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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04.15.08
Posted in RESPA at 9:23 am by Jeanne
I am distressed when I hear RESPA in reference to knit-picking minor issues, and even more so when they turn to Law Suits. Point in case:
In Idaho, three Boise title companies each paid a $150 fine last year for providing gift certificates that were used as door prizes during a showcase of homes, according to orders by the Department of Insurance. They were found in violation of a 2007 rule issued by the department to address “an accumulation of past and present abuses that had previously gone unreported.”
Should items such as door prizes, presumably going to any random person who happens to attend the showcase of homes, really a RESPA violation. I mean, is that really an inducement to do business with a title company? To me is seems more like a good will gesture. Now, I don’t know if only one title company gave the door prize, and I don’t know how many builders were in the showcase, but really, don’t we have better things to worry about?
Mr. Eborall, an Idaho Land Title Association board member and an executive with Alliance Title & Escrow Corp. in Boise, makes comments in the article above are correct. The comparison to other forms of insurance is not fair. Property insurance is paid annually. Title Insurance is only paid ONCE and protects the lender for the life of the loan and owners for so long as they own, and even after they sell, if they give a Warranty deed to their buyer.
Title Insurance is a difficult business. It requires lots of skill and knowledge, and a significant cost for the research of public records. The one-time charges are generally quite reasonable for such a potentially large loss - the price of a home. Yes, there are some real issues for RESPA to protect the consumer, but please, let’s pick the battles.
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04.14.08
Posted in RESPA at 2:58 pm by Robert Franco
I am reading through HUD’s proposed changes to the settlement statement. If one of the goals is to make the charges more transparent so that consumers can better understand the costs associated with their mortgage loans, why not include the “true” abstracting fees? I think some consumers, and probably even some of the regulators, would be surprised to know exactly what the title searches cost compared to what is charged on the settlement statement.
This is what HUD has to say about itemizing the title services fees:
In general, the HUD-1 must separately identify each service provider that is performing title services, along with the total amount received. If a party other than the title company listed on line 1101 of the HUD-1 provides services that are separate from providing title insurance, such as attorney and settlement or escrow agent services, the title company should separately itemize those services with the total amount paid to that provider, to the left of the columns. However, charges for services defined as “primary title services” such as abstract, binder, copying, document handling, or notary fees, should not be separately itemized on the HUD-1, even if a party other than the title company listed on line 1101 of the HUD-1 provides those services.
I routinely see settlement statements that have an “exam fee” of $150 to $350, with no mention of the actual cost of the title search. Granted the “exam fee” encompasses more than just the search, the title company has to review the search and make determinations as to the insurability of the title, and it may also have to include updating and filing the documents post-closing. However, some of these fees strike me as excessive when the search is a $45 current owner.
When the title company uses their own employee abstractors, or examiners, it may be quite proper to include the cost of producing the search. But, when the search is completed by a third party and the fee is readily ascertainable, I think it makes sense to show it as a separate line item.
Of course, there is another aspect to the abstracting fee… not only does the title company have to charge enough to cover the search, but they also have to charge enough to cover the searches for the orders that do not close. Because the abstractors charge regardless of whether or not the deal closes, and the title company only gets paid when they close, there must be room for some losses in this fee.
Unlike some other fees, abstracting fees can vary with the complexity of the search. You don’t always know how difficult a search will be until you are in the thick of it. It could be multiple parcels, subject to litigation, or have latent defects which take more time to thoroughly research. Title companies like to be able to provide their clients with set prices. In order to do this, they must charge enough to be sure that they don’t wind up with a big loss on a closing with a messy search.
So, if the abstracting fee was itemized, there would likely have to be some other changes to the arrangement between abstractors and their clients. First, abstractors might have to agree to take the hit when a deal falls through. That would require the abstractors to increase their fees to compensate for the losses that would occur on those transactions. Second, abstractors would have to offer “set fees” regardless of the extra work that might be incurred on some of the more difficult searches. Again, that would necessitate a fee increase.
