- Consumer Info
By Michelle Wilsey, Regional Director, Simplifile
Trailing or missing documents after closing are a problem seemingly as old as the mortgage industry itself. When documents go missing post closing, lenders pay in the form of regulatory penalties or investor “holdbacks,” and title companies are on the hook for tracking and re-mailing some of the most critical documents. Historically, lenders have utilized manual follow-up methods that can stretch into weeks. However, new electronic solutions built into settlement agents’ e-recording processes offer hope for addressing this long-standing problem once and for all.
In today’s strict regulatory environment, there is little tolerance for incomplete, inaccurate, or non-compliant loan files. While closing has been the traditional finish line for lenders in terms of accountability, regulatory changes have extended that mark beyond closing, placing new burdens on lenders to ensure completeness, accuracy, and compliance during post closing as well.
Missing documents are a significant issue in the mortgage industry. For example, Fannie Mae estimates that 40 to 60 percent of the repurchase requests it issues are ultimately resolved by supplying documentation that was missing when the file was originally submitted. Many lenders tackle these problems by either assigning more personnel to the task or outsourcing it to a third-party auditor.
Some of the most common documents to be missing from the final loan file are the recorded security instrument and title policy – often at no fault of the title company. It’s easy for these files to become lost in the mounds of paperwork lenders receive daily. Retrieving these documents sometimes involves playing a veritable game of telephone between the lender, settlement agent, title insurance underwriter, and county recording office that can take days or even weeks.
The TILA-RESPA Integrated Disclosures rule (TRID) stipulates penalties should the final recording fee differ from the amount originally disclosed or if the lender does not receive proof of recording. Additionally, many investors will reserve, or “hold back” a portion of the purchase price for loans or mortgage servicing rights until they receive the final recorded security instrument, and others go even farther and require fulsome and complete loan files before releasing the held-back funds.
However, advances in technology now offer a better solution for managing post-closing documentation while improving lender-title company relations. Settlement agents now have the option to send final documentation back to lenders electronically after e-recording. Using a service like this allows lenders, title insurance underwriters, and title and settlement agents to view and track post-closing deliverables in real time.
Furthermore, this connection forges a missing link in the digital real estate supply chain. Settlement agents and county recorders have been digitally connected for quite some time, thanks to the prevalence of e-recording. According to the Property Records Industry Association (PRIA), 1,751 U.S. recording jurisdictions, as of Nov. 30, 2017, utilize e-recording. To put that in perspective, nearly 80 percent of the U.S. population lives in a jurisdiction that allows e-recording. Yet, lenders have been largely disconnected from this process, which has only exacerbated the problem of missing documents, especially the final recorded security instrument.
Thanks to these new solutions, lenders can automatically track the status of documents in the post-closing process, and recorded documents are immediately returned to the lender, title recording desk, and settlement agent all at the same time. This includes instant updates to any change in recording fees on the Closing Disclosure (CD).
In addition, Fannie Mae and Freddie Mac have recently eliminated the requirement to maintain a paper copy for the servicing file if the document is electronically recorded, thus enhancing the value-add lenders and settlement agents can expect from operating in a paper-free post-closing environment.
Even though post closing isn’t a revenue-generating process for most lenders, it can be a huge cost center if not properly conducted. Thus, title companies that offer electronic return of documentation after closing are extremely valuable partners in the post-closing process.