TABLE OF CONTENTS
Understanding the Infrastructure required for Change . . . . . . . . . . . . . . . . . . . . . . .6 There are currently many voices calling for mortgage industry reform, but change is never easy, even when it is so desperately needed. We don’t yet know all of the details of the government’s plan for the GSEs, but we do know that any repair work will have to be systemic in nature.
What the Vendor Managers Can Learn from Retailers . . . . . . . .4 5 Ways to Find New Feeds . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 Beyond RESPA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 Everything I Needed to Know About Marketing I Learned at the Dairy Queen . . . . . . . . . . . . . . . . . . . . . . .14 One Economist’s View of the Future . . . . . . . . . . . . . . . . . . . .16 Interstate Title Search Helps Feed Needy Families in the Community . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
About TAVMA Founded in 1998, TAVMA is a non-profit trade association tasked with enhancing public awareness and promoting ethical conduct to settlement services industry vendors and service providers. The Association acts as a forum for the exchange of vital information and presents the positions of its member companies to media, government, user groups and vendors. TAVMA member organizations are committed to promoting excellence and integrity while adding customer and consumer value to the settlement process.
Find this and more at www.tavma.com Fall 2008 — TAVMA 3
LEADERSHIP
What the Vendor Manager Can Learn from Retailers
comes to vendor management: Manage appraisal, title and closing vendors in-house, set up an affiliated business arrangement, or outsource vendor contract and work flow management regulatory requirements. e client to a VMC. Taking on the work VMCs By Jeff Schurman do today–finding and recruiting apreads our proposal and says: “Well, you know, I’d really like to use praisers, title abstractors, and closing ome may believe that big box retailers like Wal-Mart and you, but your competitor is willing to do agents, qualifying them, reviewing Home Depot have learned to live this job for $25.00 less per unit. Match work samples, checking licenses, peroff of the tiny margin earned by selling it and you’ll get the business; otherwise forming due diligence, managing work in progress, processing fees, etc.—the commodities, but that’s not the case. we’ll use your competitor.” What the prospect has said essen- lender would soon learn that they are While these companies do buy products on a wholesale basis, very much like tially is that your company’s technology, saving a great deal by working with a vendor management companies, and customer focus, reporting, accounting, VMC. In a non-commodity business they sell many products at discounted and compliance are without qualitative these savings are what ought to be talked about. prices, what they are really sellWe must define what value ing, based on their financial reIn our industry, when we minimize the real means in our industry and sults, is value. ere is a lesson value we bring to the table in favor of an then translate that into terms here for our own industry. offer of a slightly beer price than the that clients can understand. e dictionaries say that a This means creating and commodity is something for competition, we undervalue what we do. sharing our value proposition. which there is demand, and yet A value proposition is anyis supplied without qualitative differentiation in the market. A chunk of differentiation. When we roll over we’ve thing that increases productivity, regold is a chunk of gold. In a commodities taken all those qualitative things of duces overall operating costs and/or market, whoever has the lowest price value and boiled them down to price, provides the client with a self serving strategic advantage. Competitive priccommoditizing what we do. wins the business. Big box retailers often mention af- ing is important. But as big box reUnfortunately many in our own industry view vendor management this fordable prices in a general sense, but tailers like Wal-Mart continue to way. I often hear that we’re in a they focus on and emphasize the total prove selling an overarching value commodity business. But we don’t sell package. In addition to everyday low proposition in addition to competitive commodities. If a commodity is some- prices, a Wal-Mart offers quality, vari- pricing is the key to survival in any thing sold “without qualitative differen- ety, and convenience. Others, like business cycle. In the end, it comes back to markettiation in the market” how could our Home Depot and Lowes, appeal to a products be commodities? Said over do-it-yourselfer’s need to create ing and merchandising. Even though something or increase the value of Wal-Mart is among the world’s most and over again perpetuates the myth. their home. These additional factors, criticized companies, the firm’s manSeeing the value in addition to high volume, ultimately agement does not allow the critics to Clients can also view appraisals, title affect their prices. Wal-Mart’s Chief define who they are and what they do. policies and closings as commodities. Financial Officer, Thomas Schooley, Wal-Mart defines itself. ere’s a lesson in there for our Here’s how it happens. We prepare recently told the Wall Street Journal wonderful proposals that take 20 or 30 that the company’s strategy begins industry. If we really do provide the best pages to clearly describe all the qualita- with the inventory: if the quality is products, use the best technology, and focus on customer service, we have the tive reasons a lender should work with good, there is less of a markdown. In our industry, when we minimize overall package that can prevent our us. We lay out the rationale, based on our superior technology, our focus on the real value we bring to the table in industry from becoming a commodity customer service, and our reporting and favor of an offer of a slightly better business. All we need now is to build our accounting procedures. We talk about price than the competition, we under- brand around a unique value proposition; then do in practice what we say we our ability to comply with RESPA, value what we do. ❍ A lender has three choices when it do in selling situations. Sarbanes-Oxley and the many other
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NEW MEDIA
5 Ways to Find New Feeds Now that you have an RSS feed reader, you need to find some feeds By Rick Grant n the last issue, we introduced you to the concept of the RSS feed reader as a tool for managing information overload. Feed readers are software applications that read XML files, specifically those formatted according to RSS specifications. Blogs, podcasts, news wire services and even websites have RSS feeds and all of them can be read by today’s modern RSS feed readers. But where do you find interesting feeds for your reader to collect?
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results are comprehensive and not limited to technology topics. Users can rate blogs, which provides another gauge that blog seekers can use to help determine if the information supplied by the blog is truly valuable. Some suggest that the site’s information is more current than Google’s.
business.com) is owned by TMA E-Marketing and operates as a blogging portal. Site owners claim that strict editorial guidelines ensure the integrity of its growing collection of business bloggers and related business topical information,making it a strictly business proposition.
