MISMO, the mortgage industry’s standards organization, recently unveiled standardized closing instruction templates, designed to improve communication between lenders and settlement agents and helping to better the consumer experience. How will these templates achieve these goals and what should the industry expect when lenders begin to roll them out? Several members of the committee shared their insight.
MISMO established two templates, a Master Closing Instruction Template and a Transactional Closing Instruction Template. The Master Closing Instruction Template contains lender instructions common to all loans closed for that lender, including items such as instructions for conflicts of interest, data security and document destruction, verification of signer identity, and recording. The Transactional Closing Instruction Template consists of information relating to a specific loan, including borrower contact information, property information, critical dates, and conditions and stipulations.
The need for uniformity
Lenders closing instructions to the settlement agent are critical pieces to the way the lender and settlement agent works together generally, and how specific transactions go. With settlement agents working with multiple lenders, receiving varied closing instructions from each one can cause miscommunication and stalled transactions.
“Lenders instructions are critical to not only the lender but also the settlement agent and title underwriter,” said Leslie Banes, escrow operations manager, Stewart Title Agency.
They can be very lengthy, ambiguous, difficult to understand and include instructions that the settlement agent may not be able to comply with. The average settlement agent receives about 35 of these a week, they all look different and are given very limited time to comply. It is not uncommon for settlement agent to receive the lenders instructions at the same time as the customer is arriving for their closing.
This creates a potential liability for the settlement agent if they fail to follow the instructions correctly, and compliance risks for the lenders.
“We believe that if the settlement agent knew exactly where to look for critical information it would reduce the time necessary to close, would reduce compliance risk for both the settlement agent and the lender and provide a much better consumer experience,” Banes continued.
“A single company deals with multitudes of lenders, which means having to contend with hundreds of different sets of lender instructions ,” said Nancy Silberberg, President, Altus Escrow Inc., and Past President of The Escrow Institute of California. Sometimes their instructions are twenty five pages long and you are hunting for pertinent information, because each different lender on a different place in their instructions. If we can have all lenders use a universal template , that information would be readily accessible because it will be in the same place every time. I think that once the templates are adapted by all the lenders or even a majority of the lenders, not having to hunt for seemingly buried information would eliminate mistakes and would make us more efficient and costs effective for everyone in the transaction.”
Ruth Dillingham, Dillingham Consulting LLC, gave an example of how this uniformity will benefit the consumer.
A borrower is purchasing a home with a non-married partner they have been with for more than 30 years, and the partner isn’t going to be available for the closing, so the borrower is going to have a power of attorney. It’s all set up properly, but the lender only accepts powers of attorney that go to a family member.
“Wouldn’t you rather have the closing agent call you up a week before the closing and say ‘Hey, you may want to give somebody at We Lend It Mortgage Co. a call because I know their uniform policy on powers of attorney is only to family members and you’ve sent me a POA that runs from you to Joe Shmo and unless Joe Shmo is your father, brother, son or husband, this isn’t going to work,’ ” Dillingham said. “Now you know to have this conversation with We Lend It Mortgage Co. two weeks before the closing rather than have the closing attorney stand at the closing table and say ‘Well, this isn’t going to work, everybody go home.’ ”
Uniformity will be even more critical as the industry moves ahead.
“The vehicle is here.” said David Shean, Escrow Essentials. “As we come out of this COVID-19 problem, it will be more critical than we ever anticipated to be able to come together and create a new normal for the industry. The consumer’s experience is going to be totally different; the lender’s and settlement agents experiences [will be different]. Many of us are now working individually instead of as a group of people in an office. Now we are spread all over the place and dealing with a new normal.
“We are not going to go back to what was normal, we are going to have to create a new normal. If we utilize and take advantage of the templates that we created under MISMO, everyone will be able to have a better experience in the long run.”
The process
Efforts had been made before to create uniform closing instructions, to no avail. Shean remembered discussing the issue in 2006 and again in 2007.
“Some of the issues we were dealing with in the earlier versions were uniform language for conditions to close, state specific instructions, funding conditions, documents required to be collected, the manner in which the documents are signed and notarized and a bunch of other things,” Shean said. “That is going back to 2006, and for probably eight to 10 years before that I was conducting throughout the state of California seminars to the settlement agents on ‘Conditional Use Lender Instructions’ outlining differences between various lenders on what was necessary and important.”
Dillingham, too, remembered those efforts.
“The other times, people were busy trying to wordsmith the documents,” Dillingham said. “I think trying to find the words that met every lenders needs was just not ever going to work because every lender is unique and has their own priorities, their own legal team, their own list of things that they want to make sure they communicate. So when we decided to [simply focus on] topic headers, it was very liberating for the closing instructions, because now all we had to do was think about what topics did we think lenders and their closing agents … need to know about. It really addressed the situation from a totally different perspective.”
For this effort, MISMO brought the lenders, closing agents, notaries, software companies, and Fannie Mae and Freddie Mac all to the table to discuss the process and figure out what each entity needs as part of the process.
“The effort from the beginning really was intended, and I believed succeeded in identifying and getting participation across all of the necessary parties to highlight what is important and perhaps what might be of lesser importance,” said Rick Hill, Vice President of Industry Technology at the Mortgage Bankers Association (MBA). “Things that folks might not have thought of that ought to be included in the instructions, and identifying things that maybe don’t need to be. By virtue of having all those parties, you are able to recognize that each of them has a part in a workflow that one person is doing something, then passing something on to the next.
