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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Posted in Education at 3:21 pm by Jeanne
Due to the multitudes of bad loans written in the last few years, and the subsequent foreclosure problems, the government is trying to institute what I call a “Bozo-proof” approach to the loan. So how do you take a complex set of mortgage documents and make them “easily understandable?” Answer: the Miranda Respa Script
Under the proposed new rule, closers would be reading from and providing a copy of a ‘‘closing script’’ to borrowers; known as the Miranda RESPA . The script might read something like this:
Miranda RESPA Script
You have the right to provide payments,
Any prepayments you make can and will be held against you with a prepayment penalty.
You have the right to have an attorney present, to ask questions during closing.
If you cannot afford an attorney, a Miranda Script will be provided for you.
We have the right to raise the rate.
Anything our documents say can and will be used against you in a court of law.
We have the right to have an attorney draft and slip in loan terms
If you cannot afford payments, an attorney will be appointed to foreclose.
Do you think HUD can successfully create a Miranda Script to explain a hundred pages of complex mortgage documents?
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06.06.08
Posted in 60 second title work, Industry News at 3:46 pm by Jeanne
The future of a Title Plant is no longer in Title Insurance; it is in Real Estate Information (REI). Real Estate Information is a huge market, much bigger than title insurance. After all, real estate is our country’s biggest asset by far. Every day we see examples of farming REI - First American just signed a contract with the SBA to develop a way to farm information to quickly identify properties and owners in a flood, hurricane or other natural disaster. On June 4th, Prudential launched free property-valuation and property-profiles for consumers on its new web site where one can simply key in a residential address to get property data. However, besides the standard deed, mortgage and judgment information found in title plants, census information has been added on neighborhoods by zip code. This includes meaningful data that really tells you about a neighborhood: median age; percentage of homes rented vs. owned; average family size; average salary; average household income; home values; taxes; year built; amenities; density of housing; distance to colleges; average education of people in the zip code (% with hi-school, college or post grad); climate by month; and much, much more. Everything you want to know about that new house and you are considering.
By taking advantage of technology and implementing direct operations with vastly expanded and consistent data, underwriters can still produce title plants, but no longer just for title insurance, but rather to farm and package Real Estate Information for all sorts of needs. Finding new uses for the information and selling that information, title plants have become not a burden, but a piece of a serious REI revenue making machine. And, by replacing agent data with underwriter REI technology and owned branches, the insurers are building a long term solution both to off-setting the expense of the old title plant, and to the challenge of staffing, because fewer personnel can now be busy mufti-tasking. One minute producing title commitments and policies, the next minute putting out a report for a Credit collection agency of the judgments recently recorded that need to be collected. Underwriters can use REI to help control costs and to improve revenue. As I have said in the past – that is their job. They owe it to their stockholders to control costs and to make money.
REI companies make sense. Technology can and does do remarkable and wonderful things for us every day. So, if you are still running your title plant like you did 20 years ago – with books and paper; by going to the courthouse to get name searches and taxes; if you are still using microfilm; you better give it up –NOW. Think about what you have, or you may be putting yourself out of business.
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06.05.08
Posted in 60 second title work, E-recording, Value of a title searcher at 4:54 pm by Jeanne
As is typical of our industry, we are always engrossed in something. Currently the talk is potential RESPA changes, Fraud, and the Woes of a Weak Market (along with that age old fist-fight about the fairness of aba’s of course.) And these issues certainly do affecting our day to day business lives. But the relationship between the non-affiliated agent and his or her underwriter is a much bigger long-term issue for the agent. Independent agents, who think they can not be replaced by national REI plants, captive agencies or your Underwriter, beware.
I started in the title business in 1976. We believed then that abstracts of title were doomed and could be replaced at any moment with title insurance, or something else. We were right – it just took about 20 years longer than we thought. (Things changed a lot slower then.) In those days, the insurer insured the policies and the agent brought in the business and sold the policies. Today, with technology, things are changing at warp speed. The Underwriter is completely in the driver’s seat and there is no choice, title agents, so get used to it.
Insurers have changed the way business is done. The public wanted title work faster and cheaper. The insurers accommodated the public. Experienced, long-term agents with high quality standards were forced to undermine their standards in order to compete. The thorough, thoughtful search of the past is gone, replaced by a quick and dirty rendition put out with a cursory title search, i.e. risk underwriting.
