Editor’s note: This feature originally appeared in the October issue of DS News
In 1964, Bob Dylan famously sang the lyrics, “Oh, the times they are a-changin.” While Dylan’s melodramatic anthem focused on the shifting American societal landscape during that turbulent decade, the title industry is currently undergoing its own era of change in the 21st century.
The needs of consumers are changing, new demographics have entered the housing market, tech continues to alter the landscape, and the title industry is left to try and keep pace.
DS News spoke to an array of title professionals about the state of the industry, how it can best leverage technology, and what challenges await as 2020 closes in.
Protecting Your Privacy
The rise of technology undoubtedly has its positives and negatives. While the advancements have helped streamline insurance processes, they have also opened up new avenues for fraud and theft.
Cynthia Durham Blair NTP, Co-owner of Blair, Cato, Pickren, Casterline, LLC, pointed to the American Land Title Association’s (ALTA’s) establishment of the Coalition to Stop Real Estate Wire Fraud. The group, Blair said, is dedicated to raising awareness and educating not only homebuyers, but also everyone else involved in the process of securing a loan or buying a home.
“We want to help people prevent the risk of wire fraud, and empower those who have been victimized in a fraud like this to come forward with their stories,” Blair said. “The best way for us to raise awareness is for the unfortunate victims to come forward and be public about their stories, so people know that it happens. It’s not discriminatory about where it happens
or to whom it happens. It happens all over the country, on both large and small transactions.” In July, a bipartisan group of 33 senators, led by Sen. Jerry Moran (R-Kansas) and Sen. Chris Van Hollen (D-Maryland), signed a letter questioning Federal Reserve Chairman Jerome Powell on the efforts being taken by the Fed to curb wire fraud.
The letter sent to Powell’s office stated that between 2015 and 2017, the FBI reported an 1,100% increase in the volume of “real estate related email compromise scams.” Funds lost associated with these scams grew 2,220%.
Moran’s letter further pointed out that, within the 2017 fiscal year, the FBI reported that $969 million was “diverted or attempted to be diverted” from real estate purchases to “criminally controlled” accounts, which is an increase from just $19 million the year prior.
“There’s an increasing problem of wire fraud through business email compromise and email account compromise. We also need to make sure that the Fed is doing something about it, and that Congress is aware,” Blair said.
Education of the homebuyer, according to William Robinson Jr., President of ATA National Title Group, is “the most perplexing” problem facing the title industry. He added that it is compounded by the fact that real estate transactions are not getting any easier, and digital communication has reduced the direct, personal points of contact between consumers and service providers.
“Title companies cannot continue to rely upon passive outreach,” Robinson said. “A willingness to answer questions when posed is not the same as a program to reach and inform customers. Title companies have the knowledge consumers need. They need to use modern digital portals such as websites, social networks, and the like in order to reach and educate the next generation of customers.”
Michael Rubin, VP of Business Development for Alliant National Title Insurance Company, told DS News that the real question to be asking is whether the consumer cares to be educated about title insurance.
“It’s horrible that consumers maybe don’t care enough about the product,” Rubin said. “It means that you’re in danger of one day not being a product.” Rubin added that, for many, a home is only purchased a few times in their life, and so homebuyers may not see title insurance, or any related security or fraud risks, as a real concern.
“We are the same kind of product to a consumer as a windshield replacement is when you’re buying a new car,” Rubin said. “It’s a onetime purchase that they may never use, and that, frankly, may not hold a lot of value to them. Educating them as to the value that we provide is important, but I don’t see much evidence that consumers want to be educated on it.”
Michelle Garcia Gilbert, Managing Partner of the Gilbert Garcia Group, P.A., said there were approximately 11,300 victims of real estate wire-fraud schemes, including title companies and buyers and sellers, according to the FBI Internet Crime Report from 2019. Gilbert, who is also managing partner of Sapphire Title, pointed to a fraud alert for wire transfers issued by the Consumer Financial Protection Bureau (CFPB) in July 2019. She recommended never using email-wiring instructions, because hackers can spoof emails.
Patrick Stone, Executive Chairman and Founder of WFG National Title Insurance Company, said the reason cyber theft and fraud are increasing is because the frequency of real estate transactions occurring within non-secure emails is trending upwards.
“The title industry is right at the nexus of the transaction and frequently is handling or involved in wire transfers, pay-offs, etc. Consequently the title company is frequently wrongly accused of being the source of the breach, and is almost always directly involved in trying to resolve the issue,” Stone said. “Educating the participants in the transaction— mainly consumers and Realtors—as to the danger of cyber theft is the biggest challenge facing the industry at this point in time. While almost every title company prints large warnings on all documents, outreach to the consumer in a meaningful way is needed.
The Technological Advantage
Of course, for every dangerous door technology opens, there are plenty of bridges it provides to new opportunities as well.
Qualia Co-Founder Joel Gottsegen told MReport that advancements in technology— notably a little invention known as the smartphone—have provided most Americans with access to the internet almost anywhere in the world. While the real estate and lending industries have evolved over the past decade to meet expectations from a more tech-savvy clientele, Gottsegen suggests the title industry lags behind.
“You have more digital loan applications, you have more purchase-and-sale agreements being signed on the internet rather than via a wet sign. Even within the closing part of the transaction itself, you have more and more digital interactions,” Gottsegen said. “So it’s not a surprise that we’re seeing an uptake in demand for things like electronic signing and electronic notarization. The key is, technology companies and title companies use a partner to empower title companies to meet the consumer expectations when they demand it.”
