Title and Document Challenges
Ms. Lindsey is vice president of national sales at Stewart Lender Services. She has nearly 25 years of national sales and management experience within the mortgage banking industry.
Outstanding documents...document exceptions...missing intervening assignments..."other Title Issues." The interest in these topics just doesn't go away. As is additionally evidenced by this article, our industry trade papers provide articles on this subject regularly. So what's going on or what's going wrong?
I've done a little research; actually quite a bit of research, but in the scheme of our entire industry I've certainly not covered an overwhelming majority of participants. However, I've covered enough of a cross sampling that I believe I'm getting a good moderate opinion (versus far left or right) of what is going on and what is going wrong. I know I'm on the right track because the information I receive is similar, consistent and endless...the pandora's box of the mortgage industry could arguably be document exceptions.
What constitutes a document exception? Agency guidelines, investor guidelines, servicing guidelines, post closing review guidelines, lending guidelines....they all have specifications as to what documents are required in a specific transaction and what elements of those documents are required. Underwriting processes, post closing processes and the custodian provide the majority of document qualification information, ie: does it conform to the required specifications and if not, what the exception is. Document errors such as corrections completed at closing that were not initialed by the borrower continue to be present. However, errors on documents take a back seat to the big offender we deal with - documents that are missing.
Why do we care about document exceptions? Every division of a lender's and servicer's operation has a different opinion of document exceptions and why they care about them. Collectively, everyone agrees that a document exception carries risk with it. Risk is relative to the division of the operation and therefore has varying degrees of importance. So why do we care about resolving document exceptions? Because everyone agrees that the exceptions cause trouble. Trouble with processing; trouble with budgets, trouble with loan sales. This all translates in to lost revenue or value - so we care about them because they cost us money. Apparently lenders do not track what the total cost to the organization is for resolving this risk created by document exceptions.......
Who is it that cares about these document exceptions? Again, every division of a lender's and servicer's operation is involved at one time or another. Unsurprisingly, the market drives who cares about these document exceptions at any given time. Predominantly, the group that cares the most and most of the time, is the post closing division, aka loan delivery and trailing documents or final documents. Secondary marketing and the sales & acquisition divisions are also expressing their interest currently. The returning "who" to the group are the investors and purchasers of loans and portfolio's - they are now actively expressing their level of interest to the wholeness of documentation and are enforcing their authority in ensuring that exceptions are resolved.....most often at the expense of the Lender/seller. This is contrary to their participation of the preceding few years. And let's not forget about the default servicing groups encompassing loss mitigation, foreclosure and bank owned/REO. They are the true "rock stars" of servicing risk that arises when document deficiencies are present and deal with the direct impact to homeowners.
What's going on?
What's going on is that originations have slowed. Servicing portfolio values have begun to increase and based on other market conditions, Lender's are in the position to sell, or buy, loans. If selling, or preparing to sell, curing document exceptions increases the value of the portfolio and allows for a timely transaction. If sold, the lender typically must cure the document exceptions in a specified time frame; hold back funds from the transaction are pending release to the seller until the documents are cleared or cured. The increased sale and acquisition activity and preparation activity for potential sales and acquisitions has buoyed the interest and activity in document exceptions. Those "other market conditions", ie, failed lenders, has amplified the interest because they contribute to the volume of exceptions that exist. As a result, much of the industry is reacting to the exit of private investors or the completion of investor sales, which can cause exceptions from the original delivery requirements.
What's going wrong?
What's wrong is partly from the recent past our industry created. We are left dealing with the results of the last few years: high origination volume, exotic products and our lack of keeping up with it in the back office.
Not unlike the lenders, title and settlement agents were faced with so much revenue generating business that the back office efficiency struggled to keep up. It may be as simple as the revenue versus cost equation - back office processes cost money and are not provided with the resources that revenue generating processes do.
In addition, not unlike those "other market conditions" of failed lenders and failed investors, there is a recognizable population of failed title and settlement agents that contribute to the overall kaleidoscope of document exceptions.
No particular market segment or industry participant is any more or less responsible for document exceptions than another. It's the human factor, the factor of running a (profitable) business and the factor that we are still dealing with paper - paper that must be created and passed from location A, to B, to C and beyond. Within each participant, managing the paper and tracking the paper must occur - this can easily be from 5 or 10 hand-offs. It isn't any wonder that the potential for losing paper increases significantly with every hand-off, regardless of if it's between participants or within a single participant.