Settlement agents, the men and women who manage the closing of residential mortgage loans, carry a great burden with them. Each time they close a loan they have access to mortgage proceeds, lender documents including the important collateral security instruments (note and mortgage) and borrower personal and financial information (in the final 1003 and other closing table documents). No other third party that participates in the mortgage loan assembly-line process has greater authority, greater responsibility and greater opportunity to commit fraud.
Because fraud risk is elevated during periods of high purchase volume, as opposed to a boom in rate and term refinances, lenders are faced with the potential for serious losses when the managing of closing agent risk fails to occur.
It was not until about 2011 that the FBI and FINCen began to report title and closing fraud as a subset of overall mortgage fraud. Since that time the numbers have consistently demonstrated that fraud at the closing table is more than 20% of overall fraud. With the annual reported mortgage fraud numbers in excess of $4 Billion this means that the actual reported losses are in the $800,000-$1 Billion range. This is an enormous problem for the industry and one which only recently has been addressed with heightened vendor management scrutiny.
While it is certainly true that the vast majority of settlement agents (attorneys, title agents, escrow officers and notaries) are professional, competent and trustworthy there are many who are not. One reason for this is that the different disciplines have varied education, training, licensing, insurance and bond requirements. The second is that there are no performance standards or uniform, cross-disciplinary training programs to ensure that everyone has a base of key knowledge about all things consumer protection, mortgage loan and title insurance. Another issue is the lack of required training in regulatory and compliance for this group of professionals so that they have an understanding of what investors, the GSEs, HUD, the CFPB and state regulators expect from lenders in the nature of risk compliance and loan quality assurance.
While the industry has come a very long way since Secure Insight began in 2012 and created a storm of controversy over settlement agent vetting, much has yet to be done to assure lenders and borrowers that the single largest financial transaction of their lives has been fully vetted and managed for risk. We continue to strive to enhance our tools and to find means and methods to assure both of these groups that they can trust a process that poses so much potential for financial harm.