the loan origination process.”
One of the problems with the current process is the time required to close loans – 52 days on average this year, stone noted; another is the fall-through rate, totaling close to one-third of all transactions.
There are solutions available to address those problems, Stone said. He cited as an example a Fannie Mae report estimating that real-time data sharing could shave 30 days off closing times, reduce fall-out rates and increase the per-loan profit by $1,100.
As key players in the settlement process, Stone said, title agents can spearhead implementation of these and other changes in technology and processes that can reduce closing costs and improve the closing experience for consumers.
Agents must “become a dynamic part of the transaction process,” Stone emphasized. Specifically, he suggested, agents will have to “integrate with lenders” in order to eliminate or minimize data re-keying, eliminate or minimize “check-up” calls, shorten closing times and reduce fall-out rates.
The Big Picture
All of these steps are related to the “big picture” issue he identified: The need for agents to view themselves as financial services providers and operate accordingly.
“You want to conduct yourself as the most professional third party in the transaction,” Stone advised. “You want to be regarded as the adult in the room.”
The title industry today is “well-established” but “poorly understood,” Stone noted. Lenders rely on agents and Realtors appreciate them “for the most part,” but that’s not enough to ensure that agents remain relevant and valued going forward, Stone cautioned. Title agents aren’t just important participants in the real estate transaction process, he said, “they are essential to it.” And the way for agents to secure their future is to make sure that lenders, Realtors, consumers and regulators recognize that.
Stone’s emphasis on compliance during his speech reflected a key conference theme and a major topic of discussion among agents, several of whom noted the new on-line Compliance Management System WFG has developed to help agents meet evolving compliance requirements. One agent in particular said he had been using a program created by another title company but has switched to WFG’s instead. “It is comprehensive, it’s easy to use, and it lets me choose the components that work for my agency,” he said. “The CMS goes way beyond ‘best practices’ in creating a compliance program that meets the standards lenders are requiring.”
Joseph Drum, Esq. is executive vice president in charge of agency operations for WFG National Title Insurance Company.