The Building Blocks of Title

Editor's note: This feature originally appeared in the May edition of MReport.

2018 was a good year for the title industry. In fact, the operating margins for the four largest underwriters in the industry increased to 11.5% according to a report by Fitch Ratings, which said that title underwriters benefited from the positive macroeconomic factors such as employment growth and rising property values. These, along with “disciplined underwriting and expense management,” led to the strong showing of most title companies during the year.

According to Forbes, this growth of the $15 billion industry is projected to continue through 2020 but how can title professionals ensure that success? While opportunities abound, the experts who spoke to MReport said that title agents will first need to overcome the dual headwinds of consumer engagement and online security.

“The industry is in a time of considerable change,” said Mary O’Donnell, CEO, Westcor Land Title Insurance Co. “The diminishing property inventory along with increasing prices is a challenge for the entire real estate market. Uncertainty in interest rates and the ability of salary growth to keep pace will continue to put pressure on this sector.”

Despite these macro challenges, O’Donnell said, title agents provide a valuable resource in assuring the consumer that their property rights would be well protected. Yet, much of their work goes unnoticed. The lack of visibility to the consumer of the value of the effort is a challenge.”

A Customer-First Mindset

While industry associations such as the American Land Title Association (ALTA) have promoted customer engagement through initiatives such as the Homeowner Outreach Program, to highlight the services provided by title companies to the end-consumer, it found that consumers still remain confused about regulations and processes related to the title industry.

For example, the association is focused on fixing the inaccurate disclosure of title insurance premiums on the TILA RESPA Integrated Disclosures (TRID) to help consumers understand the true cost of their real estate transactions.

“ALTA’s research shows that 40% of consumers feel confused by the Consumer Financial Protection Bureau’s requirement on title insurance pricing. We need to fix the regulation to improve transparency to make sure consumers receive disclosures that accurately show the cost of the one-time fee that protects their property rights,” said Cynthia Durham Blair, ALTA President.

Stressing the importance of these regulations for the peace of mind for consumers and professionals alike, Blair gave an example from the late 2000s when she managed a title team that handled hundreds of bank-owned properties per month.

“While most of these properties were covered by title insurance, it was clear that the title had not been adequately examined by experienced title professionals prior to the issuance of the policies. In order to clear the title to resell to a new owner, we had to file claims against the title policies or just resolve the issues ourselves,” Blair said, explaining that those issues ranged from no access to the property, outstanding ownership interests in the property, unsatisfied liens, complete failures of title, and everything in between.

“This experience taught me that title search is not a process that can be skipped over. The time spent reviewing the records and the legal descriptions is imperative for ensuring the consumer has good, defensible title to their property,” Blair continued. “In addition to ensuring the lender has first-lien priority, the protection afforded by the insurance product is the peace of mind that the consumer needs so they don’t have to worry if something unexpected arises in the title to the property.”

O’Donnell said, “The value of the title insurance product is really brought home when a claim arises.” Giving an example, she stated that the title agent’s “real value is providing that comfort in a time that is extremely stressful to the consumer.” As a prior claims handler, she highlighted that fact by telling a story about a consumer who was served with a foreclosure for an unpaid contractor’s lien, which arose after the closing but related back to work before the purchase.

“Being able to assure them that the matter would be resolved and they would not lose their house taught me that, despite our business being highly technical and often misunderstood, the knowledge of the local agent or the local area helped resolve their situation and bring them peace of mind. The agent can help improve the experience for the lender and consumer,” she said.

According to Matthew Slonaker, SVP, Head of Enterprise Solutions Sales, WFG National Title, it is important to bring process efficiency and transparency to the customer. This is where technology has made the process more streamlined for consumers and lenders.

“On the retail/consumer side and agent side, digital applications like MyHome are creating a more transparent process that keeps them advised of where they are and what’s next in the process,” Slonaker said. “On the institutional or lender side, technology is providing the same digital experience but even greater transparency with where exceptions are and managing through service level agreements and data.”

