How to Prepare for a Lender Audit

From the inception of ALTA Best Practices, Title Agents have looked for a crystal ball to find answers about what a lender will review during an audit. There are so many choices to make – from the documentation of the ALTA Best Practices Policy and Procedure Guides to the choice of vendors available to assist – it is a truly daunting task to undertake. The reality, too, is that there is no cheat sheet available to share that ties ALTA Best Practices to lender audit requirements. It seems, too, with the ALTA Best Practice Maturity Models introduced in 2016, few, if any Title Agents, have reached the fully optimized status. The question remains: Where exactly does a Title Agent begin their preparations for a Lender Audit? Are all the ALTA Best Practices needed? And, which ALTA Best Practice items are most important; i.e. most heavily weighted during a Lender Audit?

A great answer is to look closely at recent large lender Request for Proposal (RFP) checklist items. Here, a road map begins to emerge with what can be expected. Large lender RFP’s these days often follow patterns in terms of what is being requested and expected. To summarize, yes all ALTA Best Practice items are required; this is the bare minimum of what a lender is looking for. Now, the planning for a Lender Audit can begin.

1. Don’t be Lulled by Passing Audits your Title Agency may have received.

a. Don’t rely on an AICPA audit: most lender RFP’s do not request an AICPA ALTA Best Practice Audit. It is widely accepted that these audits are limited in scope and the expertise of the assessor.

b. Don’t rely on an annual Underwriter Audit: most lender RFP’s do not question the outcome of an Underwriter Audit. An Underwriter has a vested interest in a Title Agent passing their audit as they earn title fees from them. The reality is that an Underwriter Audit is considered to be limited in scope.

c. Don’t rely on a State Audit: these are not performed in many states so lender have less familiarity with them. And like the Underwriter Audit, the state earns revenue from the closings and has a vested interest.

2. Network

a. Attend and listen at industry conferences about other firms that have endured recent Lender RFP’s and Audits. Ask questions and collect names to compare notes!

b. Talk to your Underwriters to help find contacts who may have recently responded to an RFP. Frequently, Underwriters are consulted for assistance with RFP responses.

c. Talk to your favored vendors for similar networking opportunities.

3. Create a Team

a. Do not expect that one or two people can successfully respond to an RFP.

b. Create a team across all functions including IT, Executive Management and Operations.

c. Consider an external party to help; there are great consultancy resources available!

4. Be Honest

a. Understand that this is not like the inception of ALTA Best Practices where a Title Agent could self-certify their compliance.

b. Know where you are deficient and correct the issues for compliance.

5. Be Prepared for a Visit

a. Fully expect that in a large lender audit, you will be visited by an audit team that is highly experienced and educated to confirm your RFP responses.

6. Make a Business Decision on Non-Compliance Items

a. Accept that it will be expensive to offer full compliance for a large lender.

b. Look at the business opportunity for your decision. In explanation, if you take an action like upgrading your data recovery site to comply with an RFP item, will the lender be realistically sending you enough orders to justify the cost? There are many accounts of Title Agents spending tens of thousands of dollars to comply with lender requirements and being rewarded with minimal orders.

c. Use your networking to gain knowledge on non-compliance that may be customary for a Title Agent that will be acceptable to a lender.

7. Create a Project Plan

a. Determine what items your Title Agency is not prepared for.

b. Prioritize the list- know that IT and Accounting are the most critical items for a lender.

c. Create a living plan to resolve each non-compliant item.

d. Consider use of vendors for compliancy.

Tish Bush
Vice President
ProsperitasForward
Tish.Bush@ProsperitasForward.com
714-615-7823

ProsperitasForward is a consulting firm led by a team of title insurance veterans, formed to help title agencies improve top line revenue and bottom line results.

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