Regulation of Insurers and Banks

Are You Ready for the New RESPA HUD-1

Title Companies – All those line items for: Settlement or closing fee, Abstract or title search, Title examination, Title insurance binder, Document preparation, Notary fees, Title Insurance premiums, courier fees, Admin fees, fax fees, email fees, processing fees,  are going away… Fees will be either elimninated, or at the very least, reduced to cost under the new RESPA. No longer will the common mark-ups be acceptable, nor can they be hidden from the customer in a myriad of confusing fees.

Under the new RESPA law, courier fees, admin fees, closing fees and dozens of other charges cannot be hidden in those miscellaneous line items 1102-1199 on the HUD-1.  Title companies will now have to PRINT new all-inclusive rates. These will be filled in as a single item on ONE LINE – line1101. And title companies will have to hold to that number for the lender, because the lender is responsible for overages if settlement charges do not match the HUD-1. Title Companies will also have to legitimately back-up the numbers with specific reports as to their validity, and maintain those reports, so that HUD can audit their authenticity.

While this will make comparison shopping much easier for the consumer, and will force title companies to sharpen their pencils, it will be difficult for an industry that for a long time has used marked up fees for additional revenue. It would seem that no one is anxious to go to the new HUD-1 before he has to – it will cost title companies some serious revenue!

Are you ready for the change? This is NOT simply a matter of updating your software, it means a lot of planning and preparing detailed numbers for all those items on the closing statement. Actual out of pocket costs must be averaged and lumped into a single number for line 1101. (Other lines are intended for third party providers, for example, Line 1102 is only to be used when using a non-title company third party vendor for closing.) When the new numbers are available, schedules must be printed and distributed for your lenders to use on the new GFE, and for savvy consumers to see as well.

Watch for the complete gory details in my soon to be released online course: The new GFE Based HUD-1

RESPA – On Again, Off Again… Another Lawsuit Filed

According to Builder Online, HUD has delayed the implementation of RESPA that was to go into effect on Jan. 16th by 90 days. HUD agreed to the delay to assemble info it needs to defend against another lawsuit , this one brought  on by he National Association of Home Builders (NAHB) and other plaintiffs, including 13 large builders and their affiliated lenders and title companies.

HUD’s published final rule eliminates builders from offering home buyers incentives if the buyers are linked into using an affiliated title company, mortgage company, or other affiliated service provider. The NAHB suggests that dismantling these affiliations will not help the consumer and will additionally lead to job losses.  

HUD is also dealing with a lawsuit filed by the Mortgage Brokers Association (MBA) in December that is trying to block a rule requiring lenders and mortgage brokers to provide buyers with a “good faith estimate” that discloses loan terms and yield-spread premiums on the HUD-1 settlement statement.

Surprisingly, at this time, there seems to be no interest by the American Land Title Association (ALTA) to commence a lawsuit against the very unpopular required disclosure on the HUD-1 of the premium split between title agencies (that receive the vast majority of the premium) and title underwriters (who receive very little.) HUD has required the disclosure based on recommendations from the Government Accountability Office that has been critical of the industry practice.

REO Lender May Not Require Purchase of Title Insurance from Any Particular Provider

Sale of foreclosed properties, often referred to as “Real Estate Owned” or REO transactions, are NOT exempt from RESPA requirements. The lender that has foreclosed, acting as the seller, is still subject to the law stating:No seller can require that the buyer purchase title insurance from any particular title insurance company. This rule pertains to transactions involving a federally-related mortgage loan for one-to-four residential units” as defined under the Real Estate Settlement Procedures Act (12 U.S.C. section 2608). Although this is a well-established rule, it is worth a reminder, given the upsurge in foreclosure sales.
An REO lender that violates this requirement can be held liable to the buyer in the amount equal to three times all charges made for title insurance. Anyone who believes that RESPA has been violated may file a complaint with HUD. For more in depth information about RESPA complaints, go to this HUD Link

Can Massive Legislation be Far Behind?

From the Providence Journal

The former owner of a title insurance firm in East Providence pleaded guilty yesterday to a federal fraud charge for looting more than $1.3 million from company accounts and using the money for vacations, hair care, cosmetics and clothing. The FBI launched an investigation into the missing money in April 2007 amid allegations that owners may have emptied more than $800,000 from client accounts at Title America Closing Services LLC, an agent for Stewart title.

 “We see a steady stream of these types of cases,” Connell, the spokesman for U.S. Attorney Corrente, said.

Can massive legislation be far behind, because the title insurance industry  seems to be unable to police itself and the FBI, Secret Service, State Regulators and others are all getting involved to prosecute and clean up the messes.

What are Title Companies doing about the FACT Act

Lenders needing to comply with the Fair and Accurate Credit Transactions Act (FACT Act) have been given a six-month reprieve, until May 1, 2009.  What does that mean to title companies and closers?

