Transcription
ALTA’s Best Practices (2013)November 2014
Agenda — November 2014Overview and objectives3ALTA’s Best Practices (2013) overview8Pillar II: Escrow account controls10Pillar IV: Settlement procedures19Pillar V: Policy production and reporting26In Summary29Wrap-up and Q&A312ALTA’s Best Practices (2013)Copyright 2014 Deloitte Development LLC. All rights reserved.
Overview and objectives
Overview and objectivesThe goal of this presentation is to provide you with a deeperunderstanding of:1. Why is Compliance with ALTA’s Best Practices (2013) Important?2. Escrow Account Controls (Pillar II), Settlement Procedures (Pillar IV),and Policy Production & Reporting (Pillar V) using the followingframework:Risk:What could gowrong?4ALTA’s Best Practices (2013)Requirement:What do I need todo?Recommendation:What’s the best wayto do it?Copyright 2014 Deloitte Development LLC. All rights reserved.
Dilbert’s “Best Practices”5ALTA’s Best Practices (2013)Copyright 2014 Deloitte Development LLC. All rights reserved.
Brief History of ALTA’s Best PracticesJuly 2010 –Dodd-FrankAct createsCFPB20102011June 2012 –ALTA beginsdevelopingStandards/BestPractices2012April 2012 –CFPBBulletin2012-036ALTA’s Best Practices (2013)July 2014 –ALTA’sReadinessAssessmentGuides20132014July 2013 –ALTA’s BestPracticesReleasedAugust 2015 –CFPB’s newClosingDisclosure goesinto effect2015September 2014 –ALTA’s AnnualConventionCopyright 2014 Deloitte Development LLC. All rights reserved.
Why is Compliance with ALTA’s Best PracticesImportant?CFPB ExpectationsCFPB Bulletin (2012-03)1: “Requesting and reviewing the service provider’s policies, procedures, internalcontrols, and training materials to ensure that the service provider conducts appropriate training and oversightof employees or agents that have consumer contact or compliance responsibilities;” (emphasis added)CFPB Examination Procedures2: “Verify the entity implements and maintains effective risk and supervisorycontrols to select and manage third-party contractors and service 1204 cfpb bulletin service-providers.pdf2 http://files.consumerfinance.gov/f/201210 cfpb supervision-and-examination-manual-v2.pdfLender ExpectationsMarch 2014, Wells Fargo3: “ ALTA Best Practices are guidelines for sound business practices that shouldideally already be in place for businesses providing title and closing services for its D 24097Underwriter ExpectationsStewart’s Trusted Provider Program4: “Lenders and customers can depend on title agencies and attorneyagents exhibiting the Stewart Trusted Provider seal to provide them with a quality experience throughout thereal estate transaction process A’s Best Practices (2013)Copyright 2014 Deloitte Development LLC. All rights reserved.
ALTA’s Best Practices (2013)overview
ALTA’s Best Practices (2013) overviewThe ALTA’s Best Practices Framework was developed to assist lenders in satisfying theirresponsibility to manage third party vendors. The Best Practices were created to help ALTAmembers highlight policies and procedures the industry exercises to protect lenders andconsumers.The focus of today’s presentation will be on Pillars II, IV, and V.Pillar I:LicensingPillar V:Policyproductionand reportingPillar II:EscrowaccountcontrolsPillar VI:Liability andfidelitycoveragePillar III:Security andprivacyPillar IV:SettlementproceduresPillar VII:ConsumercomplainttrackingEach pillar represents an area of risk to your customers — including lenders, consumers, andother third parties.9ALTA’s Best Practices (2013)Copyright 2014 Deloitte Development LLC. All rights reserved.
