TIME TO RE-CERTIFY?
Consider Self Certification
I been asked several times in the last few weeks about the need to renew ALTA Best Practices Certifications. Well, here is my current thinking on the topic which hasn’t changed in the last four years.
I remember back in 2015 when American Land Title Association ramped up the push for its Best Practices Framework: Title Insurance and Settlement Company Best Practices.
If you are reading this and you were in business back then, you’ll remember all the scare tactics and doom and gloom predictions talked about at just about every professional meeting throughout 2015 and 2016. My own opinion of those promoting those predictions was that they were trying to “thin the ranks” of title and settlement service providers. There is no way the small agent can afford the 10’s or 100’s of thousands of dollars that it was going to take to comply, they said. Then, after you complied, you would have to spend many thousands more to become Certified! I am sure that hundreds of smaller title and settlement agents believed this and decided that it just wasn't worth the cost and hassle. They simply and needlessly closed their doors or sold out to larger competitors. This had the inevitable effect of reducing competition.
Certification! The main impetus for adopting Best Practices was the CFPB and it’s rule that lenders would be responsible for the acts of its agents. ALTA correctly, I believe, thought that lenders’ responsibility would extend to title and settlement agents’ handling of borrowers’ Nonpublic Personal Information. What better way to assure lenders that the agents would handle NPI properly but to ask a third party to certify that agents complied with a certain set of policies and procedures, aka Best Practices Pillar 3. Some lenders, perhaps with some prodding by ALTA, decided that only settlement agents with a third-party certification would be able to close residential loans for them. The number of such lenders never amounted to many and were mostly small to medium sized banks. None of the big banks seemed to worry. In the last four years most of those lenders have backed off that requirement.
Before consenting to a certification or re-certification, carefully weigh the benefits of such against the costs to obtain it. I have heard of fees ranging from about $4,000 to $10,000 or more for a single certification.
Where we are today. ALTA's original guidance called for a certification every two years. We are now beginning the 2nd cycle of re-certifications (2017 & 2019). The question is Do we need to be re-certified? A first-time certification or re-certification will cost several thousands of dollars. The least expensive, for a very small agency, is about $4,000.00. The costs go up quickly for larger agencies with more complicated operations and/or multiple offices. My suggestion is to carefully weigh the benefits of certification against the costs to obtain it.
To be clear, I am a strong proponent of adopting common sense internal controls and procedures, particularly in the areas of escrow accounting and protecting NPI. ALTA's Best Practices are a good start and need not be costly to adopt. Adopting and periodically reviewing your compliance with Best Practices, especially regarding employee training, is both necessary and advisable. However, incurring the cost of a third-party certification may be unnecessary at best and a waste of money at worst.
In the original push for adoption of Best Practices, ALTA left open the possibility for firms to self-certify. However, at least in my opinion, ALTA left no doubt that self-certification was not really satisfactory and that a third-party certification would be the standard.
Self-certify or 3rd party; how do you decide? If you deal regularly with one of the very few lenders that are still requiring a 3rd party certification, you don't really have a choice. If the revenue derived from that lender relationship justifies the cost of a 3rd party certification, go for it. However, before jumping off that bridge, check with the lender to see if their policy has changed and if a self-certification or no certification would now be acceptable. If you must go 3rd party, shop around! You don't need to go back to the firm that did your original certification. You might find that they are the cheapest but don't take that for granted. A re-certification should be less expensive than the original, especially if you use the same firm. All the heavy lifting should have been done the first time around. Again, take nothing for granted and do shop around. Remember, all you need is a piece of paper saying your firm is certified compliant with ALTA Best Practices. The name on the paper will most likely be irrelevant. If you need suggestions for certification firms, contact me by clicking here.
How do I self-certify? ALTA's website has a section on Self-Assessment including a collection of Assessment Readiness Guides to assist you in this process. You must be an ALTA member to access the Readiness Guides, but they are well worth it. Fortunately, self-assessment is fairly straight forward if you already have your manual prepared, your procedures are in place and you have gone through the certification process already.
Before you begin, be sure that your policy and procedures manual include changes made by Title and Settlement Company Best Practices V 2.5 (10-07-2016). Among other more minor changes, version 2.5 adds procedures for using third party signing professionals as part of Pillar 4 (Settlement Procedures). In July 2019, ALTA proposed Version 3.0 which will likely be adopted at ALTA One in October. The additions this time around involve wire transfer procedures, adopting multi-factor authentication for certain processes and procedures to strengthen data security. These changes are important and should be implemented as soon as practicable.
If you decide that you can go the self-assessment route but you want some help and/or guidance through the process, let me know. I can help you with that. You can contact me here.
New to the industry or just getting around to Best Practices? If you are new to the industry or just getting around to looking seriously at adopting Best Practices, you'll find that the process is not all that daunting. True, writing a best practices policy and procedures manual from scratch can be very difficult and time consuming. However, some underwriters have issued some pretty good guides if you want to do it yourself. We have a really good manual developed specifically for small and medium sized settlement agents. For more info: Best Practices Manual. The manual can be customized to fit your situation. Probably the most important part of more critical areas like escrow accounting and protection of NPI involves periodic employee training.
Once your manual is written, you'll have to actually implement the procedures you've adopted. Chances are that you'll find that the procedures that you thought would work won't work in your operation which means that you'll need to find a procedure that works for you and provides the security and control that you need.
Lastly, you will need to periodically test your practices and procedures to be sure that they are actually being followed day to day by your staff.
1. Write your manual following ALTA’s framework;
2. Implement the procedures outlined in your manual;
3. For procedures that do not or cannot work in your environment, find alternatives and implement those. Don’t forget to amend your manual.
4. Periodically (at least annually), test the procedures actually performed by your staff against the manual to see if you are actually following the prescribed controls. Document the testing and results as well as any corrective actions taken.
Follow these steps and, should you decide to self-certify or get a 3rd party certification, you will be ready.
We are here to help! If you have any questions on the matters discussed here, please let me know.
Edwin G. Generes, CPA (Inactive)