3. Blog-Search.com It’s great to find an RSS feed that gives you just the information you want,but they can be very hard to find. Blog-Search.com (www.blog-search.com) allows users to choose a topic and then the site will aggregate information into a single RSS feed
5. Ask.com Founded as Ask Jeeves in 1996 and renamed Ask.com (www.ask.com) in February 2005, Ask.com is recognized for innovation in search technology and search interface design, according to its website. ere is no question that the
that users can then subscribe to in their readers. e site is operated by Jayde Online,a company that has been primarily involved in the publication of email newsletters and the development of niche and general search engines since 1993.
company operates one of the leading search engines on the Web. Like Google, Ask.com has created a blog-specific search engine that can turn up interesting blogs users may want to track. Ask is owned by IAC, a firm that also believes in the future of blogging and purchased Bloglines (www.bloglines.com), a popular feed reader. Note: you have to click on the Blog button before searching with this site to limit your results to RSS feeds. ❍
Here are five places to find new feeds to follow. Surf to these sites and then insert the website address of any interesting blogs you find into your feed reader software. 1. Google Blog Search Google is the grandfather of Internet-based searching, not because it is the oldest search engine (AliWeb makes that claim), but rather because it’s the “wise old man” of the Web that everyone turns to first. Google has set up separate search engines geared to find different kinds of information and the blog is one of them. Google’s Blog search engine (blog.google.com) is a great place to find new feeds. e company is a believer in the self-publishing revolution and bought blogger.com and its Blogspot blogging platform. e search engine goes well beyond blogs hosted on its own platform, however. 2. Technorati What began as a way to rate the various technology blogs that began springing up in the late 90s, Technorati (www.technorati.com) now claims that it tracks over 100 million blogs. Its search
4. iBlogBusiness Directory is site claims to be tracking 2458 business blogs in 484 categories, including real estate. iBlogBusiness (www.iblog-
Fall 2008 — TAVMA 5
Cover Story
Understanding the Infrastructure Uncovering a systemic approach to mortgage industry reform By Jeff Schurman
ments that will come to the front of any discussion of industry reform. ey consist of a systemic approach to risk analysis, a transparent platform from which to work and a level playing field for all participants. In this article, I hope to demonstrate why these three elements are necessary for real change in our industry and how they are likely to be used to determine the future of the mortgage lending business.
recent study concluded that loosening credit standards and the rise of non-Fannie/Freddie investors caused an erosion of the mortgage finance system. My prediction is that we’ll see many such revelations as the misery continues. We’ll also see an increasing realization among legislators, regulators, and market participants that the system was compromised and has been broken for some time. Can there be any better indication of this than the The metrics that govern change Scientists often take measurements federal government’s move to put Fannie Mae and Freddie Mac into conser- of the physical world in order to reach conclusions about the underlying invatorship? ere are currently many voices call- visible causes of events. That approach ing for mortgage industry reform, but will work well for us here, as well. By change is never easy, even when it is so looking at the measurements we use to evaluate change, desperately needed. we can come to an We don’t yet know understanding of all of the details of the infrastructure the government’s required to affect it. plan for the GSEs, For example, I but we do know that once had a consultany repair work will ing client who made have to be systemic in nature. In other his living painting words, any real soluthe interior living tion will spring from spaces of houses and a study of the real esputting up wall tate finance industry paper. His performas a whole and not as ance can only be dea collection of unrescribed as resulting lated pieces. in works of art. His It will not be easy rooms were beautiful, Jeff Schurman to conduct such a flawless. Despite this, holistic study of the he was losing bid industry and begin the move forward in after bid to a competitor who guarana new direction. ere is an infrastruc- teed one-day, $39/room pricing. ture required to effect change and it is Together we agreed that painting a composed of three interrelated ele- room is a job made up of interrelated
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parts, a system that consisted of a number of moving parts, including quality and quantity of paint, number of coats, brushes and rollers, time investment, surface preparation, splash protection, heat and humidity, and other factors. By looking at all the many pieces in this system, we adopted a holistic view of his industry. Because my client was well aware of the costs of doing business and the prices charged by his competitors, there was a high level of transparency available to us, making it easier to perform our analysis by allowing us to put all players on a level playing field. How the many processes in this system are completed determines the metric we call quality. How quickly the work is done is a primary factor in determining the level of service. And then there is the price. For my client, a holistic view of his offering in the marketplace condensed down into a measure of quality, service and price. He was losing business because his competition was more effective at selling the benefits of giving away quality for fast and cheap service: one coat of inferior paint slapped on quick for $39/room. Quality, service, and price—or, as we often hear it described in our business as good, fast, and cheap, or “Faster, Better, Cheaper”—are the three metrics that any systemic change are measured by. Simply put, it’s a company’s value proposition. Any time we try to get a business executive to change something about a business, usually to add our product or service to their system, we are promising
required for Change them either faster, better or cheaper, or some combination of these. If we don’t make that offer, we are rarely successful in affecting a change and getting the business. How change really occurs Change starts with a decision and only occurs when these three interrelated metrics are combined in such a way as to compel a decision maker to take action. is can only be accomplished when the three measurement metrics line up in such a way that they match the needs of the prospect. But that is not likely to happen if the infrastructure for sound decision making described above is not in place and utilized. Without this infrastructure, any decision will likely deliver unexpected results. Painting a room is a simplistic example when compared to originating a mortgage loan, and yet they both require a holistic view of the enterprise in order to evalu“Faster, Beer, Cheaper”—are the ate the impact of change. In three metrics that any systemic the lending business, our view is dominated by the change are measured by. specter of risk. And so, in order to make an accurate evaluation of an offering’s ability to settlement services industry best able deliver faster, better or cheaper, deci- to assist in not only identifying but sion makers must have a holistic also mitigating, absorbing, and avoidmethod for systemic risk management ing strategic, operational, reporting, capable of identifying, assessing, re- and compliance risks will be highly sponding to, controlling, communicat- valued partners as the home mortgage ing, and monitoring the business as a finance industry emerges from the whole. Fortunately for our industry, downturn. the current reversals in the mortgage But in addition to that, decision lending and secondary markets should makers must have a platform that guarresult in the rapid adoption of a sys- antees transparency. ere is a trend on tem-wide view of risk management as the part of regulators, legislators and it pertains to collateral valuation and lenders to remove the veil of fog that credit risk as loan product silos have covers the mortgage lending system in been replaced by enterprise loan orig- an effort to make it more transparent. ination software. Competitors in the Such efforts have primarily been for the
