It is no understatement to comment that the Internet has transformed the mortgage lending industry in many ways. The point-of-sale has been influenced tremendously, with borrowers quickly becoming accustomed to rate shopping during the refinance boom and lenders providing an ever-increasing number of online tools to cement relationships. That lenders are rarely able to replace the human element entirely is really not a surprise. With financial decisions of great magnitude, consumers feel better about things when there is a live, knowledgeable person to help them. But technology has taken lending a long way in making the loan experience better for consumers, and more improvements are on the way.
We are solidly in the "Era of Transparency." Parties to the mortgage transaction insist that each loan be transparent to borrowers, investors, securities buyers and regulators, within the confines of protecting sensitive consumer information. New levels of disclosure and new light shined on every segment of the process mean each step in the lending value chain has to defend its value-added contributions, and especially its fees. Title insurance is receiving more attention than in years past, with congressional committees and consumer groups wanting to understand the true costs and risks of title policies in order to justify the significant costs of coverage. Technology is propelling a paradigm shift of sorts in title insurance, as shown by the growing popularity of shopping for title insurance by consumers.
Title insurance, as most of us know, protects against losses caused by defects in the property's chain of title. What many may not realize is that the lion's share of title insurance is underwritten by a handful of companies-four, to be exact. Most others offering title insurance products are actually agents who pass risk on to one of the Big Four firms. In the traditional underwriter/agent model, most of the premium paid stays with the agent company, and these commissions, perceived by many state regulatory agencies as excessive, represent an area where consumers can save money by shopping around and even buying direct. Premiums for title insurance can amount to thousands of dollars on the closing statement, depending on the state and the loan amount involved. Up to 70% or more of the premium can be commission to the agent on a product that is basically generic, a commodity. However, through the innovative direct model, our company is able to circumvent the traditional cost structures of the underwriter/agent model by using technology to gain efficiencies over offices full of employees. What's more, our lower rates are approved by each state's department of insurance. The results are savings of up to 35% or more for consumers and a number of other technology enhancements-such as online quote systems and on-line ordering-that add value for lenders and borrowers alike.
Consumers learn lessons rapidly at the point-of-sale. Borrowers, especially with the new RESPA disclosures, have greater visibility than ever into the fees they are being charged on their loans, and respond positively to scenarios that save them money at closing. Originators are eager to find tools to gain an advantage over their competitors, and tangible cost savings that are readily demonstrable on a GFE are huge tactical enhancements. Consumer direct title insurance is really a powerful difference when you put some numbers around it. Title policies can amount to over $3,000 on large loan amounts, and in these cases, a savings of $1,000 is obvious. On a more typical good-faith estimate reduced costs may be less dramatic, but no less powerful because the mainstream borrower is looking to save money wherever possible. So an originator who can point out a $1,000 line item for consumer direct title insurance vs. $1,500 when using a traditional provider has an opportunity to create a sales advantage. It is a classic mismatch, as any NFL offensive coordinator will look for when sending his 6'3" wideout against a 5'10" cornerback.
Technology helps greatly from an operational perspective, but it can truly stand out to improve the customer experience during the transaction. When selling direct-to-consumer title insurance, we realize that our primary customers are not lending professionals, but people who conduct a mortgage transaction every few years, at most. Therefore, our motivation is high to stress transparency and clarity, and the best way to do that is through a Web-enabled environment that keeps the consumer informed and confident during the transaction. To accomplish this peace of mind, we offer a "Control Panel" in the form of a secure webpage, one that shows the progress of the closing package as it develops in real time. The control panel is accessed through a user name and password created at the time the title order is placed with the consumer direct provider by either the lender or the borrower. The borrower, lender and other permitted parties can view the loan docs and the HUD-1 before the closing, finding any errors or inconsistencies that otherwise would not have surfaced until signing. As we have learned, surprises at the closing table rank among the chief sources of borrower dissatisfaction in residential transactions and are a key reason for the new RESPA rules. The technology also provides for communication among all parties in the transaction to the extent the borrower feels is appropriate, allowing Realtors, escrow companies, attorneys and others to communicate on the transaction directly through the Control Panel. Having a centralized place for loan documents, checklists, contact information, deliverables and other items puts everyone, especially the borrower, on the correct page. Beyond the great cost savings, the Control Panel is another service level enhancement for smart originators to use as they build a competitive difference-not to mention a great way to spark referrals and testimonials from pleased borrowers. The technology makes it all possible.
Borrowers are learning more about their ability to choose a title provider, but it is really up to originators and lenders to educate them on the benefits. Title insurance is not well understood by the general public as something other than a cost on a settlement statement and something required in obtaining a mortgage. There are several independent sources to check on providers of title insurance and settlement products and it is worthwhile for lenders to do a bit of investigation so they can lead borrowers in a direction that will benefit them both. Closing.com offers a comprehensive list of providers with their rates and fees. Demotech.com publishes underwriter "Financial Stability Ratings" that are well-regarded as indicators of financial soundness and accepted by Fannie, Freddie and the FHA. Both are excellent sources for identifying providers that offer prices and services that maximize technology and borrower value, with an accompanying "halo effect" for the lenders that suggest them.
Technology and lending are moving closer together, particularly as the "Era of Transparency" progresses. Two such examples are Fannie Mae's Loan Quality Initiative and the newly launched FHFA initiative, the Uniform Mortgage Data Program. These programs are designed to bring complete transparency to the GSEs' roles as investors, and will quickly become the industry's standard operating procedure.
The enhanced visibility these initiatives bring to the mortgage process is essential toward reviving the capital markets beyond the GSEs, which is a basic requirement for long-term recovery.
Timothy Dwyer is CEO of Entitle Direct Group Inc. of Stamford, Conn., the parent company of EnTitle Insurance Co. and Entitle Direct, a provider of title insurance and closing services sold directly to consumers.