But the best outcomes for customer experience begin “when all the parties involved in supporting a real estate transaction—the lender, title and settlement provider and the real estate agent—are committed to delivering superior customer experience,” said Chris Leavell, COO, First American Title Insurance Company. “Our emphasis on providing this experience shapes our investments in technology and innovation, and fuels how we approach the shift towards a more digital real estate closing process.”

Tech for Title

The title industry is modernizing quickly, driven by rising consumer expectations,” said Nate Baker, CEO and Co Founder, of Qualia. “The biggest opportunity and challenge in title is to take a lesson from Amazon and make consumer obsession the north star of every title company.”

While it has made considerable strides in technology, the title industry today also faces challenges stemming from the increased pace of technological innovation, and the introduction of new real estate transaction business models.

“iBuyers such as Opendoor and Zillow Instant Offers are attracting billions of dollars of investment, and a heightened expectation from all clients for their buying experience driven by the click-button nature and immediate gratification of the Amazon-type purchase experience,” Baker said.

From a lender’s perspective, the wide disparity in processes and technologies used throughout the industry is one of the biggest challenges facing title companies today.

“There are so many different processes used across title companies and their agents that it can create inefficiencies on the closing side for real estate agents and mortgage lenders,” said Matt Clarke, CFO and COO of Churchill Mortgage. “Likewise, if you combine the process disparity with the rapid pace of technological change, and the industry’s move towards e-closings, there’s much work to be done to facilitate a streamlined, digital process for title companies, realtors, and lenders alike.”

As the industry looks to overcome this challenge of process and innovation, and move towards a digital experience to improve the front- and back-end customer experience, “digital transformation will continue to remain in focus in the title space,” Slonaker said. “We will increasingly see more integrations with marketing/CRM and LOS/POS systems with a seamless digital experience as integrated options and services through a seamless digital solution are put in place. Through these solutions, the lender/client will be able to achieve greater savings, a better customer journey and a winning equation in a tough market.”

According to Jack Goisse, President, American Home Title LLC, the title industry is already feeling the impact of new technologies such as blockchain, remote online notary, eClosings, and other such technology designed to reduce costs, increase quality, and create a better consumer experience.

“These technologies will likely play a large role in the industry’s approach to data and cybersecurity, which are prominent areas of risk,” Goisse said. “The costs and time invested in implementing the right solutions, employee awareness, training, and the proper insurance or risk management safeguards will continue to escalate.”

Sharing a personal experience he had with a closing recently, Ben Hall, VP, Premium Title, said that it was a good reality check on how far the industry had come in terms of technology. “With three active children and a working spouse, I didn’t have overly specific expectations. I wanted it done fast, accurately and with the least amount of disruption to my personal and professional life,” he recounted. “The majority of the documents were signed electronically and correspondence was largely managed through a mobile app. It was relatively painless and fun.”

But…it took way too long.

“It just goes to show that, though the industry has made significant technological advancements in the last decade, there’s great work to be done before the consumer is truly in the driver’s seat,” Hall said.

As consumers look for speed and ease, the future adoption of blockchain, cryptocurrency, and digitized records would certainly improve efficiencies and security in the title process. But to really make these technologies effective, “title companies will need to look outside their lane and identify strong partnerships and synergies across the loan lifecycle,” Hall said.

Building Partnerships

Two key elements when working with title companies are relationships and resources,” Clarke said. “Relationships lie at the core of the mortgage business and it’s important for lenders and title companies to work together with honesty and integrity.”

Additionally, Clarke said that these relationships are the difference between great customer experience and one that’s unsatisfying for borrowers. “If you’re working with the right title company, information should move quickly and efficiently between two companies. This will ensure borrowers close on time and create a highly referable lender process,” he said.

Baker agreed. “The closing experience provided by these companies is considered an extension of the lenders’ and brokerages’ brand they partner with,” he said. “That brand association has grown even more as technology advancements create more of a divide between forward-thinking, technology-enabled companies and those that continue with outdated business practices.

According to Goisse, aligning yourself with the right business partners, at the right time, “is a necessity in effectively scaling your business and meeting client needs.” He said that a “true” partnership entailed selecting the right partner and integrating your company with them to drive collaboration.

