Title Industry Report Coordinated Regulatory Federal Regulators

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The current regulatory environment enveloping the title insurance industry is clouded by constrained enforcement tools, minimal supervision of title agents and a lack of coordination among state and federal regulators, as stated by the U.S. Government Accountability Office’s (GAO) long-awaited report on the title insurance industry.On April 17, the GAO, the investigative arm of Congress, published the results of its much ballyhooed probe of the title industry, launched a year ago at the request of then-House Financial Services Committee Chairman Michael Oxley.”Given customers’ weak status in the title insurance marketplace, regulatory efforts to ensure fair rates and discourage illegal marketing activities are critical,” the report said. “Given the wide variety of professionals involved with a real estate transaction, a lack of coordination among various regulators in countries, and between HUD and the states, could hinder enforcement efforts against reimbursement for consumer referrals. Because of the involvement of both state and federal regulators, including multiple labs at the country level, effective regulatory improvements are going to be a challenge and will require a coordinated effort among all involved”Frustration exists at federal and state levelsRestricted state and federal oversight of the name business has resulted in suggestions for change, the GAO discovered, but those changes are focused on the nation level, largely from the affiliated industry arena.”Some state regulators voiced frustration with HUD’s degree of responsiveness to their requests for help with authorities, and some industry officials stated that RESPA rules concerning ABAs and citizenship fees will need to be clarified,” the GAO stated.However, the more restricted regulation and supervision of title representatives and AfBAs in less busy states could provide greater opportunity for possibly prohibited marketing and sales practices, the GAO stated. While the GAO recorded states such as Colorado, California and Minnesota as leaders in enforcement and supervision, the report concluded that states’ enforcement of anti-kickback and referral fee provisions were uneven.That would put the onus on HUD, but HUD officials voiced concern over a lack of enforcement authority for RESPA Section 8 offenses, the GAO stated.”According to HUD officials, it’s hard to deter future offenses without stronger enforcement authority, such as civil money penalties, because… companies view small settlements as only a cost of doing business,” the GAO said.Seeing these issues as crucial to the health of the market, the GAO made numerous recommendations to boost oversight at each government level and to better coordinate the various efforts of those regulators.Agents: Where’s the beef? State regulators could most profit by analyzing title representative expenses, the GAO found. Officials in several state insurance departments annually questioned whether brokers are worth their premium breaks, and the GAO immediately picked up with this argument, discovering that regulators do not fully assess title agents’ costs during rate reviews.”Few regulators review the costs that name agents incur to determine if they’re in line with the costs charged,” the report stated. “In reality, in nearly all states, agents’ costs for search and evaluation services aren’t considered part of their premium and thus, get no inspection by regulators. Therefore, title agents charge separately because of their search and examination services, yet they receive about the same proportion of the premium as brokers in states where these costs are included in the premium.”Title carriers told the GAO they generally share the same percentage of their premium with their agents, around 80 to 90 percent, regardless of whether those representatives were in nations where customers cover brokers’ search and evaluation services inside the superior rate — called comprehensive states — or whether they were in nations where agents can charge consumers separately for those services — known as risk-rate nations.However, reliable data to find out whether consumers in risk-rate states consistently paid over those in comprehensive states does not exist, the GAO stated, and thus recommended a”multi-step procedure which could involve detailed analysis of some title agents.” While the GAO placed the onus of this auditing function on state insurance regulators, some business experts pointed out that coverage requirements now vary by country, which makes it hard for some companies to provide the type of uniform information needed to form constructive conclusions.In California, for instance, some businesses are concerned that the Department of Insurance’s proposed statistical reporting requirements may force them out of business, since they cannot now provide data from previous years which wasn’t required of them in the moment.”Some of the information that the GAO would like to collect drills into personnel and hiring practices and micromanages the entire procedure,” explained Joe Petrelli, founder of Demotech, a ratings firm based in Columbus, Ohio. “It is a level of detail I do not think folks have. It is a huge layer of fixed overhead that no one expected, and it is not like you can snap your fingers and find that type of detail.”Matters for Congressional considerationAs far as Congress’ role in the melee, the GAO recommended that Congress reevaluate specific aspects of RESPA.”Revisiting RESPA to ensure that consumers receive this information as soon as possible when they are considering any kind of mortgage transaction… could be advantageous,” the GAO stated.The GAO’s recommendations to Congress were twofold. Congress could provide HUD with greater enforcement authority for Section 8 offenses, like the ability to levy civil money penalties. Congress could also make a detailed homebuyer info booklet available to customers.These recommendations are in line with what HUD’s RESPA office has likely been talking since Fall 2005, once the department retreated into its chambers to mull over RESPA reform. Thus, by all reports, the GAO’s Congressional recommendations endure a reasonable prospect of becoming reality.”HUD has long sought such jurisdiction, and the GAO report could be HUD’s greatest chance to get it,” said Rich Andreano, partner with the Washington, D.C., law firm Weiner Brodsky Sidman Kider PC.Nevertheless, the apparent consensus between HUD and the GAO does not indicate these recommendations will determine the light of day, at least in the foreseeable future, said some skeptical industry leaders.

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