06.12.08
Posted in Important new HUD program changes, Industry News, Mortgage Problems, RESPA, Regulation of Insurers and Banks at 4:28 pm by Jeanne
We all know the bad apple loan officer, title agent or appraiser. We all know the consumer, who anzious to move into that new home, signed on for a bad deal. Well, RESPA is looking to help out that consumer.
The vast majority of consumers shop for a mortgage focusing not on rates or settlement costs or other loan features, but on the one key number that signals to them whether they can afford the loan: the grand total that they will have to pay each month for their home. Most people know how much income they take home each month, and they try to figure out whether out of that monthly amount, the monthly mortgage payment will fit into their budget.
The new RESPA rules propose that the GFE disclose the monthly total of principal, interest, and mortgage insurance. I believe the GFE also disclose the estimated monthly payment for property taxes and insurance as well and for any adjustable rate mortgages, the GFE should provide the grand total both for the initial monthly payment and for the maximum monthly payment that could be reached under the loan terms.
The proposed RESPA law is designed to improve the life of the consumer, by requiring advance disclosure of accurate settlement costs, including higher enforcement of the existing law that requires delivery of the HUD-1 settlement statement three days prior to closing. It seeks to penalize those who hand out “bad” Good Faith Estimates (i.e. those where the estimated charges on the GFE bore little or no relationship to the actual charges shown on the HUD-1 closing statement.)
In the past, RESPA has had none of the proverbial “teeth” to enforce the law. So that, theoretically, handing out a blank piece of paper that said Good Faith Estimate with just about anything filled in would qualify. The proposed law would create a new GFE form to assist a line-by-line comparison between the GFE and the HUD-1 at closing. The plan is to better monitor compliance with newly defined tolerance limits that restrict the allowable differences between estimated and actual closing costs. The rule would also clarify and update consistent escrow account requirements and mortgage servicing transfer provisions for lenders.
To put teeth in the plan, HUD says it plans to seek legal amendments to RESPA to obtain specific enforcement authority including money penalties; the ability to obtain court orders to prohibit actions; and authority to require restitution for violations as well as the ability to further amend and enforce disclosures. They will be focusing particularly on the GFE and Special Information Booklet; loan servicing; prohibition against kickbacks; illegal referral fees; unearned junk fees; title insurance, and escrow account fees. RESPA will also seek such authority for HUD and State Regulators.
The proposed rule does not include the packaging or bundling stipulations that proved controversial in 2005 and provides a 12-month transition period for compliance once finalized. The proposed rule will also allow RESPA disclosures to be given to consumers in electronic form (so long as the consumer consents.) And will permit documents to be retained in electronic form, so long as certain requirements for document retention are met.
While HUD estimates that consumers will save on average $518 to $670 per transaction, industry insiders speculate the changes may actually cost consumers more per closing. I think it will make everyone a bit more honest, or at least a bit more careful in our disclosures.
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03.28.08
Posted in Industry News, Money and Finance, Regulation of Insurers and Banks at 10:25 am by Jeanne
A Demotech Press Release/advertisement for the 2008 Edition of Demotech Performance of Title Insurance Companies states that the major Title Underwriters are in good financial shape. The press release says:
“Although the severity and duration of the downturn in the real estate marketplace will likely challenge smaller, privately held, regional Title underwriters, the overwhelming majority of the Title underwriters, including the publicly traded underwriters, will sustain exceptional financial stability. They have the financial resources to respond and settle meritorious claims as payments come due. Similarly, the majority will continue to possess sufficient financial strength to withstand agency defalcations that tend to accompany periods of declining Title insurance production.”
My first question is – “what constitutes meritorious claims?” The title industry has long reserved for “title problems” such as fraud, forgery, incompetent or incapacitated parties in the chain of title, etc. But now it seem to have taken on the additional liability for closing issues - not only for such things as simple errors in closing, but also for breaches of contract, fraud, conversion of funds and theft, by providing “insured closing letters” to lenders.
