2015 ComplianceSuccess Survey

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2015 ComplianceSuccessSurvey

2015 ComplianceSuccess SurveyThanks to the 2008 economic meltdown andthe Dodd-Frank Wall Street Reform & ConsumerProtection Act of 2010, mortgage banks are nowheld accountable for the actions of their third-partyvendors, including thousands of title companiesKey Findings and settlement firms nationwide. In responsepillars. However, despite the release of ALTA’s BestBulletin 2012-03 more in terms of their relationshipswith lenders than with clients.to the new regulations, the American Land TitleAssociation (ALTA) released its seven Best PracticesRespondents perceived the impact of the CFPB’s Practices, there is still much confusion aroundLarger companies viewed the ALTA Best PracticesFramework in a much more positive light than smallercompanies.what is considered compliance with federalconsumer financial laws.HA&W’s second annual ComplianceSuccess The majority of respondents believe that the ALTA BestSurvey sought to understand how title agenciesPractices Framework will be adopted by lenders andand settlement firms are addressing ALTA Bestthe CFPB, though they are divided as to the timeline.Practices compliance. Conducted in Marchand April of 2015, the survey includes over 200companies across the nation, ranging in size from less than 100 to over 10,000 residential mortgageIndicate the annual range for yourcompany’s title and settlementresidential mortgage closings.ʎɜɵրΒΫτӈϝ̐Βas small companies to have started implementing theALTA Best Practices pillars.closings per year.Q.Large companies were more than six times as likely While the majority of respondents believe that industryconsultants can give lenders the most assurance onALTA Best Practices compliance, half of those whoutilized a third party to assess their current level ofNOT APPLICABLEcompliance chose CPA firms.I DON’T KNOW 10,0005,000-10,000Respondents overwhelmingly chose Pillar Three(Security Awareness & Disaster Recovery Management)as the ALTA Best Practices Pillar that cost the most timeand most money to complete.2,000-4,9991,000-1,999 500-999Respondents were almost evenly split on howfrequently settlement providers should be re-certified,with respondents favoring every two years, every three300-499years and greater than every three years.200-299 100-199210%to the same standard as larger companies, while largercompanies believe that companies large and small alike 1000%Smaller companies believe that they should not be held20%should be held to the same standard.

2015 ComplianceSuccess SurveyPERCEPTIONThe survey participants are in agreement – the Consumer Financial Protection Bureau’s(CFPB) mandate requiring lenders to monitor their third-party settlement providers’compliance will affect their business in some fashion. Only four percent indicated thatthey expected CFPB Bulletin 2012-03 to have no impact on their companies.Q.How do you view the CFPB’s mandate (Bulletin 2012-03) for lenders tomonitor their third-party settlement providers’ compliance with federalconsumer financial protection laws?*PERCENTAGE OF SURVEY RESPONDENTS’PERCEPTION OF THE CFPB’S MANDATE(Bulletin 2012-03)GIt will change the way I do business.If I cannot show lenders that I work with that I amcompliant, it will create a business risk in retainingand growing lender relationships.58It is the government’s further attempt to regulatethe title and settlement industry.It will change the wayI do business.PERCENTIt will increase consumer confidence in the titleand settlement industry.GIt will have no impact on my business.*Respondents could choose all options that applied.0%50%100%67If I cannot show lendersthat I work with that Iam compliant, it willcreate a business risk inretaining and growinglender relationships.PERCENTRespondents viewed the impact more in terms of their relationships with lenders thantheir relationships with clients. Sixty-seven percent of those surveyed said that it wouldGcreate a business risk in retaining and growing lender relationships if they could not showlenders that they were compliant, while only 16 percent indicated that they believed the44CFPB’s mandate would increase consumer confidence.When it comes to the ALTA Best Practices Framework, respondents’ opinions werePERCENTIt is the government’sfurther attempt toregulate the title andsettlement industry.generally positive, with 54 percent viewing ALTA Best Practices as ALTA’s attempt toprovide a mechanism for self-regulation, 49 percent believing that ALTA Best Practicesare something every settlement professional should follow and 51 percent seeing ALTAGBest Practices as a comprehensive compliance benchmark.Q.16What is your perception of the ALTA Best Practices Framework?*PERCENTALTA’s attempt to provide a mechanism for the titleindustry to self-regulate itselfSomething every settlementprofessional should followA comprehensive compliance benchmark thatallows lenders to monitor their third-partysettlement providers*Respondents could choose all options that applied.4G4Just more guidelines that the industry has to followPERCENT0%50%100%It will increaseconsumer confidence inthe title and settlementindustry.It will have no impact onmy business.3