“You can almost think of it as an assembly line. It’s not quite, but you can think of it as somebody needs to do their job so the next person can do their job. What you can do with that is better understand what it is that next person in line is meaning, what is important to that individual, so that you can design a solution in a way that enables that next party to perform at their best because they are getting something in the format that they need it.”
Dillingham recalled some of the stumbling blocks the industry has encountered along the way.
“I’ve worked on attempts to create uniform instructions repeatedly, and a number of times folks have just ended up shaking their heads and saying, ‘No, I can’t do this, my lending institution won’t do this, we won’t do this, end of discussion,’ and they don’t come back to the next meeting,” Dillingham said. “That has not been the case at all with this group. Everyone comes back, everyone is working in good faith. Everyone is collaborative, everyone is polite, everyone gets to be heard. It’s been wonderful.
“I’ll keep my fingers crossed, but I’m really happy this is coming to fruition at this point, and I think if a couple of big-ish lenders get on board, then start telling the lenders who sell to them to get on board, and the software companies are recommending it to their clients and saying, ‘No, this is going to work,’ you know, then it starts to work.”
One of the benefits is having the software venders participate.
“We, the user community, will put something together in a Word document that says, ‘Here is what we think it should look like,’ and the software people at the table will say, ‘OK, well, here is what it would look like’ and then they go and they write the software,” Dillingham said. “They have been able to say things like, ‘Alright, let’s say you have four or five borrowers, do you want Page 1 where it says borrowers to expand into a two-page page one, because you have so many borrowers … or do you want only two on the first page and then an addendum at the end with the other three?’
“That is the level of specificity and intensity that we put into it,” she continued.
Title industry awareness
The first thing these templates do for the title agent is provide a consistent place to find different topics. If you are looking for the lender’s instructions on how to handle a power of attorney, you always are going to look in the same paragraph.
“It’s going to allow us to do our job better and more efficiently,” Shean said. “Especially if the timing of the delivery of the documents and the template information, the lenders, and the completed lenders instructions are timely delivered to the settlement agent, when they have the ability to digest the information. When you are looking at today’s circumstance, where you are dealing with so many varied different lending institutions, and depending on the software or the product they are using, the responsibilities differ a little bit here, differ a little bit there, knowing where to look in those instructions [will be beneficial]. Right now they are buried between anywhere from two to 15 pages of lender instructions dealing with specifics on legal ramifications.
“So the fact that they are delivered timely and in the proper order that is established by the templates, and the templates were determined by lenders and settlement agents and title and Fannie and Freddie and the software people, to be able to deal with it quickly and efficiently and be able to determine and understand the lender’s requirements, and be able to accept them and perform them.”
“If I’m the borrower and I want to know what my lender’s expectations are about me maintaining hazard insurance on my house, whether I’m in Alaska, the District of Columbia or Guam, it’s always in mortgage paragraph five,” Dillingham said. “It may be slightly different wording, but it’s always in that paragraph. That is what our goal was with the closing instructions. If I’m a settlement agent and I’m doing a closing for Megabank or I’m doing a closing or Minibank, or I’m doing a loan for We Lending Mortgage Co. and I want to know what my lender’s expectations are around powers of attorney, it’s always going to be in the same paragraph every single time.”
Dillingham said that the industry is going to have to get used to looking to the same place every time for the same topic of information. Yet as the settlement industry is getting used to the new templates, Hill suggested they could start thinking about how to utilize those tools.
“If, for example, certain information is always in the same place, you might be able to work with your organization or vendors who support your organization, to look for information in certain places, tagging certain information. You can build dashboards; you can build automated scripts that might take from all of this,” he said. “And I should probably say, with the templates comes the ability for it to be digital. So you can make it a digital exchange.
“Once you have that digital exchange of information, you can pull out some things that have dashboards, other things that have tracking mechanisms, and you can have your software looking for that information. And you can actually parcel it out, make sure certain information goes to different parties automatically, without somebody having to work through or read through the document to identify what is necessary.”
What’s next
Now that the templates are available, the work group is working on different tools to help educate the industry about how they work and help them to utilize the uniform closing instructions.
“There are a few things [the group] will continue to work on,” Hill said. “There is not a belief that they will never change. So the group will certainly need to monitor if there are new things that need to be included, they will be responsible for that.”
Silberberg agreed, noting that the templates are flexible, a living, breathing thing.
“We’ve created them with a certain amount of built in fluidity., meaning that it is possible to include information like COVID, without having to reengineer the templates,” she said. “We have a section we can point lenders to, to add in language regarding COVID during the pandemic.. I’m really proud that we were able to help build the templates that can adapt to change over time, especially since it is standing up to things like RON and COVID. It is thanks to this flexibility and ability to adapt that these major hurdles haven’t sent us back to the drawing board.”
Hill said in the short run, the focus will be on how you help all parties take advantage of the new standards.
“So you can think of it as communication and education,” Hill said. “Part of it will be making sure that we communicate wisely that these are out there, that they are available. That is the first thing; you can’t adopt it if you don’t know it exists.
“Another part will be education — webinars or other opportunities on how to take advantage of the instructions,” he continued. “There is a master document and then a transaction document, helping folks to understand what the differences are, understanding what is intended to go in each section. Part of this will really be educational in all forms, and that could be guides, additional implementation guides or guidance, webinars, workshops if that’s what’s necessary. We will be monitoring what that needs to be as we go forward and understand maybe what still could hinder the adoption.”
Hill also said they will continue to work with the vendor community to ensure that they can deploy the instructions.