Special to American Banker
As the mortgage industry pushes to automate lending, title insurance is a function that is often singled out as gumming up the works.
Title insurers say it is sometimes possible to get title information in 15 minutes but usually takes three to five days - a frustrating delay when lenders have ambitions of closing loans in a single day.
"Unfortunately, with title and appraisal information, there is still a very large human element," said Malcolm S. Morris, president and chief executive officer of Stewart Title Guaranty Co. in Houston. "There's a delay in getting information back, but there is significant progress being made." Mr. Stewart is considered a leader in bringing the appraisal industry into the electronic age.
Michael Fein, president and chief operating officer of LandSafe, the Houston-based subsidiary of Countrywide Home Loans, said, "The title process continues to be a challenge due to a lack of technology in the industry and the inability to access data. The entire title insurance industry is far behind other service providers, such as appraisal and flood companies, which have invested heavily in technology."
A particular problem is the lack of automation in many of the thousands of jurisdictions that maintain title records. "It's very difficult with these courthouses in the rural areas where everything is done manually and you have to send in a title searcher to do it," Mr. Fein said. "Our goal is to work with the title industry to create a more efficient process. We can't do this independently so we're working with other major title companies, and I think we can move the process forward."
The title insurance industry knows it is under the gun to improve. Kelly Throckmorton, director of information systems and technology at the American Land Title Association in Washington, acknowledged that title companies "represent a challenge for the automated underwriting process. The challenge is to absorb the pressure and friction that's out there between homebuyers and other customers who want automation and the county courthouses out there. We need to do it quickly and accurately and get the deal closed. It's tough to bring these two ends together."
James R. Maher, the executive director of the title association, said title insurers want to be faster and more efficient, but he insisted that the title industry is not the only obstacle to a faster process. "We want to be more responsive, faster, and efficient, but the fact is that even now, as an industry, we're acting faster than the consumer can. The consumer can't get into a new house more quickly. You can't get those moving vans working any faster than they are currently."
People in the title business point to a number of encouraging developments:
- This year the Mortgage Bankers Association of America established a secretariat, the Mortgage Industry Standards Maintenance Organization, which is working on making so-called XML (eXtensible Markup Language) a standard for electronic mortgage data transmission. The land title association is to sit on the new group's board. "This will do for our industry what HTML did for the movement of text and graphics," Ms. Throckmorton said.
- In April, Fannie Mae announced an agreement with RealEC, a Houston-based joint venture between Stewart Title and Fidelity National Title. This initiative "will allow lenders to go on-line now and order all the information lenders need, [including] title, appraisal, [and] flood information," said Mike Williams, senior vice president of electronic commerce strategy at Fannie Mae. Fannie has delayed introduction of the program until the first quarter. "When it happens, all the lenders will have the advantage of being able to order title and other information without any investment from them," said Mr. Morris of Stewart Title.
- He added that lenders will not have to deal exclusively with Stewart or Fidelity if they use the system; they will be able to choose their preferred vendors for title insurance and other services state by state or even by local community. The RealEC system is expected to significantly reduce the amount of time consumers have to spend on documents. "When the title and other information becomes available, it will be dumped into an electronic order depository," Mr. Morris said. "The files will have a lender's file number on it, the lender will be able to give that to the consumer, and consumers, from their homes, will be able to lock into the depository and review their documents before going to the closing."
- Both houses of Congress have passed legislation that would make electronic signatures valid. The bill is expected to go to a conference committee next year. If it becomes law, lenders would not have to create a paper file every time they heard from a title insurer, surveyor, or other company.
What's missing? Bringing courthouses around the country more actively into the effort to go electronic. Some title companies have reportedly offered to supply computers to some courthouse title offices. Rather than relying on that hit-or-miss strategy, however, the land title association is taking a more aggressive approach, successfully suing some cities that it believes are underfunding their title record offices. Those successfully sued include cities in northern New Jersey, on Long Island, N.Y, and in Philadelphia, which was behind in its recording by more than a year."In many jurisdictions their record offices generate a positive revenue stream in terms of both their taxes and recording fees," said Mr. Maher of the land title group. "But that money is then siphoned off to their general revenue funds, where it's spent on housing, roads, and other things that politicians see as more important. Unfortunately, most counties haven't come to the conclusion that funding these offices is important."
Mr. Maher said the title industry can work through the electronic demands being made of it. "This isn't like the appraisal industry, where the product itself is under attack and alternative products are being adopted. Our product is still very much accepted as a necessity." Mr. Quinn is a freelance writer based in Arlington, Va.