Title insurance and title-related products are an integral, and often expensive, part of the mortgage default process. Every aspect of default servicing touches title, from loss mitigation to REO disposition. Although many servicers have designed their internal functions, groups, and departments to optimize loan management, their workflow design can have the unintended consequence of creating silos. As a title provider, it has been our observation that many of these default servicing silos don’t always communicate effectively with each other when it comes to title issues, causing redundancy and adding to cost.
This lack of internal communication about title appears to be counterintuitive. After the 2008 mortgage crisis, scores of regulatory changes and internal best-practices reviews were installed. Today, servicers are better-than-ever equipped to handle cross communications within default servicing due to single-point-of-contact assignments, LOS and servicing technology enhancements, and just plain old interdivision management oversight.
Title is the one constant that potentially touches each department that has not been addressed and streamlined overall. Various title products ordered during the default servicing process may include the Deed Report, also known as Legal and Vesting (L&V); Property Report, often referred to as Ownership & Encumbrance (O&E); American Land Title Association (ALTA) Residential Junior Loan Policy; and the Full ALTA Title Policy.
One department may order a similar type of title product that another department has already ordered, just because “that is the way it’s been done for a long time.” Simple title search work ordered for the foreclosure department could assist the bankruptcy or workout areas using the initial product ordered from one or many of the departments involved.
Prior to the crisis, there was a movement to unify and/or reuse mortgage title-related products in aspects of the foreclosure and REO departments. The term used for the unification of these products was called “Cradle-to-Grave.” The concept was simple: a title commitment would be ordered at the initiation of foreclosure, supplanting the simple title update. During the long foreclosure process, the title commitment would be used to cure any and all defects prior to the foreclosure sale. At foreclosure sale, a simple and inexpensive date-down would be ordered to ensure lien priority prior to REO. If the loan moved into REO for handling post-foreclosure sale, then the foreclosure commitment could be converted to an insurable product, an Owner’s Title Policy (OTP). The marketable OTP could be procured very quickly and cheaply using the same title provider and product used throughout foreclosure.
Although the concept was rudimentary and evolving prior to 2008, Cradle-to-Grave was adopted by many servicers, particularly special servicers who specialized in default servicing as they focused on reducing investor costs (severity) while looking for speed of execution (recency). Following 2008, however, the default servicing industry (and the entire mortgage servicing industry) had too much on its plate as delinquencies spiked across the country. Cradle-to-Grave and title unification took a back seat to HAMP I and II, HAFA, HARP, SPOC, consent orders, new CFPB regulations, national servicing standards, etc. The industry was in complete dislocation, with all hands on deck, grappling with a very new set of complex and sometimes conflicting servicing standards. Buzzwords like velocity, recency, and expense control were a thing of the past in the default world following the meltdown. The ship needed to get righted as focus turned toward much more pressing and immediate matters.
Fast forward 10 years and mortgage servicing has found its footing. The time is right to look for title unification efficiencies within default servicing and to manage expenses throughout an expensive process. This unification of title products is low-hanging fruit. We now have better communication than ever within default servicing. The systems and personnel all “talk” to one another. Processes are no longer opaque. With a keen eye for efficiencies and cost savings, it is time to reexamine at how title products can be used throughout all default workflows, not just between the foreclosure and REO. Default title unification can be put into practice by using an experienced title provider who can help navigate across default-department boundaries by using and re-using similar title products throughout the life-of-loan within default servicing.