benefit of the borrower, but increased transparency will also make it easier for industry participants to better understand their own and everyone else’s emphasis on and balance between good, fast, and cheap. The final element is actually a result of the first two. The end result of an enterprise view of risk management and increased transparency in the mortgage lending industry and all its component parts will be a general leveling of the playing field, allowing everyone in the system to better understand what they are paying for and continued on page 8 Fall 2008 — TAVMA 7
Cover Story
continued from page 7
exactly what they are getting. Regardless of the specifics of the federal government’s plan for shoring up Fannie Mae and Freddie Mac, you can expect it to include some form of enterprise or even industry-wide risk analysis, a platform that ensures general transparency and an eventual leveling of the playing field in the secondary market. This is the infrastructure that makes change possible. But ultimately, industry reform will have more to do with the metrics used to measure change, which brings us back to our own part of the business. Balancing the three measurement metrics to create change Regardless how the mortgage industry ends up looks when all the dust clears, there will still be a need for settlement services in order to complete mortgage deals. The only question is who will be providing these services. Vendor management companies and the title agents, appraisers and other professionals who work for them, will need to determine what mix of better, cheaper and faster they will be positioned to offer lenders in order to get that business in the future. e most important thing for these companies to remember at this important junction in the history of the home finance industry is that the final offering will involve some combination of these three measurement metrics—quality, service and price. is is a lesson many in our industry already know but that others are still learning. Despite the fact that the vendor management industry has plenty to offer its clients—including access to risk management analytics, excellent project management skills, networks of independent professionals and any product the lender could need—all too often the 8 TAVMA — Fall 2008
possible to show a high price is a good value if the other two metrics are properly supported. How does one define “good” in terms of quality? What about service? VMCs will be forced to revisit their value propositions if they hope to convince lenders to pay a fair price the value they’re receiving for their services. And what they find should be very encouraging. VMC leaders need to emphasize that the service they offer is vital to the lenders they serve. Let’s take appraisal management as an example. Lenders generally have three choices when it comes to fulfilling their need for collateral valuations.ey can staff a department of in-house vendor managers to engage fee appraisers, negotiate fees, turnaround times, delivery methods, obtain status updates, resolve market-value disputes, pay the vendor, etc. Alternatively, they can maintain and equip a team of in-house real estate appraisers, engage in an affiliated business arrangement, or invest in a captive appraisal management company. e third alternative is to outsource the entire function to a vendor management company. In the first case, lenders are forced to deal with inefficiencies bred from the erratic pace of the lending industry.Too many orders forces lenders to bring on staff, facilities, and other overhead, and at the same time force staff appraisers to move too quickly and risk making mistakes. Too few and lenders are left paying salaries for workers who are not producing. Consequently, an increasing number of lenders, especially the larger, multi-state lenders, opt to go outside of their own company. By outsourcing the management of appraiser oversight, workflow management, accounting, quality control and
VMC leaders need to emphasize that the service they offer is vital to the lenders they serve. final decision on which vendor to choose comes down to one metric only, price. We show lenders our operation.ey like how we operate, our service level agreements, our response times and the people we work with. en they tell us that our competitor is charging $25 less and ask us to match the price. In too many cases, we do just that, turning our entire offering into a commodity (see the leadership column on page 2 in this issue for more on this). In truth, vendor management companies, like all businesses, must build their value proposition around some combination of the better-fastercheaper triangle. And it should be pointed out that it’s not only the VMC community that fails to fully capitalize on this opportunity. Consultants have long had an inside joke they share by saying, “you can have good, fast or cheap. Pick two.” While it may appear on the surface that you cannot promise high marks in all three metrics, in reality it is often
technology integration lenders can take a compelling value proposition that will that their settlement services providers those high fixed costs and turn them keep us all working in the mortgage operate in a transparent fashion. at’s a trend that’s likely to continue as we expeinto variable costs that are typically market of the near future. rience the increased regulatory burdens lower than the lender can achieve on its Competing effectively that are almost sure to follow in the wake own on a per loan basis. In addition, an in a changing market of the government takeover of the GSEs. AMC performs all the work of hiring It is the leader’s job to decide on a My guess is that the most successand qualifying the appraisers in the network and all the transaction manage- competitive strategy for this new envi- ful VMCs in the new mortgage lendronment, the proper mix of faster, better ing business will be those that boldly ment associated with the order. Finally, AMCs can provide an ad- and cheaper that will compel a prospect position themselves not as the cheapditional layer of defense against illegal to become a client. My advice to those in est provider but as the holistic solution client pressure on appraisers, one of the vendor management space has long to what almost certainly will be a dethe most prevalent forms of fraud in been to strive to balance quality and serv- mand in the marketplace for systemic ice and price. Given the changes in the risk management, transparency, and a the industry. level playing field that serves How much is this worth to the best interests of the the mortgage lender? UnfortuLenders are looking at their businesses in client, the consumer and the nately, that’s not a question public at large. that’s often asked. More frea more holistic fashion, measuring risk That should be reason quently, the question is “Can across the enterprise and demanding enough for every TAVMA you meet the competitor’s that their selement services providers member to begin recasting price?” or “How much will this operate in a transparent fashion. their value propositions for cost, and by the way, can you success in the mortgage indo it cheaper?” dustry of the future. e same thing tends to But if that's not enough incentive, occur on the title and closing side. In marketplace, the high likelihood of adthe end, vendor management firms ditional regulation in the wake of the VMC executives should consider one must find a way to overcome the single- GSE takeover and the rising costs of additional fact. Given recent events, minded focus on price that threatens to noncompliance, I foresee more lenders increased regulatory oversight is now all but certain. This will put trementurn their offerings into commodities. are coming to similar conclusions. e industry is beginning to under- dous pressure on the lenders that Instead, companies must recast their offerings in terms of all three of the meas- stand the infrastructure required for good VMCs serve. Because of the nature of our political urement metrics that lenders use to decision making. Lenders are looking at evaluate change. Any other path exposes their businesses in a more holistic fash- system and the professional politicians that work within it, any future industry VMCs and their lender clients to in- ion, measuring risk across the enterregulation is bound to be difficult to uncreased risk. derstand and costly to implement. For example, when we accept a job prise and defrom a lender on the basis of price alone, m a n d i n g ese new regulations will be cirwe are forced to select an appraiser cumvented at every opportunity beusing the same metric. e result is that cause they will certainly impact we offer a job to our network of aplender profits negatively. VMCs praisers at a certain price and work with may find their customers fothe appraiser that is willing to accept cusing more on the price that price. is form of adverse selecmetric than ever before. tion and is almost guaranteed to inose companies that duce an otherwise good appraiser begin to focus now on to do quick work to make up creating a strong, for the loss in revenue. defensible value e result can be lower proposition will quality or inferior service. have the highest Only by considering all chances of success ❍ three metrics can we create in the future. Fall 2008 — TAVMA 9