While lenders are directly responsible for compliance with the FACT Act, title companies are also affected, because the FTC requires that lenders use “appropriate and effective” review of companies they use as service providers, such as title companies who have private information given to them by the lender. The Lender is responsible to see that title companies and and closers due diligence in handling that private information. Therefore title companies and closers who virtually always and have access to private information such as social security numbers, and other loan information provided by the lender, will likely be requested to sign a statement that they have the ability to detect specific red flags relevant to their closing activity and handling of private information.  They may also have to sign off that they will report those red flag items to the lender and to take steps to prevent or lessen the likelihood of identity theft.  So don’t be surprised if you are contacted by a lender asking for proof of compliance. 

While mortgage companies are required to have a specific identity theft prevention program in place under the FACT Act, compliance by the companies they use as service providers (i.e. title companies) are the responsibility of the lender providing the information.  The red flag guidelines suggest that the lender may “require the service provider by contract to have policies and procedures to detect relevant red flags that may arise in the performance of the service providers activities; and either report the red flags to the financial institution or creditor, or to take appropriate steps to prevent or mitigate identity theft.”

So what should title companies and closers be prepared to do?  If you are performing services for lenders and handling private information, educate your staff.  Know the red flags.  If you haven’t received a request yet, designate a person to be in charge of that area to review incoming FACT Act Service Agreements, and use due diligence by having staff who handle private information take classes about the FACT Act and the red flags set forth under the act. More detailed information can be found HERE at the FTC SITE

Secret Service Investigates Misappropriation of Closing Funds

“The mission and of the United States Secret Service is to safeguard the nation’s financial infrastructure and payment systems to preserve the integrity of the economy, … “ And that statement is being put to use in another instance where a Title Company appears to have absconded with funds from the public. This time, Pennsylvania’s Priority Search, Inc. is being investigated by the Secret Service for allegedly not appropriately disbursing settlement funds. After Priority Search, Inc was recommended by a local real estate agent, the transactions moved forward, and at first seemed normal, but according to Pennsylvania’s Times Leader newspaper: (see full article)

Michael Bogdon borrowed more than $170,000 to buy a house in Rice Township, and the cash was given to Priority Search around the time of the Aug. 22 property closing.

Bogdon gutted and remodeled the home since then and was in a state of disbelief when the seller showed up at his doorstep about two weeks ago to inform him that Priority Search had never turned over the money.

Some of the funds were supposed to pay off the sellers’ old mortgage, and now the sellers – who are retirees – have outstanding mortgages on both their former and new houses, Bogdon said.

After the secret service investigation announcement was made public, the number of others stepped forward with similar missing funds problems having to do with Priority Search, Inc.  This was clearly not an isolated incident.  But misuse of closing funds happens not only in Pennsylvania, misuse of closing funds seems to have become a weekly occurrence across the country.  Many title insurance and land title professionals are now concerned with this state of affairs.  Specifically, a number of professionals are currently working on, or have recently completed, state legislation to licensed settlement agents.  All seem to agree it would be a good idea to know who is handling the settlement funds, and what their background is.  It is unfortunate that the industry hasn’t such problems, that kudos to those were working toward a solution.  I believe licensing is in the best interest of the public, and of the title industry. 

Thorny Issue In Deed

Monday, November 17, 2008


Times Herald Staff


NORRISTOWN — The “Uniform Municipal Deed Registration Act,” which takes effect on Dec. 8, basically pits the officials of 29 Pennsylvania townships and municipalities against the real estate title insurance industry, the lawyers who preside over residential “settlements” of sales and even county officials who are required to “record” a deed after the sale.  


This article demonstrates the ongoing battle between city, county and private sectors, all with the very best interests of the public, but each looking at issues from only their respective viewpoint. The same battle has been forged elsewhere, and undoubtedly will be again, but looking at the BIG picture, the documents must go of record immediately after closing, or lenders will not lend, and the lack of money available for sales will be a much bigger problem for the city than some  repairs. Read Times Herald full article by clicking here and post your thoughts.

Beware, Title Companies, of Fake email regarding Wired Funds

Beware, title insurers who handle wired funds on a daily basis. The Federal Deposit Insurance Corporation (FDIC) has put out an FDIC alert to consumers that handle large sums of money, saying that FDIC has received numerous reports of a fraudulent e-mail that has the appearance of being sent from the FDIC.

The subject line of the e-mail states: “Funds wired into your account are stolen.” The e-mail tells recipients that the proceeds of identity theft crimes have been wire-transferred into their bank account. The e-mail then directs recipients to open and review an attached copy of their bank account statement. to confirm. The attached file is actually an unknown executable file and is likely a malicious attempt to collect personal or confidential information, some of which may be used to gain unauthorized access to on-line banking services or to conduct identity theft.

The FDIC does not issue unsolicited e-mails to consumers. Financial institutions and consumers should NOT open the executable file attached to the fraudulent e-mail.


Info On Home Closing

Home Closing 101: An Educational Initiative of the American Land Title Association