My second question is- “Has anyone taken into account that the policy says the title company will defend ANY claim against title,” meritorious or not. Recent costs of defense have skyrocketed. And, the quality of work done over the last few years, as has been well known and admitted to by the Underwriters, has been deplorable. A few years ago the American Land Title Assoc. claimed one in four titles had defects. They no longer talk about these ratios – too embarrassing, perhaps? After all, the title companies have been responsible for most of the problems. I would not be surprised if one in two titles were now deficient. All of these problems should be mitigated. It will be expensive. Or perhaps the Underwriters will just “insure over” problems, hoping in time they will go away.
Lastly, considering the seemingly daily uncovering of bad apple title agents and recognizing that only a hand full of national underwriters hold a 90% plus market share, when the press release says “the majority will continue to possess sufficient financial strength to withstand agency defalcations” does that mean one or more of the National Title Underwriters are suspect for not being able to survive this crisis?
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11.17.07
Posted in Industry News, Regulation of Insurers and Banks at 1:16 pm by Jeanne
Florida’s Chief Financial Officer has announced that First American Title Insurance Co. must sever its business relationship with 84 limited partnership title-agencies in Florida and have its business activities closely monitored for one year.The agreement also requires First Am. to pay $5 million in penalties and costs to settle charges that it paid kickbacks to builders, bankers, real estate agents and brokers for referral business.
The settlement agreement follows a yearlong investigation by federal and state agencies — the U.S. Department of Housing and Urban Development, the state Department of Financial Services and the Office of Insurance Regulation. They found First American in violation of the Florida Insurance Code and federal law.
Future of the 87 affiliates is unknown.
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05.17.07
Posted in Regulation of Insurers and Banks at 5:42 pm by Jeanne
For decades, both government and industry have been calling for updated and simplified rules governing the home-loan process. But they have been unable to agree on anything that would modernize two key consumer-protection laws.
Read Details
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05.13.07
Posted in Industry News, Regulation of Insurers and Banks at 8:40 pm by Jeanne
I was recently asked to give my opinion on regulatory or market challenges I expect to face in 2007 . It really set my mind to thinking…
The first thought, of course, was the Crackdown by HUD and so many States on unearned fees, sham title operations, and violations of RESPA. How could anyone in the industry NOT think about these violations, with the forced closing of hundreds of title companies across the US this past year.
My second thought was the focus on affliated business practices in the recent Government Accountability Office (GAO)report. It certainly had a lot of valid points about being a legitimate producer of title products, and the potential pitfalls for consumers, who ultimately might be paying way too much.
Third, I thought of my own situation. I will have many fewer customers because of a poor sale market and because so many people are getting out of the real estate, mortgage banking and title businesses. Being in the industry for so many years, though, I know this is a normal cycle, and in the long run we will weed out the weak and somehow be better for it.
But, I an disappointed, because fewer customers are willing to spend $ on education. Many companies are willing to “cut corners” to save money, rather than doing things the right way - e.g. they are not doing a full title search, but just looking at the last deed and mortgage. Or, they do a “No Document” loan and don’t really see if a buyer can afford the mortgage. To me, this is scary, and it is definately NOT in the best interests of the buyers, who, I believe not only deserves, but NEEDS TO KNOW the status of title. Where are the easements? What restrictions are there on the property, etc. And NEED to know they will not be foreclosed upon, because they were put in a loan way over their head.
The industries are changing from risk prevention and disclosure to just plain underwriting the risk, in hopes problem titles will not be uncovered. Right now 1 in 3 titles have title problems, because of the poor quality of work being done, according to the American Land Title Association. But with less work being done to uncover title problems, more affiliated businesses seem to be flooding into industry…? And title premiums are going more and more to the affiliated businesses, presumably because they do the bulk of the work. But premiums aren’t going down. Does that mean the underwriter is expecting more claims! If so, why aren’t they cracking down on the quality of their Agent’s work! Something doesn’t seem right.
I hope the industries will start to wake up and voluntarily clean up our acts and take responsibility. Otherwise, although I AM NOT an advocate of bigger Government, I think the Feds will have to step in (again) to save us.
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03.12.07
Posted in Regulation of Insurers and Banks at 1:05 pm by Jeanne
Today, the Department of Commerces released a diagram of the structure of sham title operations, along with the full Settlement Agreement resulting in a half million dollar fine, and the closing of 35 Title Insuance Agencies. Detail is available online at
Dept Commerce Website
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