COMPLIANCE
Beyond RESPA Legal Compliance Issues when Expanding a Title Insurance Agency into New Territory cific title insurance license. Aside from A “title plant state”is a state where the Iowa where title insurance is not a per- law requires a title insurance agency to n this article we will briefly review missible type of insurance in the first have a “title plant.” ese states are genseveral of the legal issues that prin- placei, these states either leave the issue erally all found west of the Mississippi cipals of title insurance agencies of who can be agents to the title insur- River. Usually the greatest investment reshould examine before attempting to ance underwriters or they hinge the quired in a “title plant state” is the proenter a new state. While it is beyond ability to act as a title insurance agent curement of the title plant itself. In the western half of the the scope of this article to explain all of upon the prospeccountry the term the compliance concerns in every state, tive agent’s status it is important to under“title plant” is a with these issues in mind you will have as another type of term of art and a good framework over which you can licensee, for examstand that the absence what comprises a build a plan for entering just about any ple, an attorney. of a license requirement “title plant” is denew market. Put very broadly the foldoes not mean that fined and regulated In either case, it lowing questions must be asked and anthe activities of a title by each state that is important to unswered when entering a new state: requires them.iv derstand that the insurance agent are Put simply, a “title —What are the legal requirements absence of a license not regulated. plant” can be for performing the functions of a title requirement does thought of as a not mean that the insurance agent? —What are the legal requirements activities of a title insurance agent are pseudo-private collection of documents for performing “settlement” or “escrow”? not regulated. For example, even though that, in the east, are normally found in —What rules does the new state New York state does not issue a title in- county clerks’ offices. ese documents surance license, (although there is cur- are the result of “daily takeoffs” from the have regarding controlled business? —Are there special rules, customs, or rent pending legislation to create title records of the various clerk’s offices. e expectancies that predominate in the agency licensing) New York title agen- ownership of these plants can be very cies are still required to abide by the rat- specifically regulated.v Title plant renew state? ing rules found in the rate manual of the quirements can usually be met by obtainTitle Insurance Rate Service Associa- ing a “lease” to existing plant records.vi A Legal requirements for substantial down-payment is usually retion, Inc.ii performing the functions quired to initiate the relationship with the of a title insurance agent? In the states that do require title in- title plant and a monthly base service Before we examine the issues that surance agencies to have specific licenses charge, plus per-transaction access fees, go into the answer to this question it (hereinafter “licensed states”), the crite- will be incurred. might be helpful to briefly review how ria for obtaining those licenses can vary title insurance agencies are regulated in considerably from state to state. How“Title plant states” usually, but not althis country. ever, even with myriad regulatory differ- ways, also require a physical presence in ences between these “licensed states” the state or “brick and mortar”vii. Other Most states do issue and require they can still be broken down broadly than the expense a physical presence in some form of license to conduct busi- into two groups, “title plant states” and the state may entail, this requirement ness as a title insurance agency. (In this “non-title plant states.” A “title plant may also impact the operational model article the terms “agent” and “agency” state” will almost always require a much that you have developed for conducting are used interchangeably.) ere are a larger monetary investment to enter business for a client. is is because brick handful of states that do not issue a spe- than a “non-title plant state”.iii and mortar requirements are usually
By Vincent G. Danzi, Esq.
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10 TAVMA — Fall 2008
be at least one responsible individual producer for the “business entity.” g in w llo fo e th y dl oa The “business entity br Put very d an d ke as producer” license is issued questions must be new state: to the company that ema ng answered when enteri ploys, or is owned by, the ts en m ire qu re l ga le “individual producer”. e — What are th a of s on ti nc fu The normal sequence of for performing the t? licensing is therefore for en ag e title insuranc r fo ts en m ire a responsible individual qu re l — What are the lega ent” or “escrow”? producer to become liperforming “selem w state have censed and then once the ne — What rules does this license is issued, the ? ss ne si bu regarding controlled customs, or individual licensee apl rules, — Are there specia plies on behalf of the edominate in expectancies that pr business entity for the the new state? business entity’s license. (I call this “sponsoring” the business entity.) coupled with the requirement that a e initial license for both the indinatural person who is licensed as a title or escrow agent be employed at the in-state vidual and the business entity is classilocation to supervise the work required to fied as a “resident” license. After obtaining the resident license the libe performed by the in-state branch. censee can use standard applications It will not be enough to simply have available from the National Insurance a sole employee in a satellite office lo- Producer Registry to apply for “non-rescated in the state just to forward the ident” individual and business entity liwork to company headquarters out-of- censes without an exam in almost every state. ese states have inspectors who other state that has this licensing model. can make on-site, randomly-timed inIn addition to the requirement of an spections of licensed agencies to ensure exam (in the case of an individual) or the they are complying with the law. requirement of a responsible individual “Non-title plant states” predominate producer (in the case of a business entity) in the eastern half of the country, where a state will often also require proof of title insurance agencies are licensed registration with the secretary or departas insurance producers. In the states ment of state and an official appointment where insurance producer licenses are by a licensed title insurance company begiven to non-attorney title agents, two fore issuing a license. Another not unlicenses are generally required: an indi- common requirement for the issuance of vidual producer’s license and a business a license may be to obtain an errors and omissions insurance policy, a fidelity entity license. bondviii and/or a surety bondix for the An “individual producer” is a natural benefit of the state’s citizens. person who has attended a course (or been exempted from attending one) Beware of using the same individual and has passed a licensing exam grant- producer to “sponsor” multiple title ing him/her a producer license with agencies. Most title insurance licensthe “title” line of authority. There must ing laws explicitly require that the re-
sponsible producer actively supervise the office of the title agency. It goes without saying that there is a limit as to the supervisory powers of an individual human being. When a title agency shares its only licensed producer with several other agencies it seems more likely either to be engaged in producing work product not under proper direction or not producing work product at all. Colorado’s Department of Insurance in particular suspended the license of an individual producer who was the responsible producer for multiple title agencies and found that some of those agencies did not perform sufficient services.x Furthermore, many states also require that an individual producer must be physically located in every office of the title agency where services that require licensing are actually performed. It is therefore highly advisable that every branch office be staffed by at least one individual producer.