“Partners should be an extension of your organization and business objectives. Of course, these relationships should be founded in transparency and oversight as the two hold each other accountable for fulfilling their agreed upon objective,” Goisse said.

“In any business relationship, trust is a huge factor for success, especially when you’re dealing with large sums of money as well as very private, personal data on a regular basis,” Blair said. “As more and more business is conducted online, the world becomes increasingly impersonal, making company ethics invaluable.”

According to Blair, the alarming increase in wire fraud has been a key challenge that the association, as well as title companies, are looking to mitigate this year.

Fraud Watch

A recent FBI report noted that more than 9,600 victims lost over $56 million from wire fraud in 2017 in the real estate/rental sector alone. Overall, nearly a billion dollars were diverted or attempted to be diverted from real estate purchase transactions. In 2016, the Internet Crime Complaint Center experienced a 480% increase in wire fraud scams reported to title companies.

These numbers in themselves reflect one of the biggest challenges faced by the title industry today— data security.

“Wire fraud in real estate transactions continues to be a significant challenge. Fraudsters typically attempt to trick borrowers into wiring down payment funds to an account owned by or linked to the hackers,” Leavell said.

Additionally, Blair pointed out that title companies are being encouraged to report fraud incidents regardless of the dollar loss to the FBI to give a better picture of the threat. On their part, last year ALTA developed the ALTA Rapid Response Plan for wire fraud incidents, which outlines 10 steps that companies should follow if they’ve been hit by wire fraud.

“Wire fraud continues to evolve, meaning title and settlement companies must remain vigilant to protect funds involved in transactions,” Blair said. “Companies must remain committed to employee training and following policies and procedures to fight evolving cyber threats.”

Title companies are taking the threat seriously too.

“In addition to providing extensive tools and training on cyber fraud and security, we are also investing in a modern closing experience for buyers and sellers,” Leavell said. “The company’s Secure Portal allows buyers and sellers to complete and e-sign opening paperwork, and send and receive messages, through authentication-based security. Reducing email communications in favor of a more secure portal helps to reduce wire fraud risk.”

Looking Up

As the positive macroeconomic factors enumerated earlier continue to fuel the growth of title companies opportunities abound for this segment in 2019.

“The momentum continues to build across the industry to offer eClosing options to consumers, and we may see significant progress toward delivering a real estate transaction closing experience that more closely aligns with the digital home search and loan application experience consumers have embraced,” said Kevin Wall, President, First American Mortgage Solutions.

According to O’Donnell, providing best-in-class services from reputable companies can enhance the mortgage experience and lead to potential long-term borrower relationships.

“Working with companies that can embrace technology to provide the consumer with new tools, like remote online notarization, can help enhance and grow business opportunities,” she said. “The ability of all participants to share data and communicate more effectively is an opportunity to deliver a better product for the benefit of the consumer.”

Consolidation is another trend that will define the industry in 2019.

“Smaller title agents will be purchased by bigger underwriters, even as agency operations will continue to focus on plugging a diverse set of solutions to bring efficiency for the smaller independent agents to create a win-win situation,” Slonaker said.

From a regulatory point of view, Blair said that remote online notarization legislation was passed in 11 states and bills have been introduced in another 25 states as of March 2019, which will ease the closing process.

Another area of opportunity, according to Clarke, is the fact that title companies were adopting a new mindset where, instead of being an external player, they were a completely integrated partner within the mortgage process.

“The future of the mortgage industry will be defined by how each player in the mortgage process interacts with another and their ability to support consumer demand,” he said.

Looking at what consumers want, Hall said that bringing all service providers into a homogenous and consumer interactive mobile application has been the recent focus of most top-tier lenders, an area where larger service firms can simplify this execution to encourage greater adoption across the broader market.

As fair weather continues to shine upon the title industry, it has the opportunity to reinvent itself to become one that powers new, innovative business models.

“Title and escrow have been isolated to almost an afterthought for many,” Baker said. “Now they can be looked at as the champions that will partner with the lenders, brokerages, and other entrepreneurs that seek to meet the growing demands of today’s consumers.”