ALTA’s Best Practices (2013)Pillar II: Escrow accountcontrols
Pillar II: Escrow account controlsWritten proceduresPillar II:Escrow accountcontrolsRequirement Adopt and maintainappropriate writtenprocedures and controls forEscrow Trust Accounts.Risk Without written procedures,standard processes may notbe followed. Writtenprocedures New hires may have difficultylearning and following thecorrect operational steps. Separation ofescrow andoperating funds Without written procedures,there is a lack ofaccountability for errors andmistakes. Preparation of trialbalanceExample of best practice Maintain a written proceduresmanual for all Escrow TrustAccounts and make thismanual a part of your trainingprogram. All sections of ALTA BestPractice (Pillar 2) should beincluded. On an annual basis, reviewthe procedures and makeappropriate updates. Reconciliation Identification Authorization Bank accountcontrols Employee trainingand verification11ALTA’s Best Practices (2013)Copyright 2014 Deloitte Development LLC. All rights reserved.
Pillar II: Escrow account controlsSeparation of escrow and operating fundsPillar II:Escrow accountcontrols Written procedures Separation ofescrow andoperating funds Preparation of trialbalance Reconciliation IdentificationRequirementRiskExample of best practice Escrow funds or other fundsmaintained under a fiduciaryduty to another can not becommingled with theoperating account or anemployee or manager’spersonal account. Commingling of escrow fundscreates an opportunity formisappropriation of funds,either through fraud oraccident. Maintain a separate accountfor real estate closings.(Attorney) Transactions in the escrowaccount should be related toand able to be tracked to areal estate transaction. Remove agency fees andpremiums from the escrowwhen they become payable. Remit underwriter premiumsdirectly from the escrowaccount or open a separateaccount specifically forunderwriter premiums. Authorization Bank accountcontrols Employee trainingand verification12ALTA’s Best Practices (2013)Copyright 2014 Deloitte Development LLC. All rights reserved.
Pillar II: Escrow account controlsPreparation of trial balancePillar II:Escrow accountcontrols Written procedures Separation ofescrow andoperating funds Preparation oftrial balance Reconciliation IdentificationRequirementRiskExample of best practice On at least a monthly basis,all escrow accountreconciliations are preparedwith Trial Balances listing allopen escrow balances (alsoknown as an “Open FileListing”). This report shouldagree to the reconciled bankbalance and book balanceand is considered as the thirdcomponent of the three-wayaccount reconciliation. FDIC coverage may belimited if client funds are notidentified or if the records areincomplete or inaccurate. Trial Balance prepared by the10th business day followingthe bank statement date. Escrow funds not completelydisbursed are not easilyidentifiable, creatingadditional risks related to latedisbursements. The trial balance shouldidentify files by customer andnote the last activity date ofthe file. All file balances should beinvestigated. File balancesheld in excess of six monthsshould be reviewed todetermine if the funds are stillrequired to be retained. Any shortages should befunded immediately. Authorization Bank accountcontrols Employee trainingand verification13ALTA’s Best Practices (2013)Copyright 2014 Deloitte Development LLC. All rights reserved.
Pillar II: Escrow Account ControlsReconciliationPillar II:Escrow accountcontrols Written procedures Separation ofescrow andoperating funds Preparation of trialbalance Reconciliation Identification AuthorizationRequirement On at least a daily basis,reconciliation of the receiptsand disbursements of theEscrow Trust Account isperformed. On at least a monthly basis,a Three-Way Reconciliationis performed reconciling thebank statement, checkregister, and Trial Balances.Risk Unauthorized transactionsposted to the account Unidentified adjustments,deposits-in-transit, errors,and outstanding checks maygo unnoticed without properreconciliation.Example of best practice Reconciliations should beprepared independently bysomeone not associated withthe receipt and disbursementfunction. Reconciliations should bereviewed and signed off bymanagement or a supervisor. Immediately follow up andresolve reconciliationexceptions. Follow up on any outstandingchecks, especially for itemsthat could create a lien(insurance, homeowner’sassociation fees,water/sewage, etc.) Bank accountcontrols Employee trainingand verification14ALTA’s Best Practices (2013)Copyright 2014 Deloitte Development LLC. All rights reserved.