Legal requirements for performing “settlement” or “escrow” in the state? For the purposes of this review let us define “settlement” or “escrow” as that portion of a real estate transaction where money is taken in and disbursed to the various parties. While in the western half of the U.S. the acceptance of non-attorney entities performing these functions is mostly well-settled, the eastern half of the country is host to several jurisdictions where the prudent title agency should tread cautiously when undertaking to perform these services. In these jurisdictions necessary attorney involvement can range from the simple provision of an attorney’s opinion of title to referring all the settlement work to local counsel. In the western “title plant states” the ability to perform escrow is derived by continued on page 12 Fall 2008 — TAVMA 11
COMPLIANCE
continued from page 11
virtue of licensure as a title agency (see Nevadaxi and Californiaxii) and/or licensure as an escrow agentxiii. In some states, like California, this additional escrow license exists but is redundant for a licensed title agency (called an “underwritten title company” in California) while in other states like Arizona, an escrow agent license is required notwithstanding that same entity’s licensure as a title agency.xiv
and the state’s judiciary responds by filling them in again. ere are even interesting examples of the two branches reaching détente as in the states of Virginiaxv and Washingtonxvi where the state bars have sanctioned a non-attor-
consumer that the referrer has a financial interest in the referred provider.
When the setting up of an AfBA is accompanied by a healthy respect for the framework’s technical requirements and a recognition of the public policy behind this framework, an AfBA can be a viable, compliant entity. Put very simply, a RESPA compliant AfBA is an entity that can stand on its own with its own resources, and actively competes in the markett” en place for business. m le e S a “Wet
These questions nswered: should be asked and a
In the eastern U.S., real estate have — Does the state funds from loans escrow licenses are almost nonlaw (requiring that Many states have made existent. e Commonwealth of a selement to d se ur sb di be t us more stringent that element m Virginia has a regionally unique an closing)? of a bona fide settlement approach that provides a safe agent at or before lo tate documents es al re rd co re e service provider of actively on haven for those who become regt us — M t? en m se ur competing in the marketsb istered with the Virginia State di prior to d on”? ke al “w lly na io it ad tr place by establishing threshBar in accord with the state’s — Are documents d? we lo olds for the percentage of Consumers Real Estate Settleal e ar es — What fe ed in us ho be ts un work that is controlled by ment Protection Act. However in co ac — Must fiduciary ? nk ba ) an associated entity which te the overwhelming majority of the ta domestic (i.e. in-s a may comprise the AfBA’s eastern U.S. any ability of a nontotal business. In other attorney to provide settlement or words, in many states, it is not simply escrow services is dependent upon such services being incidental to its ac- ney pseudo bar license/registration. e enough that an AfBA compete in the border between these two worlds me- marketplace by advertising and sales tivities as a title insurance agency. anders this way and that as you focus efforts. What constitutes the practice of law from region to region, state to state, and The AfBA must compete in the can vary significantly from state to state sometimes even from county to county. non-controlled marketplace successfor various reasons. Unauthorized PracControlled Business Laws fully so that controlled referrals do not tice of Law (UPL) compliance merits a Many readers of this article will exceed a certain percentage of overall particularly high level of attention in the eastern half of the country due to re- already know of the framework for Af- business. It has been left up to the gional variations in what is seen as UPL. filiated Business Arrangement title states to establish these thresholds and agencies (hereinafter AfBA) described the result is therefore a diverse set of e regulation of the practice of law in HUD’s Regulation X. In short, Reg- laws and regulations.xvii Controlled is constitutionally reserved to the judi- ulation X allows a referrer of settlement business laws usually present a real cial branch in most states while the services to receive money on business it compliance challenge for an AfBA regulation of insurance or banking is refers when such referral is to an AfBA title agency. usually entrusted to a state’s depart- that is at least partially owned by the ments of insurance and banking referrer. Any payments the AfBA Are there special rules, respectively (creatures of the states’ makes to the referrer must not be for customs, or expectancies legislatures). is separation of powers the referral but may only be as a return that predominate in the source of authority can make for inter- on the referrer’s ownership interest in esting legislative and judicial history as the AfBA. ere are further require- new state? Finally, the prudent title agency will a state’s legislature endeavors to carve ments also, among which is that the reout exceptions where lay persons can act ferrer make a disclosure to the become acquainted not just with state 12 TAVMA — Fall 2008
law nuances such as the effective life of various liens, survey requirements, and forms of conveyance but also with title-related requirements in the new state. Among others, these questions should be asked and answered: —Does the state have a “Wet Settlement” law (requiring that funds from loans must be disbursed to a settlement agent at or before loan closing)? —Must one record real estate documents prior to disbursement? —Are documents traditionally “walked on”? —What fees are allowed?
The compliance issues for the expanding title insurance agency are legion and extend well beyond compliance with the golden rule of RESPA.
—Must fiduciary accounts be housed in a domestic (i.e. in-state) bank? As you can see, the compliance issues for the expanding title insurance agency are legion and extend well beyond compliance with the golden rule of RESPA. e rewards can be just as substantial.
