Industry Insights
The role of MISMO Closing Instructions Templates in management and oversight of settlement agents as third party vendors in real estate closings
MISMO’s Title and Closing Community of Practice
Background: In June 2023, the Federal Reserve, FDIC and OCC issued a Guidance document to all banks supervised by those agencies concerning managing risks associated with third party relationships (the “TPRM Guidance”). The agencies stressed that the “use of third parties does not diminish or remove a banking organization’s responsibilities to ensure that activities are performed in a safe and sound manner and in compliance with applicable laws and regulations”. And it points out that this is particularly important for ‘critical activities’, defined as those that would cause significant risk to the bank if the third party failed to perform as expected or if the third party had customer relationships or if the third party could impact the bank’s financial condition. The recent release of the interagency Guide for Community Banks brings this topic to the forefront once again.
Assessment: Using the Agencies’ definition, the relationship between the bank and its settlement agent for real estate closings is clearly a critical activity. The settlement agent is the representative to the customer of the bank’s commitment to lend and it controls the bank’s loan funds, as well as those of its customer. Failure by a settlement agent to perform as expected can cause significant costs and contractual consequences to the bank.
Suggestion: To assist in creating and maintaining a compliant third party risk management program for residential mortgage lending it is proposed that banks (or any lender) consider making their version of the MISMO Master Closing Instructions as the contract with settlement agents. Using this comprehensive document as a template, the lender will be able to communicate their requirements, expectations and procedures in an industry recognized format that gives them operational control and oversight of a third party who is substantially involved in a banking activity with significant operational, compliance, financial and strategic risks.
Getting Started with the MISMO API Toolkit
The MISMO® API Toolkit can help organizations adopt the microservices architecture style and accelerate the development of new Mortgage APIs. With the MISMO® API Toolkit, you can design data structures appropriate for a specific business use case and get your product to market faster. Click here to learn more about how the toolkit can help you streamline your development process.
Read the whole Industry Insight here.
Getting Started with the MISMO API Toolkit - Defining Relationships
This article builds on the use case introduced in the GETTING STARTED WITH THE MISMO API TOOLKIT article and illustrates how to define relationships between API objects using the MISMO API Toolkit. The Implementation Guide specifies two ways to define relationships between objects: containment for hierarchical relationships and links for relationships between independent objects. We will demonstrate how to select the appropriate approach and define the schema for linking API objects.