PERSON OF THE WEEK: Joe Mowery is president of LenderLive Settlement Services, offering lenders and servicers an array of title insurance, title services and closing products, as well as other settlement solutions to support back-office needs.
MortgageOrb recently interviewed Mowery to learn more about how the title and settlement space has changed in the past year and the factors that will reshape it in 2014.
Q: How much of an effect will the changing compliance requirements have on the settlement side of the process?
Mowery: Next year, I believe one of the larger settlement industry impacts will result from the Dodd-Frank mortgage lender requirement to determine a borrower's ability to repay under the new qualified mortgage (QM) standards. By definition, a mortgage will not be defined as a QM if the total points and fees exceed 3% of the loan amount. This, combined with the Dodd-Frank Act adopting the points and fees definition, according to the Home Owners and Equity Protection Act (HOEPA), results in any fees retained by a lender's affiliated title, appraisal and/or settlement service company being applied to the 3% rule. If these retained fees exceed the 3% limit, the loan will not qualify as a QM.
Based on these pending requirements, the future of lender-affiliated title, appraisal and/or settlement service companies with lenders who plan to originate QM loans is unclear.Â This could create new 2014 opportunities for nonaffiliated title and settlement companies to establish new sources of business from lenders who previously used their own affiliate companies.
Q: What lessons did the mortgage settlement services industry learn in 2013 that will help it improve next year?
Mowery: While it may sound clichÃ©, 2013 provided yet another reminder that your business is at risk if you are not sufficiently differentiated from your competitors and/or you lack expertise in all market segments. As an example, single-threaded companies that only serve the needs of the refinance market will face much greater challenges compared to companies that have expertise and established sources of business in multiple segments such as refinance, new purchase, resale, default, foreclosure and real estate-owned (REO) properties.Â
Whether you're a lender or service provider, fulfillment costs continue to rise. It's time for lenders and service providers to work together and identify ways to eliminate redundancies in their respective processes. For instance, when a lender completes a loan application, the loan officer obtains information that needs to be shared with service providers so orders can be opened in their respective production systems, such as name(s), address, loan amount, loan number and transaction type. Title and settlement companies gather and obtain additional information from the public records that lenders need, such as tax information, legal descriptions, vesting, title insurance fees, closing costs and recording fees, just to name a few. If and when this information can be electronically shared, costs will go down, and accuracies will improve.Â
From a post-closing perspective, the first work function a title company will perform is ensuring each and every form presented to a buyer/borrower or seller has initials, signatures and is notarized properly. Once the title company completes this effort, the loan package is returned to the lender, where a similar review is performed. I hope the industry can find creative ways to work together to reduce such redundancies.Â
Q: How will the ongoing shift from a refinance market to a purchase market affect the industry?
Mowery: As interest rates continue to rise, we will see a further decline in refinance transactions. I also anticipate continued moderate growth in home values. Due to this combination, I expect to see a strong return to home equity lending. There may be fewer purchase opportunities for homeowners looking to upgrade into a larger home than previously when expected monthly payments were more attractive and interest rates were lower. For these homeowners who now cannot justify moving up, they may consider a home renovation. Homeowners who have recently refinanced their loan with an interest rate below 4% may also choose home renovation instead of ‘moving up.’ This will significantly change the market dynamics that have prevailed since the housing crisis.
Q: What kinds of technology initiatives do you see as key to improving efficiency in the settlement industry?
Mowery: We've recently moved to a title/escrow/vendor management platform that provides business process management functionality. This platform allows us to automate workflow based on client requirements and file status. The automated decisioning has taken the guesswork out of process management and minimizes unnecessary human intervention, thus improving efficiency. While this platform has created internal benefits, the external-facing benefits are just as powerful. As I mentioned earlier, our industry needs to work together to find better technological ways to exchange information electronically. Our platform has given us the opportunity to take these steps with many of our clients and suppliers. The results of employing technology create endless value for everyone involved.Â
Q: What should lenders do to ensure they have their settlement needs and compliance requirements met in the coming year?
Mowery: Lenders need to ensure they are partnered with title and settlement companies that have platforms that provide systemic controls. No two lenders share common workflows or requirements. Lenders have always required their title and settlement companies to support their customized needs. It is more important than ever that lenders have a solid vendor management program in place and perform due diligence and regular audits to confirm their title and settlement companies have robust compliance and regulatory processes and procedures. The future trend in our industry will be to properly manage the ever-changing compliance requirements while having a full audit trail to track the execution of those requirements.