The independent agent that was once the cornerstone of the title industry is disappearing, partially due to the surge in affiliated businesses that shepherded the business away; partially due to a very poor market; and also because Underwriters have been growing by gobbling up agencies and turning them into branches. Underwriters today are no longer dependent on local agents. The days of title underwriters worrying about quirks in each county are gone, again, risk underwriting. And in the future they will be even less dependent, as technology and electronic recordings allow information to be recorded and made available within minutes, perhaps even with little human intervention. Moreover, due to high agency defalcations and the claims in the last few years, it makes sense. Underwriters can have more control over day to day operations. Plus, by replacing an agent’s traditional title plant with the underwriter’s superior Real Estate Information (REI) technology, adding flood information, tax information, assessor information, maps and more it becomes salable as many products instead of one.
Yes, I believe the days of the independent, non-affiliated title agent are limited. But then again, I thought abstracts would be gone overnight, and it took 20 years.
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06.04.08
Posted in Education at 12:26 pm by Jeanne
In the midst writing the 2nd edition of Title Insurance for Real Estate Professionals, I recognize how things have changed in the last couple of years for the title insurance industry. At the moment, I am working on closings.
Title Underwriters have been forced by demands from the market to begin insuring the closing process, a dangerous and expensive endeavor in today’s market. This was never part of title insurance. It is not something that was accrued for in planning and reserving money for claims. And where does closing liability end? Will closers and title companies be sued because someone claims they didn’t understand their loan documents – or worse yet, say the lender was in cahoots with the title company and closed the loan for the title premium and fees? Similar to the recent lawsuit by a buyer that they paid too much for their house because they were advised to do so by their real estate agent.
And the liability becomes worse - over the past years, closings have become more and more complicated. New types of loans—variable-rate, adjustable-rate, balloon mortgages, growing equity mortgages, interest-only loans, construction financing, reverse-annuity mortgages, and others—have moved into the market. These complex documents must be explained to the borrowers, a very difficult task, particularly evident is the lack of understanding of these documents in the real world, where foreclosures have run rampant the last years and the reality of the documents hits home.
Complications of closing also include dealing with heavy legislation pertaining to Federal Laws such as the Patriot Act, Truth in Lending (TIL) laws, the Real Estate Settlement Procedures Act (RESPA) and the Gramm-Leach Bliley Act (GLBA) dealing with privacy rules and closing. New local and federal legislation related to the sub-prime market and poor quality loans are making, and will continue to make, closings even more difficult by requiring additional documentation.
Independent “signing agents,” which are a fairly new phenomenon in the U.S., are unknowns in closing. Signing agents typically have no relationship with a title underwriter. They go to a home, bringing the documents with them for closing (frequently used in re-finance transactions.) Some signing agents see themselves strictly as notaries public, who witness signatures with no responsibility other than verifying the identity of the signers. Other signing agents are very knowledgeable about the documents and may thoroughly explain them – but do they have errors and omissions coverage? What if an error is made, who is responsible?
Is it appropriate for title companies to give a Closing Protection Letter, in effect insuring the closing? The State of New York says NO. It has specifically prohibited the practice in NY, citing the fact that the practice is a form of insurance, and potential claims are not being accrued for. What do you think?
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05.31.08
Posted in Industry News, Money and Finance at 4:27 pm by Jeanne
A recent study by the FHA has unearthed a big surprise – in 2007, lower-income borrowers had higher credit scores than higher-income borrowers. The analysis showed that borrowers with median incomes of $48,756 year had credit scores that were a better credit risk than Borrowers with average incomes of $53,388. Even in studying loans with the minimum 3 percent down, lower income clients had were statistically more likely to repay. The study is now causing a major shift in FHA lending.
The FHA always has required at least a 3 percent down payment, full documentation of income and assets, and has never allowed prepayment penalties. Historically it used a fixed approach to pricing home loans, but now plans to shift to a risk-based premium tied to FICO credit scores and down payments, similar to the private sector approach of matching down payments and credit scores with the loan rate.
Under the old FHA system, buyers with first-rate credit scores paid the same as borrowers with bad credit scores, paying 1.5 percent premiums up front, and 0.5 percent annually. That created a disadvantage for borrowers who presented low risks and a subsidy for borrowers who were more likely to default. Under the new FHA Premium system, low-income borrowers with higher credit scores will benefit by lower rates.
Under the new system, starting July, on a 30-year loan with down payment of 10% or more, borrowers with FICO scores above 680 will qualify for the lowest premiums – 1 ¼% of the loan amount up front with annual renewal premium payments of ½%. Borrowers with down payments under 5% and poor credit scores (500 to 559) will be charged premiums of 2 ¼% up front and 0.55% annually. Every borrower will continue to receive the same market-based interest rate.
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