2015 ComplianceSuccess SurveyHowever, when the size of the companies surveyed is taken into account, a patternemerges. Larger companies (those with more than 300 residential mortgage closingsper year) were almost twice as likely to perceive the ALTA Best Practices Frameworkas a comprehensive compliance benchmark. On the other hand, smaller companies(those with less than 300 residential mortgage closings per year) were more than 1.5times more likely to believe that the ALTA Best Practices Framework was “just moreguidelines for the industry to follow.”PERCENTAGE OF SURVEY RESPONDENTSGcomprehensive compliance benchmark, smaller companies were significantly moreof large companiesbelieve ALTA’sBest Practicesstandards providea comprehensivecompliance framework.PERCENTlikely to view the standards and assessment procedures as too many requirementsbeing imposed on the industry.6GQ.of small companiesbelieve ALTA’s BestPractices standards donot provide enough toregulate the industry.6PERCENTDo you think ALTA’s Best Practices standards, and the assessmentprocedures that accompany them, are:A comprehensive compliance benchmarkframework for the title and settlement industryGNot enough to regulate the industry26of large companiesbelieve the ALTA BestPractices standards aretoo many requirements.PERCENTPERCENTstandards and assessment procedures. While the overall perception was positive, with62 percent of respondents viewing the standards and assessment procedures as a7044That same correlation held true for respondents’ views on ALTA’s Best PracticesGToo many requirements imposedon the industry Small companies Large companies͡ǚ ǚ бǚ ֦֚ǚ ǚ ̰ǚ ɿ0%50%100%Regardless of size, the majority of respondents believe that the ALTA Best PracticesFramework will be adopted by lenders and the CFPB. But respondents were dividedof small companiesbelieve the ALTA BestPractices standards aretoo many requirements.on exactly when ALTA Best Practices would be adopted. A little more than a quarter ofrespondents believe that ALTA Best Practices will be adopted in the next four to six months,while approximately one-fifth of respondents believe adoption won’t happen until 2016.“The title industry is currently going through a sizable transformation, highlighted by theTILA-RESPA Integrated Disclosure (TRID) rule and ALTA Best Practices initiative,” said LeeFields, managing director of Business Consulting Services at HA&W. “With the CFPB movingthe TRID compliance date from Aug. 1 to Oct. 3, 2015, it is difficult to pinpoint exactly whenwidespread ALTA Best Practices adoption will take place.”4

2015 ComplianceSuccess SurveyQ.Do you think that ALTA Best Practices will be adopted bylenders and the CFPB?Yes, in 0 to 3 monthsYes, in 4 to 6 monthsYes, in 7 to 10 monthsYes, in 2016Yes, after 2016NoPERCENTAGE OF SURVEY RESPONDENTSɦǚ ǚ Μǚ Ƞǚ ̲ǚ Ȭǚ ɜ0%25%The majority of respondents have already begun the process of becoming compliantwith ALTA Best Practices, ranging from 63 percent having begun Pillar 3 (SecurityPERCENTWhich of the seven ALTA Best Practices pillars have you completed?*83%76%72%65%63%FiveEscrow Account ManagementSecurity Awareness & DisasterRecovery ManagementSettlement Services Policiesand ProceduresPolicies & Procedures Title Policy & ProductionSixSeven11PERCENTGALTA Best Practiceswill not be adopted bylenders and the CFPB.Only 10 percent ofrespondents had notHave not startedFourConsumer ComplaintsThreeErrors & Omissions Professional LiabilityTwoLicensing10%ALTA Best Practices willbe adopted by lendersand the CFPB in 2016.PERCENTPillar 1 (Licensing).OneG9Awareness & Disaster Recovery Management) to almost 90 percent having begun87% 82%G28ALTA Best Practices willbe adopted by lendersand the CFPB within thenext six months.50%PROCESSQ.G16PERCENTALTA Best Practices willbe adopted by lendersand the CFPB withinthree months.begun working towardALTA Best Practicescompliance at the time ofthe survey.*Respondents could select all that applied or choose “Have NOT started.”Only 10 percent of respondents had not begun working toward ALTA Best Practicescompliance at the time of the survey, with small companies more than six times as likelyas large companies to have not yet begun. Of that 10 percent, almost 60 percent intendto begin the process within the next three months. A sizeable number of respondents5