Pillar II: Escrow Account ControlsIdentificationPillar II:Escrow accountcontrols Written procedures Separation ofescrow andoperating funds Preparation of trialbalanceRequirement Accounts are identified as“escrow” or “trust” accounts. Unless directed by thebeneficial owner, EscrowTrust Accounts aremaintained in FederallyInsured Financial Institutions.RiskExample of best practice Accounts not identified as“escrow” or “trust” may not beeligible for additional FederalDeposit InsuranceCorporation (FDIC) insurancecoverage. Appropriate identificationshould appear on all accountrelated documentationincluding bank statements,bank agreements,disbursement checks anddeposit tickets. Maintain adequatedocumentation for any fundsbeing held in an institutionthat is not FDIC insured atthe request of the beneficialowner. Reconciliation Identification Authorization Bank accountcontrols Employee trainingand verification15ALTA’s Best Practices (2013)Copyright 2014 Deloitte Development LLC. All rights reserved.
Pillar II: Escrow Account ControlsAuthorizationPillar II:Escrow accountcontrols Written procedures Separation ofescrow andoperating funds Preparation of trialbalance Reconciliation Identification AuthorizationRequirement Only those employees whoseauthority has been defined toauthorize bank transactionsmay do so.Risk Misappropriation of funds Transaction errors Violation of company policyExample of best practice Employee authorizations areset by the Company andreviewed annually. Former employees areimmediately removed aslisted signatories on all bankaccounts. Ensure that signatory stampsare secured and madeavailable only to authorizedemployees. For inactive/dormantaccounts, seniormanagement approval shouldbe required prior to anydisbursement of funds. Bank accountcontrols Employee trainingand verification16ALTA’s Best Practices (2013)Copyright 2014 Deloitte Development LLC. All rights reserved.
Pillar II: Escrow Account ControlsBank account controlsPillar II:Escrow accountcontrols Written procedures Separation ofescrow andoperating funds Preparation of trialbalanceRequirement Utilize Positive Pay orReverse Positive Pay,Automated Clearing House(ACH) blocks andinternational wire blocks, ifavailable.Risk Increase in the risk ofunauthorized disbursements ACH credit transactions arenot considered to be goodfunds. The originator has theability to ‘call back’ the funds. ACH debits can removefunds from the account,unauthorized transactionsmust be returned within avery short time period.Example of best practice Utilize a bank that offersdisbursement fraudprotection services. Set up accounts to notauthorized ACH transactions. Set up accounts to not allowfor international wiretransfers. Implement positivepay/reverse positive pay forall escrow accounts. Reconciliation Identification Authorization Bank accountcontrols Employee trainingand verification17ALTA’s Best Practices (2013)Copyright 2014 Deloitte Development LLC. All rights reserved.
Pillar II: Escrow Account ControlsEmployee training and verificationPillar II:Escrow accountcontrols Written procedures Separation ofescrow andoperating funds Preparation of trialbalanceRequirementRisk Employee backgroundchecks are completed duringthe hiring process. Candidates for employmentmay have a history not suitedfor work with customer orcompany funds. At least every three years,obtain a five year backgroundcheck for all employees whohave access to customerfunds. Insufficient or outdatedknowledge of company,industry and regulatoryrequirements.Example of best practice Background checkrequirement upon hire andperiodically thereafter. Set annual requirements forcontinuing education foremployees and providetraining materials on aperiodic basis. Provide for trainingemployees in management ofescrow funds and escrowaccounting. Reconciliation Identification Authorization Bank accountcontrols Employeetraining andverification18ALTA’s Best Practices (2013)Copyright 2014 Deloitte Development LLC. All rights reserved.
ALTA’s Best Practices (2013)Pillar IV: Settlementprocedures
Pillar IV: Settlement proceduresWritten recording proceduresPillar IV:Settlementprocedures Written recordingprocedures Timely shipment ofdocumentsRequirementRiskExample of best practice Determine contractual,regulatory, and statutoryobligations to recorddocuments and incorporatethese requirements in writtenprocedures. The agency may be in breachof contractual and statutoryrequirements if properrecording procedures are notfollowed. On at least an annual basis,review and confirm legal(statutory) and contractual(underwriter) requirementsfor recording. Without regular review ofrequirements, a companymay inadvertently followimproper procedures. Document review andmaintain copies of relevantstatutory guidelines, as wellas underwriter contracts. Verify recordingsand follow-up onrejections Written pricingprocedures Quality checks Issue timelyrefunds whendiscovered20ALTA’s Best Practices (2013)Copyright 2014 Deloitte Development LLC. All rights reserved.
