This is a continuation from the preceding blog, in which we introduced the topic of lender requirements and ALTA Best Practices adoption.
In order to gauge the lending community’s adoption of ALTA’s proposed assessment approach, ALTA has begun compiling a list of lenders who have sent directives to title agents requiring some degree of proof of Best Practices adoption. Current as of December 17, 2015, the list identifies more than 20 lenders, provides a synopsis of each lender’s requirements, and offers a hyperlink to a copy of the actual lender requirement letter that ALTA has on file. While the compilation of letters and the accompanying chart are helpful resources, they do not provide much insight into critical factors necessary to fully evaluate the trend toward lender adoption of Best Practices standards. In particular, the list fails to provide any information regarding the identified lenders’ relative sizes and the geographic footprints in which they are conducting business. As a result, in its current form, this chart needs to be supplemented with some additional background in order to identify trends that may be helpful to the title industry. As I look closer at the lenders identified on the chart, I will provide my observations on any emerging trends.
In speaking to title agents across the nation, I’ve noticed significant interest in Best Practices implementation in some geographic areas and very little in others. I find that if a title agent’s current lenders have not specifically requested any proof of adoption or implementation of Best Practices, it is likely the title agent has devoted little effort toward development of a policies and procedures manual or implementation of the same. Conversely, in areas where lenders recently have sent memos specifically requesting compliance in order to be retained on their rolls, there is a significantly higher likelihood that Best Practices documentation and implementation are well underway.
If you have received a letter from a lender, you already know its requirements. However, just because you have not received a letter from the rest of your lenders, you cannot assume that those other lenders have decided to require nothing. In all likelihood, they are still working on the terms of their own letters, and you just have not received one yet. Since lenders tend to study what their competitors are requiring, and adopt similar requirements to remain competitive, it is important to identify what other lenders in your geographic area have required, even if you are not currently closing their loans. This may be valuable insight into what your lenders are likely to require as proof of your firm’s adoption and implementation of Best Practices.
Here are a few general observations we noted in reviewing ALTA’s list of lenders who are requiring at least some level of adherence to Best Practices:
Most lenders listed are not widely known. Some of the lenders who issued letters operate in a single state with relatively few offices. Unless you are located in that particular state, and do business in the surrounding counties serviced by those lenders, the existence of such a letter will be perceived to have little impact on your future operations. However, some lenders’ letters originate from the lender compliance office in one state, yet their requirements are intended to be applicable to all states in which that institution currently has branches. When you look closely at the data showing the location where financial institutions actually conduct business, trends began to emerge.
Certain parts of the country have a large number of lenders who require Best Practices compliance, yet other parts of the country have none. Recent history has shown that once a financial institution in a particular area formally releases its written position, other lenders in that same area are likely to adopt similar positions. For that reason, it is important to identify the location of each new lender added to the list and be aware of both the size of its geographic state footprint and the number of offices operating in the state.
Several of the letters identified in this chart are directives issued by a particular mortgage company, some of which are affiliated with one or more banks. Once these affiliated bank relationships are identified, the requirement dictated by the “mortgage company” can be associated with requirements of one or more of those affiliate banks. Using this approach, 2 of the letters that appear in the chart arguably can be inferred as describing the requirements of 10 currently unlisted financial institutions.
In the next blog, I will provide some specifics as to “who is requiring what” in order to assist you in ascertaining whether or not this trend will affect your operations.