2015 ComplianceSuccess Surveywho had not begun working toward compliance (29 percent) indicated that they do notintend to begin the process until lenders require it.But that day is coming soon. “National and regional institutions like Wells Fargo, SunTrust,BancorpSouth, IBERIABANK and Trustmark have been announcing their complianceguidelines for their third-party partners,” said Fields. “Guidelines currently range fromrequiring completed self-assessments to certifications by independent third parties byUnderstandably, the mostsignificant hindrancewith regard to ALTA BestPractices compliance wastime, with 71 percent ofrespondents indicatingthat the time requiredto become compliantis an issue.certain dates. Settlement professionals that haven’t started the compliance process shouldbegin now to ensure that they adhere to financial institution deadlines.”Understandably, the most significant hindrance with regard to ALTA Best Practicescompliance was time, with 71 percent of respondents indicating that the time requiredto become compliant, therefore taking away from the time to run their day-to-daybusiness, is an issue. Cost was a close second, at 59 percent. Other problems citedby those surveyed included changing the mindset of their employees and the lack ofguidance from lenders around certification.Q.What is the most significant hindrance that you are encountering withALTA Best Practices compliance?*CostTimeStaffing/resourcesNot applicableNone of the above0%PERCENTAGE OF SURVEY RESPONDENTSGCost was one of themost signficanthindrances.PERCENT51100%There seems to be a disconnect between survey respondents and lenders regardingthird-party providers that can provide assurance on compliance. When asked who theyGthought could give lenders the most assurance on whether they were ALTA Best Practicescompliant, the overwhelming majority of respondents (71 percent) indicated that industryconsultants were the best choice. CPA firms took second place with 27 percent.Staffing/resourceswas one of the mostsignficant hindrances.But as lenders begin to disclose their requirements for compliance, title agents andsettlement companies may find that their first choice is not the same as lenders’, asmany lenders prefer assurance from CPAs. Jason Pike, first vice president, mortgageservicing manager at BancorpSouth, noted that “many accounting firms have agreed toassist with the completion of this certification. With this recent guidance from AICPA, weare confident in their ability to perform the required assessments with impartiality andprudence.”650%*Respondents could choose all options that applied or choose “Not applicable” or “None of the above.”70PERCENTρǚ ǚ иǚ ͺǚ ծǚ ե

2015 ComplianceSuccess SurveyWhen asked if they had assessed their current level of compliance, 40 percent ofrespondents indicated that they had, whether through ALTA’s self-assessmentreadiness guides or through a third-party assessment. Of those who chose toQ.use a third-party assessment, half utilized a CPA firm for the process – a strikingnumber given that the majority of respondents preferred industry consultants.Q.Have you assessed your current level of compliance withALTA Best Practices?Yes, through ALTA’s self-assessmentreadiness guideYes, through a third-party assessmentIn progress, through ALTA’sself-assessment readiness guideIn progress, through athird-party assessmentNoNot applicableʶͪ ͪ դͪ ʖͪ Ǹͪ ȓִͪ 0%25%2Who do you think can givelenders the most assuranceon whether you are ALTABest Practices compliant?27%71%2%CPA firmsIT consultantsIndustry consultants50%An additional 42 percent of respondents said that either their ALTA selfassessment or third-party assessment was in progress, while only 16 percentPERCENTAGE OF SURVEY RESPONDENTSGsaid that they had not begun to assess their level of compliance. Smallcompanies were more than twice as likely as large companies to have not yetbegun assessing their current level of compliance.We asked respondents who had completed their assessment process which32PERCENTCompleted an assessmentusing ALTA’s self-assessmentreadiness guide.ALTA Best Practices pillars cost the most money and the most time to becomecompliant. The overwhelming majority indicated that Pillar 3 (Security AwarenessG& Disaster Recovery Management) cost both the most time and the mostmoney.“The security and privacy control system represented by Pillar 3 is somethingbanks have built into their processes over 10 to 20 years as a result of various28Completed an assessmentthrough a third party.PERCENTbanking regulations. Title agents are learning that building a strong securityand privacy program that can be proven is not necessarily simple. The changecan pervade procedures for all personnel, not just IT, and requires well-definedpolicies and procedures, and oftentimes technology investments,” said DanSchroeder, partner-in-charge of Information Assurance Services at HA&W.“While many agents may find this to be daunting and frustrating, all indicationsare that the oversight and requirements from both regulators and lenders aresuch that this change is here to stay – whether this is driven by ALTA, otherregulations or simply lender vendor management programs. The public is notgoing to tolerate looseness and lack of accountability for entities entrusted with15PERCENTGHave not assessed theircurrent level of compliance.custody of personal information.”7

