Q: What is the importance of a settlement agent vetting and monitoring policy?
A: As part of any comprehensive vendor management policy it is important for a mortgage lender to properly vet its settlement agents to ensure the agents are licensed and able to perform settlement services on behalf of the lender. Additionally, vetting settlement agents provides a lender with the opportunity to confirm whether a settlement agent maintains acceptable insurance coverage, understands the method by which funds are to be sent and received, and has policies and procedures in place to address various important matters.
Confirming your settlement agents are licensed is important since companies performing such services (i.e. title companies, escrow companies, and real estate attorneys) are required to maintain licensure. If your settlement agent fails to maintain the proper license, it can lead to costly penalties to your company and can also cause reputational harm.
It is also important for you to review your settlement agents' insurance coverages. An Error & Omissions policy and/or Fidelity Bond policy may help protect a lender against claims that may derive from mistakes, negligence or fraudulent actions.
Further, reviewing a settlement agent's written policies and procedures is best practice as it is critical to ensure they maintain guidelines for handling issues such as complaint management and fraud awareness and prevention.