Pillar IV: Settlement proceduresTimely shipment of documentsPillar IV:Settlementprocedures Written recordingprocedures Timely shipmentof documents Verify recordingsand follow-up onrejections Written pricingproceduresRequirement Submit documents forrecording within two businessdays of the later of settlementor receipt of the documents(when not performingsettlement.) Track shipmentsof documents for recording.Risk Late recordings can lead toadditional liens against theproperty or loss of prioritypossibly resulting in claimsand litigation.Example of best practice Implement procedures toensure that documents aresubmitted or sent forrecording within 48 hours ofsettlement. If documents are shipped orsent by courier, formallydocument the date that thedocuments were sent forrecording. Maintain a log ofall documents submitted forrecording. Evaluate electronic recordingservices to e-recorddocuments securely andefficiently. Quality checks Issue timelyrefunds whendiscovered21ALTA’s Best Practices (2013)Copyright 2014 Deloitte Development LLC. All rights reserved.
Pillar IV: Settlement proceduresVerify recordings and follow-up on rejectionsPillar IV:Settlementprocedures Written recordingprocedures Timely shipment ofdocuments Verify recordingsand follow-up onrejectionsRequirementRiskExample of best practice Verify that recordationactually occurred. Ensuretimely responses to recordingrejections. Address rejectedrecordings to preventunnecessary delay. A document shipped forrecording may be rejected. Ifthe rejected document is notaddressed, it may never berecorded properly. Establish a formal process totrack, and appropriatelyaddress rejected recordings. Verify that all documentsshipped for recording areproperly recorded and followup on any outstandingdocuments. Respond to rejectedrecordings within two days ofreceipt and maintain a recordof follow-up actions. Written pricingprocedures Quality checks Issue timelyrefunds whendiscovered22ALTA’s Best Practices (2013)Copyright 2014 Deloitte Development LLC. All rights reserved.
Pillar IV: Settlement proceduresWritten pricing proceduresPillar IV:Settlementprocedures Written recordingprocedures Timely shipment ofdocuments Verify recordingsand follow-up onrejections Written pricingproceduresRequirementRiskExample of best practice Draft and maintain writtenprocedures for charging thecorrect title insurancepremium and other rates. Toensure accuracy, spell outthe process for utilizing ratemanuals and onlinecalculators. Ensurediscounted rates arecalculated and charged whenappropriate (refinance orreissue rates). The customer may beovercharged, resulting in theneed to issue a refund. Utilize rate manuals andonline calculators, asappropriate, to help ensurecorrect fees are beingcharged for title insurancepolicy premiums, statespecific fees andendorsements. Consult withthe chosen underwriter incomplex scenarios to ensurethe proper premium is beingcharged. The customer may beundercharged, where adiscount may not beauthorized. Some states have set ratesthat must be calculatedproperly in order to complywith regulatory obligations. Review the rate scheduleperiodically to verify the mostcurrent schedule is beingused to calculate premiums. Quality checks Issue timelyrefunds whendiscovered23ALTA’s Best Practices (2013)Copyright 2014 Deloitte Development LLC. All rights reserved.
