In the previous blog, “An Initial Look at Available Best Practices Adoption Data,” we took a general look at ALTA’s list of lenders who are currently asking for some level of adherence to Best Practices. In this blog, we will take a deeper dive into what is being required, and by whom, when it comes to Best Practices compliance. By accessing the FDIC database (which provides details about each lender’s geographic footprint, primary regulators, size and corporate structure), we can see that the information about these lenders and their requirements begins to crystallize.
Here are a few observations after review of that data:
- Of the 19 letters, all make specific reference to the obligations lenders face from CFPB and their regulators requiring them to exercise appropriate due diligence over third-party vendors, such as title and closing agents.
- Of the 19 letters, 18 specifically mention ALTA’s “Title Insurance and Settlement Company Best Practices.” (One from a California lender is still pushing Secured Settlements—SSI.)
- Some of these 19 letters are from compliance officers speaking on behalf of bank holding companies operating a number of associated lenders, increasing the total count of lenders imposing requirements to at least 29 different lenders.
- While there are only 19 letters, the lenders who have issued them have a business footprint covering 25 different states, mainly across the South and up the East Coast as far north as Delaware.
- The lenders issuing these letters have 3,556 branch offices in those 25 states.
- Nine lenders specifically require an assessment of compliance with Best Practices by an “independent third party.”
- While 3 of the lenders specifically indicate that a “self-certification” of compliance would not be acceptable, none of the 19 indicate that “ALTA Certifications” by independent third-parties would be unacceptable.
- None of these letters require that a title agent secure a SSAE 16, SOC 1, or SOC 2 report (these are more costly assessments).
- Three only require copies of policy and procedure manuals, completion of lender questionnaires, and/or execution of written “intent to comply” forms.
- Eleven lenders have specifically required, at minimum, title agents to “self-certify” compliance, but note that 3 others have specifically stated that a “self-certification” would not be acceptable.
- Finally, there is no correlation between the size of a lender and the degree of compliance documentation requested. Some of the smaller lenders have required more strenuous “independent third-party certification” and some of the larger lenders have just required “self-certification” or a mere “intent to comply” document.
Geographic concentrations analyzed
When looking at where these lenders maintain their home offices, it is obvious that the first lenders to require compliance were located primarily in the South, with a major concentration in Mississippi and Louisiana. In fact, FDIC records reveal that 14 of the 29 banks reviewed have home offices located in those 2 states. However, the data shows a growing number of lenders in the mid-Atlantic areas are requiring self-certifications. FDIC records reveal there are 6 lenders requiring some level of proof of compliance with home offices located in Pennsylvania, Maryland, Delaware, and New Jersey.
When we look at where these lenders’ branch offices actually serve customers, we find an entirely different concentration pattern. From this perspective, Florida has the most branches requiring some level of compliance certification, followed by lenders doing business in the mid-South and on the West Coast. This indicates that the lender requirements in Florida and Georgia might affect far more title agents in those states than title agents servicing lenders in Mississippi and Louisiana. The sidebar chart only shows the states that have more than 200 branch offices servicing lenders who were requiring some level of proof of compliance with Best Practices. This data demonstrates that the state where the letter originated has little correlation as to which states bear the bulk of the compliance burden.
In the next blog, we will look closely at the banks that have issued letters and try to determine if we can conclude that the motivation for these banks to issue these letters is driven by any specific federal regulator beyond CFPB.