Alternatively, the industry could change its perception of the abstracting fee and make it an actual cost for the consumer. Those customers who’s searches take longer and require more work would just have to pay more. But, that doesn’t seem to be fitting with providing the consumer with up-front comparable costs. It would be vary difficult to accurately estimate the cost when the consumer is required to get their Good Faith Estimate and explaining an unexpected, higher fee.
For most people, however, I think that the transparency of itemizing the abstracting fee on the settlement statement would be beneficial. If people could see how much little the search actually costs, they may begin to question the mark-up that usually accompanies the search.
This also brings in to question the concept of affiliated business arrangements when the title companies owns the company providing the search. Whether it is a traditional abstract company, or an online title plant, when the title company owns the entity providing the search, should it be a violation of RESPA to “require the use” of the affiliated company? The argument can be made that the search is an integral part of issuing title insurance and the insurer should be able to choose the provider before relying their work to insure the title. However, couldn’t the same argument be made in the case of a title company owned, in part, by the lender? If the lender is going to require title insurance, shouldn’t they be able to decide who issues the policy?
This has all been complicated by the fact that few title companies do their own searches anymore. Now that independent abstracting has become much more common, maybe it deserves to be recognized as a separate category of settlement service provider. Perhaps it should be included as such in the proposed RESPA reform… if not this time, the next time the issue surfaces.
Robert A. Franco
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02.12.08
Posted in RESPA at 8:05 pm by Jeanne
I am certainly aware of what I consider not only unethical, but illegal kackbacks in the title industry going back well into the 1980’s. For example, giving real estate agents their commission check at the closing only if they close with the affiated title company for one. I mean, tell me, as a real estate agent, living from paycheck to paycheck, is it NOT an inducement to do business when your employer says “well you can get paid immediately if you close with us, or we can pay you next month if you choose to close with any other title company.” But here is a blog item that I think tops them all, showing that problems are more egregious than ever. (To see the full blog, and to see what the public is seeing about us, go to: LATimes.)
“I used to work for a Title Company. When I was working for a competitor this Title Company recuited me with a hefty Bonus. Then told me to bring them all the business I had at ANY cost. I did! Flew me out of state to a Lenders Main Branch 3 times. They gave this Lender a kickback for every closing. Then the market changed, people were asking questions. Guess what, they found a way to get rid of me How corrupt is that. Now this “Bloodless Empire”, that’s what everybody calls them now, gets away with murder. Trust me, this is a “Bad Industry” today. 20 years ago a “Great” Industry and a nessesaty. Today, I’ve seen so much and can tell you a lot that has gone on, one for instance, is a golfing trip to La Jolla for 2 days including a dinner out in Downtown San Diego on a weekend, ran by a Title Co. Sales Rep in which my company paid for. Also, a golfing excursion to Mexico, Las Vegas, Cocktail parties, Tickets to Laker/Dodger games, a tent at the Buick Invitational. All with R.E agents and Lenders…. I can go on and on!!! You tell me…. Legal????”
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Posted in RESPA at 5:41 pm by Jeanne
A recent lawsuit out of NY alleges that the four dominant title underwriters illegally fixed prices and paid illegal kickbacks to individuals or firms to recommend their services to consumers in specific violation of Federal Law under RESPA. It states that examinations of title insurers’ financial statements have revealed millions of dollars spent on gifts, auto expenses, and travel and entertainment expenses paid to real estate agents and mortgage brokers in return for referrals. and that the rates submitted by the title insurance companies also overcharged consumers because they concealed the illegal referrals and kickback payments that make up much of the cost of a title policy.
In addition, a District Judge has certified a class action lawsuit from Pennsylvania against Commonwealth Land Title. The suit is the second one approved in just days in federal courts on behalf of homeowners who claim they were overcharged for title insurance policies after they refinanced their home loans. In this specific case, homeowners claim they were never told they should have qualified for discounted re-issue pricing on refinance policies.
Does your underwriter have a filed rate for either a substitution loan or a re-issue rate that you should be using?
According to The Wall Street Journal, a report by the Government Accountability Office found that at least six states, including California, Colorado, Florida and New York, have targeted alleged kickbacks and payments by title insurers to agents and others. Since 2003, title insurers, their agents or affiliates have paid more than $100 million in fines, penalties and settlement money in cases brought by state and federal regulators.
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