Tech Companies Reap Windfall from RESPA

Recent changes to the Real Estate Settlement Procedures Act (RESPA) created a boost in sales from technology companies providing new software and integration offerings to settlement services companies. During the housing boom, independent mortgage brokers were one of the biggest client bases for mortgage software firms. The independent originators relied on the third-party providers for any technology that could give them a competitive advantage. But that pool of brokers has since dried up in the origination space, and for those that remain, new technology isn’t a priority expense. Tech companies found new clients in the surge of credit union and community banks that entered the mortgage space, but those clients are typically more conservative in implementing new technology, according to Bruce Backer, president of LoanSifter, which developed a pricing and eligibility software system. But in a world where loan quality is the new mantra, Backer explained that technology is the best tool for transparent loan processing, and lenders normally skittish about spending money to upgrade technology are finding it more appealing. “There’s a whole risk reduction benefit to the lender by going this route,” Backer said. Driving this momentum shift is the new HUD-1 form, and it’s bringing more business to technology firms. Changes to the HUD-1 form shifted the intentions of the settlement document. The old HUD-1 was all about disclosure and reconciling the origination expenses for the lender and secondary market investor, but the new HUD-1 is all about the consumer. It ensures the estimates made at the front end of the origination process on the good faith estimate (GFE) form match with the final closing costs. The result is that lenders are on the hook for so-called cure violations. It’s a shift in mindset that’s throwing title services firms for a loop said Barbara Miller, president and chief operating officer of Annapolis, Md.-based TSS Software Corp., a title and settlement software developer. Call volume at the TSS support center has gone up 40% since the beginning of the year, a combination of new clients integrating the software and old clients still trying to understand the changes. “When they start to look at it, they realize the lenders have so much more liability now that the title company’s taken off the hook for a lot of things they used to be liable for,” Miller said. “Now when the borrower gets to the table, that HUD-1 better match the GFE and if it doesn’t, that’s not the title company’s problem, it’s the lender’s problem.” In addition, outdated software systems aren’t getting the job done anymore. Companies that were on the fence about spending the resources to purchase, integrate and train employees on a new software system are finding that the new RESPA regulations are demanding it. Miller said customers have come to the company looking to upgrade systems that were originally installed in the mid-1990s. One such client is Brenda Osiecki, president of title services firm Waushara Abstract in Wautoma, Wis. Her company was using the same settlement software it purchased in 1997 before recently upgrading its entire technology platform — computers, infrastructure and TSS’s settlement software offering. Osiecki said she and her business partner looked at a number of options, including trying to add new functions to the old software. Implementing the new software was the best decision, she said, but it did come with some bumps along the road. “We know we were going to upgrade, we had been planning on it for a couple years and when it came to the new HUD, we had to either upgrade the old software, which we didn’t want to do, or chose one of these other options,” Osiecki said. The costs began to mount. The new computer she purchased for her office of three had the “home” version of Windows Vista, for example, not the necessary “pro” or “office” versions, so Osiecki said the company upgraded to Windows 7. In addition, TSS needed to train her staff on the new software and the office started to attend seminars on the new RESPA regulations. The changes to RESPA at the beginning of the year required lenders to issue borrowers a new GFE. The Department of Housing and Urban Development (HUD) started the year with some leniency toward lenders as they adjusted to the changes, but that hasn’t stopped a lot of the confusion. As a result, lending slowed down at the beginning of the year. Osiecki said she even brought a lender with her to a seminar on RESPA to help get the ball rolling again. “At first, banks didn’t move on anything, and now, its finally starting to pick up,” she said. “The banks were scared and didn’t know what to do, so they didn’t do anything. We had some files here that were open for months.” That lag did have one benefit, however. Osiecki said it allowed her firm the time to get used to the new software. Now, it comes second nature. “We had a little bit of training the first week, but it didn’t go too far because when you first start using it, you don’t know what questions to ask,” she said. “TSS came back a week later and that was nice, so it’s gone pretty smooth.” “When you do the HUD-1 [with the software], it looks just like the real form,” she added. Write to Austin Kilgore.