Late Docs Bring Early Headaches

WE’RE HEARING that trailing documents continue to be a major pain for servicers. And it’s not just about keeping tidy loan files. A few years ago, First American Real Estate Solutions estimated that late docs were costing servicers an average of $21 per loan in their portfolios. Let’s see, if you have a million loans on the books that would come to…a lot of money!

Trailing docs can be particularly painful when lenders try to foreclose upon a mortgage default. Just ask Bank of America, which in at least one case had a bankruptcy judge rule that a $211,000 mortgage wasn’t enforceable because the bank couldn’t produce the mortgage note on a timely basis.

Today, the problem is only incrementally better. County recorders, especially in the nation’s urban areas, have eased the hassle by creating online systems to retrieve mortgage notes. Currently, a little more than a third of recording jurisdictions offer some type of online access to obtain recording documents, but those jurisdictions account for about 60% of transactions.

And it hasn’t helped decongest the most common paperwork to go missing from loan files: the title insurance policy.

It’s not because title attorneys and closing agents are lazy or incompetent—at least not most of the time.

The problem is the way title insurance policies are made in the first place, Joellen Raiti, a vice president at Nationwide Title Clearing, told me. The “long form” of title insurance policies cannot be issued until after the mortgage is recorded, so the documentation doesn’t even exist until after the loan is made. Similarly, the mortgage security instrument is not created at the closing table, so lenders rely on county recorders to forward the note. Those documents necessarily trail behind documents created at the closing table.”

Raiti told me that to ease the document retrieval burden, servicers need help from originators. Underwriters review and audit loan files before sending them off to lenders, but backlogs at county recording offices and title issuance delays mean many loan files go out incomplete.

“There are so many points in that process where anything can break down,” Raiti said. “If the county has a backlog of a few months, that can be a big problem.”

In a recent white paper Raiti penned for NWTC, the company said that lenders should aim to make sure that fewer than 20% of outstanding documents are aged 60 days or more. In addition, lenders should try to meet investor delivery deadlines 90% of the time.

To ensure that all the documents come in, especially title work, lenders need to have complete and accurate contact information for the firm or agent who closed the transaction.

In the wake of the mortgage industry crisis, the industry has faced an enhanced focus on auditing loan files, Raiti said.

“In the last year and a half, specifically, the counties are being a little faster. Title policies are coming back a little faster, too. That’s what we are seeing. It’s all about documentation and making sure everything is accurate and complete.”

For their part, servicers usually take a wait-and-hope approach to trailing documents, hoping they will come in on their own. Most handle the initial document auditing function in-house, but they often hire a vendor such as NWTC to retrieve documents that remain outstanding after a certain time period.

Sherry Doza, strategic account manager for document solutions at CoreLogic Mortgage Analytics, agreed that title policies “are one of the toughest trailing document problems.” In part because of changing regulatory requirements, she told me that lenders are reviewing their trailing and aged documents earlier in the process than in the past.

“In addition to maintaining regulations and guidelines, lenders are challenged with monitoring and following up on outstanding trailing documents as county record and turn times vary by county.”

Online access to recording records is a bonus, but it’s often not free, she noted.

“There are counties that charge a subscription fee to access their site and it would be up to the lender to determine if the fee warrants the need.”