While real estate settlement service providers across the country groan about new government regulations stemming from Dodd-Frank, the largest independently owned title company in the region is capitalizing on the changes in its latest effort to turn the title industry on its head.
A "leader in compliance," Federal Title & Escrow Co. at the beginning of this year became one of the first title companies in the country to implement a series of business procedures with the best interest of their clients – homebuyers and sellers – in mind. The procedures are known as "Best Practices," and financial institutions and real estate agents working with Federal Title can rest easy, too, knowing each settlement is federally compliant and hassle-free.
"The consumer is our client," said company founder Todd Ewing. "They are the ones paying the bill at settlement, not their agent or lender. Therefore it's our duty to look out for the consumer's best interest."
Protecting the consumer's best interest
Among other things, Best Practices established procedures for protecting consumers’ identities and something called non-public personal information: social security, driver's license, and credit or debit card numbers for example. It also established procedures for safely storing, emailing and disposing of sensitive documents.
To further protect consumers, Federal Title took out several insurance policies including a cyber protection policy that's good for up to $1,000,000 per claim with a provision for hacker attacks. Copies of these policies are available upon request.
"Behind the scenes, we're going above and beyond the minimum requirements according to Dodd-Frank to deliver the highest level of protection to our clients, that they hopefully never have to realize," Ewing said. "Agents and lenders in the area are hearing about our efforts from other real estate professionals as well as their buyers and sellers – we take these compliance requirements seriously."
Turning the title industry on its head
Too often, in today’s environment, title agents depend on the referrals of agents and lenders – often leading to added cost for the consumer.
Real estate brokerages have forged Affiliated Business Arrangements (ABAs) to refer business to title companies for a price, Ewing said, and that expense gets kicked down to the homebuyer or seller. The federal government's Consumer Financial Protection Bureau has paid close attention to ABAs in recent years, resulting in a rise in Marketing Service Agreements (MSAs).
"It's like putting lipstick on a pig," Ewing said. "No matter what they call it, it’s a kickback with the same end result taking more money out of the pockets of consumers and putting it into the pockets of big brokers."
A large swath of Federal Title's business comes from referrals by real estate agents and lenders, but Ewing said he will continue to target homebuyers and sellers directly while appealing to like-minded real estate professionals who have the consumer's best interest at heart.
"Demonstrating a level of professionalism to our clients – that we take seriously their privacy as well as compliance with the federal regulations – is the latest in a string of efforts to earn the consumer's trust and ultimately their business," Ewing said.
Leveraging technology to earn clients' trust
The implementation of Best Practices is one way Federal Title has leveraged technology to change the way the title industry interacts with consumers. Last year the company developed a free iOS and Web app known as Close It! that accurately calculates cash to close for home buyers and cash in pocket for sellers.
They were the first title company in the region to publish their rates online and offer an instant discount on transactions where the order was placed through the company's pioneering online order system. (Coincidentally the discount illustrates how much is kicked back to referral sources through ABAs and MSAs.)
"No other title company invests as heavily as we do in consumer-driven technology," Ewing said. "We have to try to reach the consumer directly before they get steered to their broker's preferred title company partner and pay more for inferior service."
Dodd-Frank Wall Street Reform and Consumer Protection Act and the title industry
Passed in 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act mandated new consumer financial laws and created an agency known as the Consumer Financial Protection Bureau to enforce them.
Among other things, the CFPB is tasked with regulating financial products and services such as home mortgages. They have the authority to supervise financial institutions for compliance with these laws and, by extension, third-party service providers such as title companies.
Banks are under the CFPB microscope, and they in turn are taking a hard look at third-party service providers to ensure business practices and services are on the up-and-up in terms of the new requirements mandated by Dodd-Frank.
To guide settlement service providers through the changing landscape, the American Land Title Association developed a series of industry guidelines dubbed "Best Practices." Implementation is voluntary, but in doing so title companies can demonstrate to the consumers and real estate professionals alike a level of professionalism – and ensure a compliant real estate settlement experience.