2015 ComplianceSuccess SurveyAdditionally, smaller firms struggled with Pillar Two, Escrow Account Management.Thirty-two percent of small firms indicated that escrow account management took themost time to become compliant, compared to only nine percent of large firms whichcited Pillar Two as consuming the most time.At the time of the survey,most of those respondentswho had completed theassessment process hadnot yet spent vast sumsof money on ALTA BestPractices.2943263Q.Q.Which ALTA Best Practices pillar took the mosttime to become compliant?PILLAR 1 - Licensing .2%PILLAR 2 - Escrow Account Management . 16%PILLAR 3 - Security Awareness & DisasterRecovery Management . 63%PILLAR 4 - Settlement Services Policiesand Procedures .9%PILLAR 5 - Policies & Procedures Title Policy & Production .4%PILLAR 6 - Errors & Omissions Professional Liability.3%PILLAR 7 - Consumer Complaints.3%Which ALTA Best Practices pillar cost the mostmoney to become compliant?PILLAR 1 - Licensing .2%PILLAR 2 - Escrow Account Management . 13%PILLAR 3 - Security Awareness & DisasterRecovery Management . 63%PILLAR 4 - Settlement Services Policiesand Procedures .6%PILLAR 5 - Policies & Procedures Title Policy & Production .0%PILLAR 6 - Errors & Omissions Professional Liability. 13%PILLAR 7 - Consumer Complaints.3%At the time of the survey, most of those respondents who had completed theassessment process had not yet spent vast sums of money on ALTA Best Practicescompliance. Over 60 percent of respondents had spent less than 10,000, with 43percent spending less than 5,000.Amid the confusion surrounding ALTA Best Practices, there has been much discussionof using existing Service Organization Control (SOC) reports like SSAE 16/SOC 1 and AT101/SOC 2 to address compliance. “While SOC reports can certainly provide the highest8

2015 ComplianceSuccess SurveyQ.How much money have you spent to become compliant with ALTA BestPractices? 5,000 5,000- 9,999 10,000- 19,999 20,000- 29,999 30,000- 39,999 40,000- 49,999 50,000ǚӊ ǚ ǚȦ ǚȈ ǚǪ ǚ ǚʸ 0%25%PERCENTAGE OF SURVEY RESPONDENTSaren’t for everyone,” said Fields. “For very large agents, a SOC is a very viable choice, astheir lending institutions may expect a SOC from them. However, the time requiredand incremental costs associated with a SOC report versus an ALTA Best Practicesassurance report probably don’t make business sense for smaller firms, and could beconsidered ‘overkill.’” The survey respondents agreed; the majority of those surveyedSpent less than 5,000.PERCENTG19Spent between 5,000- 9,999.PERCENT50%levels of overall assurance, with a specific emphasis on Pillar Three IT controls, theyG4316PERCENTGSpent over 50,000.(66 percent) replied that their organizations had not received a SOC report.Despite the high numbers of respondents who have completed an assessment orbegun one, very few respondents have received a compliance report indicating thatthey are compliant with ALTA Best Practices – just 11 percent. Among that 11 percent,respondents received reports from CPAs, underwriters, lenders, IT consultants andindustry consultants. The majority of those surveyed (64 percent) indicated that theyhad not yet gone through compliance testing, while another 17 percent had beguntesting but had not yet finished the process.“Many companies are still in the remediation phase,” pointed out Richard Kopelman,CEO and managing partner of HA&W. “Remediation can take anywhere from a fewdays to a few months to complete, but title agents and settlement firms should keepin mind that lenders are beginning to issue deadlines for third-party compliance – anddocumenting compliance can take one to three months.”PERSPECTIVESAs title agents and settlement firms begin the process of complying with ALTA BestPractices, many questions remain about the impact of the new regulations.One such question for the future is the frequency of re-certification for third-partyproviders. Only 14 percent of respondents felt that settlement providers should be re-Despite the high numbersof respondents whohave completed anassessment or begun one,very few respondentshave received acompliance reportindicating that theyare compliant withALTA Best Practices –just 11 percent.certified on an annual basis. Thirty-six percent believe re-certification should happen everythree years. Unsurprisingly, small companies were much more likely than large firms tofavor re-certification every three years and much less likely to favor annual re-certification.9

