The Problem of Non-standardized Closing Instructions

For years unstructured and non-standardized closing instructions have been a nightmare for the settlement agents. The more lenders a settlement agent works with the larger the deviation they have to deal with. Timing of when they expect to receive compared to when they actually receive is a problem that’s not going to dissipate anytime soon.

Every lender has their own format of these key documents which is sort of the transactional manual for the closing. For some this is a 4-5 page document and for others it’s a 50 page document. Settlement agents typically extract the information from these documents based on their experience and working knowledge of the individual for the lender who prepared it. Another challenge settlement agents face is to train individuals how to read information from different lenders as they often have a totally different way of relaying the instructions. This often causes miscommunications and issues with the closings.

While attending a presentation by James C. Lamphere (Home Services of America) and Kate Steinman (Wells Fargo) at the ALTA One 2018 Conference earlier this week, it was discussed that ALTA/MBA along with MISMO are working to resolve this key issue and trying to create standardize templates that they hope will be adopted by the majority of lenders and reduce closing errors and improve process efficiencies. With a standardization, settlement agent would not have to retrain employees from Lender to Lender.

Working with companies like DocMagic and others they have created a draft Master Closing Instructions template as well as a transactional Closing Instructions Template. The template is divided into different sections and all the related information will be available at one spot so the settlement agent does not have to scroll up and down to find the information. Additionally, including a section for important dates Closing Date, Funding Date, Rate Lock Expires etc. will all be available within a single view as well as all the borrower information. Anyone familiar with the mortgage industry is aware the cycle time from proposed to adoption can be in years and this is a large initiative that has been going on for last 8 months and will probably extend to the tail end of 2019 and beyond as lenders adoption begins.

This industry initiative will definitely help however with settlement agents from both an efficiency and reduced error standpoint. I was a little surprised discovering that although MISMO is involved, this is not the standardization of data but more like a well-defined and structured PDF document produced by the lenders according to the guidelines. For us, the technology platform providers (AtClose) we are always eager to add new automation and optimization to our platform. I feel it material to comment that it would have been more beneficial if settlement agents could import a standard data feed (XML for example) instead of a PDF document. While individuals will be able to easily identify the necessary components, unless standardization is added to the data elements within the document, technology providers will continue to have challenges importing such documents, and will be bound to reply on people to perform a final validation.