Iowa Code § 515.48(10) ii “TIRSA is licensed by the Superintendent of Insurance of the State of New York as the Rate Service Organization and statistical agent of the Department under Article 23 of the New York Insurance Law.” See: http://www.tirsa.org/ iii California, a “title plant state”, in particular requires extensive financial resources. See for example California Insurance Code §12389 iv See for example, 13.14.2.8 New Mexico Administrative Code: “Abstracts and Title Plants: Licensed New Mexico title insurance agents, or authorized title insurers in the case of direct operations must own, operate, or control an abstract or title plant meeting the requirements of NMSA 1978 Section 59A-12-13…”. Also see Oregon Revised Statutes§ 731.438. Title plant requirement for title insurers; posting of indexes; plant ownership and maintenance. v See for example, ORS§ 731.438(4) vi See for example, Revised Code of Washington § 48.29.160: “To be licensed as [an] agent of a title insurer, the applicant must own or lease and maintain a complete set of tract indexes of the county or counties in which such agent will do business.”. Also see Idaho Code § 412710: “A title insurance agent is a person owning or leasing separately or with another licensed agent a complete set of tract indexes and abstract records of each county for which policies are written and authorized in writing by a title insurer…” vii See ORS § 744.062(i): “…A license for the class of title insurance may be issued only to a resident insurance producer.” viii Pennsylvania Statutes § 910-26.1 ix Florida Statutes § 626.8418(2) i
As a principal of a title agency that is considering expansion you have this option because of your agency’s demonstrated competence thus far in its home jurisdiction. Continued competence in a multi-state environment requires a fresh look at each new jurisdiction’s laws, customs, and expectancies ❍
The Title Report, An October Research Corporation publication: Charleen Curry, November 17, 2005, “Colorado DOI Shuts Down 11 Title Agencies” xi Nevada Revised Statutes §692A.100(3): “A title agent or escrow officer may engage in the business of handling escrows, settlements and closings if he maintains a separate record of all receipts and disbursements of money held in escrow and does not commingle that money with his own.” xii California Insurance Code § 12340.3(c) xiii See for example California Financial Code §17200 License Requirement xiv See State of Arizona Department of Insurance Regulatory Bulletin 2003-06, June 9, 2003, available here: http://www.id.state.az.us/bulletin/2003-06r.pdf xv See Virginia Code Annotated § 6.1-2.21. Also see VCA § 6.1-2-26(A): “Every settlement agent subject to the provisions of this chapter shall be registered as such with the Virginia State Bar…” xvi “A limited practice officer, or LPO, is a person certified as a closing officer under rule 12 of the Admission to Practice Rules (APR). A LPO is certified by the Washington Supreme Court. While certified as a LPO, a person may select, prepare and complete documents in a form previously approved by the Limited Practice Board for use in closing a loan, extension of credit, sale or other transfer of real or personal property.” Source: Washington State Bar Association http://www.wsba.org/info/lpo.htm xvii See ror example Kansas Statutes §40-2404(14)(g); Kentucky Statutes §304.9-100(2); Nebraska Statutes §441991; New Jersey Statutes § 17:46B-39 x
Fall 2008 — TAVMA 13
MARKETING
Everything I Needed to Know About Marketing I Learned at the Dairy Queen By Raelin Musuraca
uring down business cycles marketing budgets are often reduced, if not cut out altogether. You’re asked to do more, with less money. At times like these, I always go back to the basics, to the core fundamentals I learned about marketing in a very unlikely place — a Dairy Queen franchise in Centerville, PA.
D
#1 Thank Your Customers A genuine smile and a heartfelt thank you brought people back time and time again. In business, we often forget the importance of the simple ank You. When your employees talk to your customers on the phone, do they thank them for their business? Do your sales people send out handwritten ank You cards? Do your senior executives take the time to place an impromptu thank you call? We often get caught up in elaborate marketing campaigns and forget about the power of a simple ank You. #2 Make the Customer Feel Special I’m sure you have a favorite restaurant, a place where they greet you by name. e owner of that Dairy Queen franchise not only knew everyone in Centerville by name, she often had “goodies” for certain customers behind the counter. She’d cut out a newspaper article about someone’s child, so that they had an extra copy. Or, she’d pick up a book on a customer’s favorite hobby. One of the best ways to let a customer know they are valued is to send them something specific to their interests and goals. #3: Put Your Mark on It is Dairy Queen franchise was out in the middle of nowhere,yet it had direct 14 TAVMA — Fall 2008
competition, another Dairy Queen franchise less than 10 minutes away. While Dairy Queen is a great brand name and provided excellent products, the owner couldn’t rely on that brand alone. She had to distinguish her franchise from the other franchise. She put her team’s skills to use: one woman was an artist and quickly our Dairy Queen became well known for the beautiful cakes. Because products in our industry are standardized (title insurance is title insurance, an appraisal an appraisal), you need to put your special mark on it to stand out from the competition.Talk to your employees,what can you add to the product or service delivery to make your mark?
tent for their publications. Write an editorial. Craft a “how to do something better” piece. Highlight a vendor or product you use, it will help with the referral network as well. Leveraging both local and national trade publications is the least expensive marketing program to implement—all it costs is your time.
your existing customers. We’re often so focused on marketing to prospects, we forget to market to our existing customer base. Use email announcements, newsletters, train your front-line employees, send letters; do everything you can to continually market yourself to your customer.
#6: Small Daily Efforts are More Productive than Big Ones Many of my co-workers called the owner a slave-driver. If we had even one second of downtime, we were expected to clean—something, anything. And by the end of the evening, when the doors closed at 9:30, the entire place was spotless and we could go home. ose nights when the little leaguers where lined out the door? We’d be there until 10:30 at night cleaning up and it would cost the owner
#8 Have a Big Sign e Centerville Dairy Queen was on a long straight stretch of road, with a sign so large you could see it a mile up the road.is gave passersby a chance to react and decide to stop in for an ice cream. A smaller sign and these drivers might have just passed on by. e same applies to our industry. Be visible. Get your name out there. is doesn’t mean a full page ad in Mortgage Banking Magazine. (Although this would not hurt, I’m sure you have better ways to spend your money.) ere are very cost-effective ways to “have a big sign.” First, your Internet presence. Have a professional looking Web site, register in all the free or low-cost web directories you can find, join industry forums and blogs. Second, attend local, regional and national trade shows. Get your people out in the street... on a budget of course. If exhibiting is out of your price range, a lot of traction can still be gained by attending and being seen.