Gottsegen added that, while most people may not want to complete the largest transaction they will ever make on a 4.7-inch touch screen, the market is changing, and the surge of millennial homebuyers is altering long-standing assumptions.
“Title companies need to be able to provide both experiences,” he said. “The in person experience—sitting around the table, talking everything through—as well as that streamlined, mobile app, sign-everything-online experience.”
Gottsegen said the answer to being a successful title company in 2019 is to, “just be ready.”
“Be able to provide this experience when it’s required, and you don’t have to provide it when it’s not required. That flexibility is key, which is a function of what technology title companies are working with,” he said.
Gilbert said the ability for millennials to do a digital transaction, from loan application, to contract submission, to electronic closings, will be “uniformly accepted in the future,” but with security safeguards.
“Add remote notarization to electronic closings … the traditional closing experience at the title company table may go the way of brick-and-mortar retail stores,” she said.
Stone said technology has also given title companies the ability to outsource non-client specific functions, such as the production of title reports, cybersecurity, human resources, and marketing.
“Technology has allowed the industry to consolidate data acquisition and sharing, as well as making information more readily available to title companies, real estate agents, lenders, and consumers,” Stone said. “Technology has facilitated eClosings, remote notary, and online processing, thereby taking time and cost out of the process for all concerned.”
Gottsegen observed that the current generation of buyers are accustomed to using technology on a daily basis, and using an antiquated process “is a surprise to them.” He added that every part of the real estate industry over the past decade has caught up to those expectations.
“Unfortunately, you have the title companies who haven’t had that same technology partner to let them get to that level of consumer expectations that we’re seeing now,” Gottsegen said.
Ultimately, Robinson said technology touches everything we do, but can increase efficiencies. He added that title companies can improve their use of digital communication, especially with business-to-consumer communications.
“To achieve that kind of consistency, individual consumer needs must be effectively communicated and addressed. That means digital communication has to become a priority. Moreover, as we improve communication, we reduce risk,” Robinson said. “For example, wire fraud survives on the failure of service providers to timely and securely communicate to their customers. Technology has created that problem and can also be the means to solve it.”
Rubin, as a self-professed, “borderline millennial,” says he has yet to see much of an impact from technology. He noted that there is a great deal of chatter and “a lot of people afraid of it,” but he views things such as eNotorizations as the “next logical step.”
“I’m ready for it and I’m eager to see what it does to the business. Those who are afraid of it will fall behind,” Rubin said.
The Challenges Ahead
With 2019 quickly winding down and the calendar preparing to flip to 2020, what challenges lie ahead for the title industry?
Stone said while the title industry is a necessary function of the real estate process, it will have to become more consolidated as technology allows “major players to operate more efficiently and expand in a more cost-effective manner.”
“The days of a closing office on every corner are coming to an end, and online functions will become more prevalent. The industry will slowly morph into a more traditional Insurance industry relationship with its agents, as those agents look to their underwriters for functional support, while they focus on sales, signings, and client interaction,” Stone said.
Gilbert noted that both Fannie Mae and Freddie Mac have launched initiatives for electronic closings. She said this is not so much a reform of the GSEs as it is “the direction of the lead loan underwriters in the country.”
“Evolve or don’t evolve, at your peril,” Gilbert said. “The industry is innovating to adapt to the new digital age by developing technologies that allow a seamless and secure transaction by the title industry, who of course will still need to issue title insurance policies.”
Robinson said many of the challenges facing the title industry—technology (and the abuse of it), consolidations, and regulations—have been fueled by changes in modern business practices.
“As new technologies have emerged, business practices have evolved, in some cases spawning new threats like wire fraud. Service providers have had to adapt their business models, usually involving substantial investment in their own technology development,”
Robinson Jr. said. “Often the knowledge and capital required by that development has caused those service providers to consolidate. Finally, these changing business methods have required regulators to adapt as well by formulating new policies.” Robinson Jr. said that while the path to facing these challenges will not be easy, two requirements are consistent: the willingness to adapt and the willingness to invest.
For those willing to do both, Robinson Jr. said he believes “significant opportunities are and will remain available.”
Gottsegen said there are an increasing number of states passing legislation allowing electronic notarization, and it is a trend that is “certainly going to continue.” He added, “As long as consumers are demanding these experiences, lawmakers will ultimately listen to these demands and turn that into law.”
He stressed that, for the title industry in 2020, it will be vital to remain on the lookout for not only consumer trends but also how lawmakers turn these trends into regulations and legislation.
“We are in a highly regulated industry,” Gottsegen said.
Dean Kirchen, SVP of Title Operations and Manager of Default Services for WFG National Title Insurance Company, said he is looking for corporate debt to be a “driving force” in the next recession. Kirchen added, though, that the next recession likely won’t result in another housing bust like in 2009, but stressed layoffs could impact defaults.
“If there are layoffs, people will struggle to make their payments, increasing default rates,” Kirchen said. “We’re seeing numbers now that properties going to foreclosure auction are actually increasing on the West Coast, so there is some sort of lack of appetite for rising values.”
Robinson, looking ahead, said he believes transactions will decline, which will lead companies to cutdown operations. However, “All is not bleak,” Robinson said, as he noted he expects the market to remain strong in 2020.