2015 ComplianceSuccess SurveyAnother dilemma facing theindustry is whether smaller titleQ.How often do you feelsettlement providers shouldbe re-certified?and settlement companies (thosewith less than 300 settlementsPERCENTAGE OF SURVEY RESPONDENTSGcompliance reporting standard asLarge companies whothink that all companiesshould be held to thesame reporting standardPERCENTPERCENT23%larger companies (those with more7073annually) should be held to the sameGthan 300 settlements annually).Though the general consensus was14%26%that they should, with a majority of54 percent, the small companies36%and large companies varied in theirresponses exactly as one wouldSmall companieswho think that theircompanies should notbe held to the samereporting standardexpect – smaller companies believethey should not be held to the samestandard, while larger companiesbelieve that all companies, large andsmall alike, should be held to thesame standard.AnnuallyEvery 2 yearsEvery 3 yearsGreater than every 3 years“While the basic tenants of compliance need to be consistent from an industrystandpoint, lenders, underwriters and many settlement professionals agree that a‘one size fits all’ approach to testing and reporting for compliance is not rational oreconomically feasible, especially for firms doing less than 300 closings per year. WeFears of a largecontraction in the realcreated reviews (for smaller firms) and examinations (for larger firms) to addresscompliance testing and reporting for all aspects of the market, and the industryfeedback and response from our clients has been remarkable,” said Fields.estate ecosystem mayhave been premature;65 percent of respondentsQ.indicated that theyhave not consideredYesmerging or discontinuingtheir residentialsettlement services.NoDo you think smaller title and settlement companies (less than 300settlements annually) should be held to the same compliance reportingstandard as larger companies (more than 300)?ɾǚ ǚ Ьǚ ѓǚ ʰ0%50%100% Small companies Large companiesA year ago, consolidation fears were rife in the industry, with publications like TheWall Street Journal writing articles speculating that the resources required to becomecompliant would result in title agents and settlement firms merging or being acquired.Those fears of a large contraction in the real estate ecosystem may have been10premature; 65 percent of respondents indicated that they have not considered

2015 ComplianceSuccess Surveymerging or discontinuing their residential settlement services. Even among smallercompanies, those considered most likely to be pushed toward consolidation, only onethird of respondents had considered the possibility.Q.5Do you believe that having a third-party assurance report wouldmake your company more marketable to lenders and give you acompetitive edge in your industry?38%57%It is clear that many titleagents and settlementfirms have started downthe road to ALTA BestPractices compliance,YesNoNot Applicable5%with companies in allphases of compliancefrom assessmentto testing.Finally, we asked respondents whether they believed having a third-party assurancereport would make their company more marketable to lenders and give them acompetitive edge. Fifty-seven percent believed that it would make their company moremarketable to lenders.“Based on what we’ve seen in our talks with lenders, having a third-party assurancereport does make a title agent or settlement firm more desirable to a lender,” saidFields. “Companies that want to increase their market share should get a jumpstart oncompliance to ensure that they stay ahead of the pack.”CONCLUSIONIt is clear that many title agents and settlement firms have started down the road toALTA Best Practices compliance, with companies in all phases of compliance fromassessment to testing. The industry also clearly has accepted the ALTA Best PracticesFramework as the solution to compliance with federal consumer financial laws.Despite this, questions still linger around the compliance process. In the coming monthsand years, lenders and the CFPB will need to address a variety of issues, including whichthird parties title agents and settlement firms should turn to for compliance testing andreporting and how frequently title agents and settlement firms should be re-certified.There is also a noticeable difference in the perception and practice of ALTA BestPractices compliance between small and large firms, with smaller firms still draggingtheir heels. With lenders now beginning to release their third-party requirements,companies of all sizes should strike ahead on the path to ALTA Best Practicescompliance in order to be ready to meet lender deadlines and retain market share.11

ABOUT HA&W’S COMPLIANCESUCCESS PROGRAMHA&W is the leading CPA firm in the nation to provide ALTA Best Practices compliance benchmarking,readiness and assurance reporting through its ComplianceSuccess Program. HA&W’s ComplianceSuccessProgram provides independent third-party assurance using CPA professional standards on attestationreporting, trusted by banking and financial institutions. Our fast track approach will assess your current levelof compliance and provide you with a remediation plan in three to five business days. Our process deliversthe best price point to achieve compliance, offering complete compliance benchmarking and reportingacross all seven ALTA Best Practices Pillars. To ensure our ComplianceSuccess Program is in lock step withindustry standards and requirements, HA&W is actively involved at the highest levels with ALTA, the AICPA,underwriters, lenders and the Mortgage Bankers Association.To learn more about HA&W’s ComplianceSuccess Program, contact:Lee FieldsPaul RobertsManaging Director of BusinessDirector, ComplianceSuccessConsulting hawcpa.compaul.roberts@hawcpa.comRichard KopelmanCarol AdamsCEO and Managing PartnerAssociate, an@hawcpa.com770-353-5318carol.adams@hawcpa.com

When it comes to the ALTA Best Practices Framework, respondents’ opinions were generally positive, with 54 percent viewing ALTA Best Practices as ALTA’s attempt to provide a mechanism for self-regulation, 49 percent believing that ALTA Best Practices are something every settlement professional should follow and 51 percent seeing ALTA

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