#4: Build Your Referral Network I cursed those nights when the little league teams were lined up out both doors, long lines of screaming kids waiting for their cone; but those nights were excellent for business. e owner gave all little league coaches discounts on team cones. Sure, the cones didn’t make much money, but the parents and siblings of those little league players often ordered items that did. And the general goodwill this effort built in the community went a long way towards gaining more customers. Now is the time to build a solid network of referral partners and develop incentives that encourage the referral. ose incentives do not necessarily need to be financial—share information, pass along a referral to them, give them some market insight—and they will then likely do the same for you.
more to pay us. e same concept applies to marketing—consistent, low budget marketing every other month is less expensive and more effective than one big campaign. Spend your money on postcards, letter campaigns, sending small gifts, email newsletters, press releases, and other items—rather than blowing the entire budget on one big ad or event.
#5: Use the Power of Word Of Mouth And speaking of community goodwill, the power of word-of-mouth is always the strongest marketing tool you have. For us, word-of-mouth is the industry trade press. During these difficult times, the trade press has cut back as well and need help developing con-
#7 Ask if They Would Like Sprinkles Much like McDonalds and French fries, extra toppings at the Dairy Queen meant extra profit. In our business, there are two ways to ask if they would like sprinkles—when thanking them for the first order, ask them for the next one and cross sell your other products to
You’re probably wondering, “These are really sales or account management tips.” And they probably are. But when markets decline and budgets are tight, the most cost effective marketing campaigns are designed to support your sales team and generate more business from your existing customers. In today’s mortgage environment, “new” leads are few and far between... your best investment is to market to your existing customers and your sales teams existing relationships. ❍ Fall 2008 — TAVMA 15
Q & A
About Jeff Thredgold
One Economist Q: When do you believe we will see signs of a global rebound?
A: e global economy has clearly been in the process of slowing down through 2008. at is really tried to the sharp increase in commodity prices, food prices and oil prices in particular but also the whole global credit issue. We saw the freeze up of the global credit markets that started around August of 2007 cause credit problems in this country. But the issues are as serious across Europe and many other parts of the world as they are in the U.S. is includes problems with mortgage finance, commercial real estate finance write-offs and write-downs of prior investments. So, it’s clearly not just a U.S. problem. It’s really a global problem.
Jeff Thredgold is President of Thredgold Economic Associates, a professional speaking and economic consulting company. For 23 years he served as senior vice president and chief economist for KeyCorp, one of the nation’s largest financial services companies. He was adjunct professor of finance at the University of Utah for 16 years and served as president of the National Association for Business Economics Utah Chapter and the NSA-Utah Chapter. He is a former member of the Economic Advisory Committee of the American Bankers Association and the Economic Policy Committee of the U.S. Chamber of Commerce. Each week he serves up the Tea Leaf, an entertaining and informative newsletter on the economy, available at http://www.thredgold.com. 16 TAVMA — Fall 2008
We started talking about the subprime lending issue about 18 months ago. is was the beginning of serious problems for investors around the globe who bought into these AAArated mortgage securities. at was an accident waiting to happen. In terms of the entire spectrum of global investment products, we’ve seen about $500 billion in write-offs so far by commercial banks, investment banks, and hedge funds around the world. We’re probably going to be looking at about a trillion in write-offs before this is all said and done. One of the keys going forward will be energy prices. We suggested in our newsletter about eight weeks ago that we expected commodity prices, including oil prices, to be declining over the next six to twelve months. We’ve seen a pretty good decline since then of nearly $30 a barrel. We still expect to see some volatility, but we’ll also see additional declines in oil prices. e other key will be improvements in the credit markets, which we expect in both the U.S. economy and the global economy over the next 12 to 18 months. You’ve pointed out that inflationary pressures have probably peaked. What other indicators will you be looking for to indicate a rebound?
Q:
In terms of the U.S. economy, some of us are starting to talk about a W-shaped period of economic performance.
Gives Us a View of the Future We had reasonably solid growth in 2004, 2005, 2006, and 2007. e U.S. commerce department on their fourth revision to 4th quarter data determined that the economy actually contracted in the fourth quarter of last year, at 0.2 percent annual rate after inflation.at’s the first negative performance we’ve seen in the economy, based on all the data we get from the Commerce Department. First-quarter growth was technically at a 0.9 percent annual rate after inflation. Second-quarter growth was stronger at 1.9 percent and based on some of the data we see now that number could easily get revised up to about a 3 percent growth rate. But we expect weaker performance in the second half of 2008 for the U.S. economy and then some improvement showing up next year. at begins to look like a W-shaped recession and recovery.
I think that around the end of the year you’re going to see a cover of Business Week that says, “What a great time to buy a house,” or “What a great time to buy stocks.” A series of stories like that will help provide a base for higher levels of consumer optimism and more interest in housing markets. Hopefully by then we’ll get some of the additional bugs out in terms of financing homes and that would be one more clear sign that we’re on our way toward better economic performance. You’ve asked the question in the Tea Leaf: wouldn’t it be nice if “government” would recognize that it is there to serve the people, and not the other way around. Do you think FHA lending will be an example of that?