Pillar IV: Settlement proceduresQuality checksPillar IV:Settlementprocedures Written recordingprocedures Timely shipment ofdocumentsRequirementRiskExample of best practice Randomly quality check filesafter settlement to ensurecongruence with writtenprocedures. Erroneous rate calculationsand faulty settlementprocedures may goundetected without qualitychecking files. The agencymay not discover the problemuntil a catastrophe occurs. On a periodic basis, agencymanagement shouldrandomly select a sample offiles for quality assurancereview. If multiple closingstaff are employed, effortsshould be taken to ensurethat files from each closer arereviewed. Verify recordingsand follow-up onrejections Transactions should betested to determine whethernon-title insurance rates forservices provided agree withthe established rates. Written pricingprocedures The quality review processshould be documented. Quality checks Issue timelyrefunds whendiscovered24ALTA’s Best Practices (2013)Copyright 2014 Deloitte Development LLC. All rights reserved.
Pillar IV: Settlement proceduresIssue timely refunds when discoveredPillar IV:Settlementprocedures Written recordingproceduresRequirementRiskExample of best practice Provide timely refunds whenan overpayment is detected. An agency may be in breachof contract or statutoryrequirements if customersare being overcharged andthe overages are not beingproperly refunded. Written procedures andpolicies should be in place toensure that any overchargethat is discovered is quicklyrefunded to the consumer. Timely shipment ofdocuments Verify recordingsand follow-up onrejections Written pricingprocedures Quality checks Issue timelyrefunds whendiscovered25ALTA’s Best Practices (2013)Copyright 2014 Deloitte Development LLC. All rights reserved.
ALTA’s Best Practices (2013)Pillar V: Policy productionand reporting
Pillar V: Policy production and reportingTitle policy production and reportingPillar V:Policy production andreporting Title policyproduction anddelivery Premium reportingand remittance27ALTA’s Best Practices (2013)Requirement Issue and deliver policies tocustomers within thirty daysof the later of Settlement orthe date that the terms andconditions of title insurancecommitment are satisfied.RiskExample of best practice An agency may be in breachof contractual, regulatory, orstatutory requirements ifpolicies are not issued anddelivered to customers in atimely manner. Written procedures andpolicies should be in place toensure that policies areissued and delivered tocustomers in a timelymanner. The agency should track anddocument the date on whichpolicies are issued anddelivered.Copyright 2014 Deloitte Development LLC. All rights reserved.
Pillar V: Policy production and reportingPremium reporting and remittancePillar V:Policy production andreporting Title policyproduction anddelivery Premiumreporting andremittance28ALTA’s Best Practices (2013)RequirementRiskExample of best practice Report title insurance policiesand remit premiums to theunderwriter by the last day ofthe month following themonth in which the insuredtransaction was settled. An agency may be in breachof contractual, regulatory, orstatutory requirements ifpolicies are not reportedand/or premiums are notremitted in a timely manner. Report policies (including acopy of the policy) tounderwriter by the last day ofthe month following themonth in which the insuredtransaction was settled.Document the date that thepolicies were sent to theunderwriter. Remit premiums tounderwriter by the last day ofthe month following themonth in which the insuredtransaction was settled.Document the date that thepremiums were sent to theunderwriter.Copyright 2014 Deloitte Development LLC. All rights reserved.
In Summary
In Summary o Compliance with ALTA’s Best Practices is importanto Complete self-assessments using Stewart & ALTA provided selfassessment guideso Create a plan to complete implementationo Once ready, determine an appropriate service provider to conductyour Compliance Attestationo Don’t underestimate the effort!Deloitte Contacts30Madhu GopinathJohn WolfSenior ManagerDeloitte & Touche LLP 1 312 486 1237mgopinath@deloitte.comManagerDeloitte & Touche LLP 1 303 298 6617jwolf@deloitte.comALTA’s Best Practices (2013)Copyright 2014 Deloitte Development LLC. All rights reserved.
Wrap-up and Q&A
About DeloitteDeloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities.DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. Please seewww.deloitte.com/about for a detailed description of DTTL and its member firms. Please see www.deloitte.com/us/about for a detailed description of the legal structure of DeloitteLLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.Copyright 2014 Deloitte Development LLC. All rights reserved.36 USC 220506Member of Deloitte Touche Tohmatsu Limited
March 2014, Wells Fargo3: " ALTA Best Practices are guidelines for sound business practices that should ideally already be in place for businesses providing title and closing services for its customers."
