For a fee, these “vetters” purport to conduct a due diligence investigation into the settlement service providers’ practices and procedures and generate a low-, medium- or high-risk index score that they then make available to lenders and others in the mortgage-lending industry.
These lenders then can withhold business from settlement agents receiving a high-risk score. The vetting companies’ goal is to monitor in an ongoing and uniform manner that settlement service providers comply with all applicable laws and rules and follow the industries’ best practices. In return for that fee, settlement service providers, such as settlement agents, are “promised” preferential access to lenders’ settlement business.
On its face, this business model may seem beneficial in offering more oversight protection for consumers, but there are serious flaws with this unregulated practice.
Promising to deliver settlement business in exchange for paying a fee is illegal under the Real Estate Settlement Procedures Act.
These anti-kickback provisions were enacted to protect consumers from picking up the tab for such referral fees, which are passed along as higher settlement costs. But Andrew Liput, president and chief executive of Secure Settlements, a third-party vetter, says his firm offers a valuable service and does not violate the provision. “Since we are providing vetting services to settlement agents with no guarantee of referral business or even a guarantee of a ‘low-risk’ index score, we are not accepting payments in exchange for referrals,” he said.
But settlement agents are already “vetted” by at least three levels of government oversight and private industry. In many states and the District, selling title insurance requires a license from the insurance commission. To obtain a license, the settlement agent must complete a detailed application, provide financial and personal data and post a fidelity bond. Before a surety company will issue that bond, it conducts a detailed background check, runs a credit report and analyzes the applicant’s business and personal creditworthiness.
Most important, before a settlement agent can become an agent for a title underwriter, he must satisfy that title underwriter’s rigorous screening, education and training protocols. Underwriters audit their agent’s accounts at least annually. These audits are then used to identify and address any deficiencies in the settlement agent’s practices and procedures. “The more that consumers know about the protections that already exist in the title industry, the better,” said Michelle Korsmo, president of the American Land Title Association (ALTA), the title industry’s trade association.