Q:
Well it’s not the example that I had in mind. at comI do think, when we are all said and done, we are in recession. ment was aimed at state and local government.ere are cerTurn on the television and you’ll find some economist who is tain communities in this country where there is a mindset among too many state and local saying we are definitely in a recession. politicians that the citizens are there But 10 minutes later, you’ll find anto serve the politicians. ere are other one that says we are definitely The key in our economy and some enormous egos in state and not in a recession. local government. It seems to be across Europe is the housing most prominent in the northeast. We’re not going to know until market. We’ve got to get more the end of the year or early next stabilization in home prices. As you get out into parts of the year. The official scorekeeper of the south or out west, state and local economy is a group called the Nagovernments seem to act as though tional Bureau of Economic Rethey were there to help the business search. They will likely decide, probably later this year, that a recession probably started sector succeed, create jobs, create incomes for people. They during the fourth quarter of last year and may continue realize that’s how we all ultimately benefit. I think one of through much of 2008. But this will be a fairly shallow re- the reasons that you see better economic performance in cession in terms of some more painful downturns we’ve the West then you see in the northeast is due to that seen in prior periods but a fairly lengthy recession. It could difference in mentality. last another 10 or 12 months. As for the federal government, we hope that it will be comThe key in our economy and across Europe is the hous- ing up with ways to assist the homebuilding and home finance ing market. We’ve got to get more stabilization in home industries and making sure that Freddie Mac and Fannie Mae prices. That’s probably not going to take place until late this survive. e reality is that we can’t let the GSEs fail. year or early next year. And we’ve got to start seeing more positive stories from the national media. Right now publiJeff redgold’s most recent book, EconAmerica: Why cations like Business Week, Fortune and Newsweek are pro- the American Economy is Alive and Well, is available on his moting a simple message: “Why would you even think website (http://www.thredgold.com) or on the book’s site about buying a home right now when you can buy it cheaper at http://www.EconAmerica.com. Sign up to receive the ❍ in six or 12 months.” Tea Leaf free at www.thredgold.com. Fall 2008 — TAVMA 17
COMMUNITY SERVICE
Interstate Title Search Helps Feed Needy Families in the Community A company-wide effort results in 5 tons of food for local food pantry. his is a tough time for the U.S. home finance industry and everyone involved in the mortgage transaction has been feeling the pain for some time. Some experts are calling this the worst housing downturn since the Great Depression. Despite the current economic conditions, some companies just will not be content to wallow in their own misery but insist on working to make life better for those around them. Interstate Title Search, St. Louis, is a case in point.
The effort required preparing over 10,000 grocery bags for distribution throughout subdivisions in St Louis County, Missouri. To maximize volun“e food drive was a great opportu- teer efficiency, Interstate was called upon to search the records to find the neighborhoods with the highest concentration of homes. But that’s only part of what Duncan and his team brought to this effort. In addition to planning and logistic support, Interstate Title Search helped collect gift cards for volunteers, map out collection areas, field calls, and Recently, the company handled all communications played a role in a massive for the event. effort, in partnership with 9 Driving teams brought in food all day long. Feed My People and the The food drive was South County Christian Center, to re- nity to give back to the community by kicked off officially on June 8, 2008, stock a local food pantry. Other com- providing logistical support,” said Jay but Duncan and his wife, Kristi Ethpanies involved in the program Duncan, president of Interstate Title Duncan, were already very familiar included Wal-Mart, QuikTrip, Shop n Search. “Interstate Title Search is very with the program. On a regular basis Save, and Da-Com Digital Office proud to be a part of this successful event.” they hang bags on 200 homes each
T
Solutions. Within just a few weeks, volunteers collected over 5 tons of food worth over $20,000.
Back at the church, volunteers attacked donations like a hungry piranha, quickly transferring the food from sacks to boxes and loading them onto waiting trucks for delivery to the food pantry.
18 TAVMA — Fall 2008
month, collecting donations from about 20 percent of the homeowners. “My wife and I took over the small group ministry at our church,” Duncan said. “We’ve been supporting Feed My People with a meal each month.” But he added that he felt it was important to support the program on a larger scale. Based in St. Louis, Feed My People is a food pantry that has been feeding and helping families since 1982. The organization helps over 85,000 people each year in St. Louis and Jefferson Counties through their many facilities and programs in the area. Being familiar with the program, Duncan knew that summer was a time of high need in the community. “Summer is the hardest time for the food pantry to keep its shelves full,” he said. “Kids are home from school and families can’t rely on school breakfast and lunch programs. Unfortunately, that’s when the donations begin to slack off and pantries start to run bare.”
Over 100 volunteers turned out for the effort, including these Interstate employees and family members. people that canvassed the neighborhoods, leaving 10,000 collection bags on front doors across the region, another 50 people were involved processing donations at the church or serving on one of 9 driving teams bringing in the bags of food. Pickup trucks and vans brought in the bags and then the food was transferred to boxes and loaded onto two box trucks for delivery to the pantry.
Duncan says that the old collection barrels of the past are not effective anymore as it is not convenient for “The collection busy people to reprocess was fun,” Dunmember to carry food can recalled. “It would with them to donate. But by delivering bags Providing logistical support be very quiet in the church as we waited to potential donors for the food drive. for a delivery team. and the picking up the donated food, pantries can get the re- Then a vehicle would pull up, filled sources they need to fulfill their mis- with food. Suddenly, it was like a sions—if they can get the manpower. bunch of hungry piranha had attacked. That’s one of the most important ele- Volunteers would do all of the work in ments Interstate brought to the table 15 to 20 minutes and then it would become dead silent again.” for this successful effort. Duncan is already planning next “We had about 100 volunteers involved between the two Saturdays,” year’s campaign. e goal: 50,000 bags Duncan said. In addition to the many of food. ❍
About Interstate Title Search Interstate Title Search was established in 2000 and incorporated in 2001. The company has since grown to 20 employees and has an affiliated company, People Check Inc., which conducts preemployment screenings. Interstate Title Search is a licensed real estate abstract company headquartered in St. Louis, MO. Interstate Title Search performs accurate and timely searches required for real estate transactions in the states of Missouri, Illinois, Indiana, Kansas, Florida, Kentucky, Michigan, Ohio, Pennsylvania, and most of Texas. Fall 2008 — TAVMA 19
Marketing & Public Relations support for the Real Estate Industry
You’ve noticed a change in the environment. How do you plan to come through the downturn?
In every environment, you have choices. Experts are comparing today’s events to those preceding the Great Depression. We’ve already lost hundreds of mortgage banks and now even traditional banks are failing. Those that remain are forming new partnerships with Wall Street firms just to stay alive. It’s a new environment all right. It’s making for some tough choices. Some will choose to hunker down, pare their operations to the bone and count on their cash reserves to see them through. For some, it might work. Others will take a different approach, a head-on strategy that pits their brightest experts and best product specialists against those who dare to suggest that America’s financial services industry is beyond repair. Every crisis in American history has been answered by innovation bred of our free enterprise system. The answers are in the minds of our top business leaders. We give those leaders a voice. We’re your industry’s best corporate storytellers and we want to help you tell your story, because speaking up now will make all the difference.
Find out what RGA can do for you today by surfing to www.rickgrant.net or dialing 800-979-9049.