Title Industry Report Recommends Coordinated Regulatory Effort

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The current regulatory environment enveloping the title insurance industry is clouded by constrained enforcement resources, minimal supervision of title agents and a lack of coordination among federal and state regulators, according to the U.S. Government Accountability Office’s (GAO) long-awaited study on the title insurance market.On April 17, the GAO, the investigative arm of Congress, released the results of its much ballyhooed probe of this title business, started a year ago at the request of then-House Financial Services Committee Chairman Michael Oxley.”Given consumers’ weak status in the title insurance marketplace, regulatory attempts to guarantee reasonable prices and deter illegal advertising activities are critical,” the report stated. “Given the variety of professionals involved in a property transaction, a lack of coordination among various regulators within countries, and between HUD and the states, could potentially hinder police attempts against reimbursement for consumer referrals. Because of the participation of both federal and state regulators, including numerous regulators at the state level, effective regulatory improvements are going to be a challenge and will require a coordinated effort among all involved.”Frustration exists at national and state levelsLimited state and federal oversight of the title business has resulted in proposals for change, the GAO found, but those changes are focused on the nation level, mainly from the affiliated industry arena.”Some state regulators voiced frustration with HUD’s level of responsiveness to their requests for assistance with authorities, and some industry officials stated that RESPA rules concerning ABAs and referral fees will need to be clarified,” the GAO stated.On the other hand, the more limited regulation and oversight of title agents and AfBAs in significantly less busy nations could provide greater opportunity for potentially prohibited marketing and sales practices, ” the GAO said. While the GAO listed states such as Colorado, California and Minnesota as pioneers in enforcement and oversight, the report concluded that states’ authorities of anti-kickback and referral fee provisions were uneven.That would put the onus on HUD, but HUD officials expressed concern over a lack of enforcement authority for RESPA Section 8 offenses, the GAO said.”According to HUD officials, it’s hard to deter future violations without stronger enforcement jurisdiction, such as civil money penalties, because… companies see small settlements as only a cost of doing business,” the GAO stated.Seeing these concerns as crucial to the health of the industry, the GAO made numerous recommendations to boost oversight at every government level and to better coordinate the various efforts of those regulators.Agents: Where’s the beef? State regulators may most benefit by examining title agent expenses, the GAO found. Officials in a number of state insurance departments annually questioned whether brokers are worth their premium splits, and the GAO immediately picked up with this argument, finding that regulators do not fully evaluate title agents’ prices during speed reviews.”Few regulators review the costs that name agents incur to determine whether they are in line with the costs charged,” the report stated. “In fact, in the majority of states, agents’ costs for search and evaluation services are not considered part of the premium and so, get no review by regulators. Consequently, title agents charge separately for their investigation and search solutions, however they receive roughly the same proportion of the premium as brokers in nations where these costs are included in the premium.”Title carriers told the GAO that they generally share the exact same proportion of their premium with their agents, around 80 to 90 percent, regardless of whether those representatives were in states where customers pay for agents’ search and examination services within the premium rate — called all-inclusive states — or whether they were in states where brokers can charge customers separately for those services — called risk-rate states.However, reliable data to find out whether customers in risk-rate states always paid more than those in all-inclusive states doesn’t exist, the GAO said, and thus recommended a”multi-step procedure which could involve thorough analysis of some name representatives.” While the GAO put the onus of the auditing work on state insurance regulators, some business experts pointed out that reporting requirements now vary by state, which makes it difficult for many companies to present the kind of uniform data necessary to form constructive conclusions.In California, for instance, some companies are concerned that the Department of Insurance’s proposed statistical reporting demands will force them out of business, as they can’t now supply data from past years which was not required of them in the time.”Some of the information the GAO would like to accumulate drills into personnel and hiring practices and micromanages the entire process,” said 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 which nobody expected, and it’s not like you can snap your fingers and find that sort of detail”Things for Congressional consideration”Revisiting RESPA to ensure that consumers receive this information when you can when they are considering any type of mortgage transaction… could be advantageous,” the GAO stated. Congress could supply HUD with increased enforcement authority for Section 8 offenses, like the ability to levy civil money penalties. Congress could also make a thorough homebuyer information booklet available to customers.These recommendations are in line with what HUD’s RESPA office has likely been talking as Fall 2005, once the department hauled into its chambers to mull over RESPA reform. Therefore, by all reports, the GAO’s Congressional recommendations stand a fair chance of becoming reality.”HUD has sought such authority, along with the GAO report could be HUD’s greatest opportunity to get it,” said Rich Andreano, partner with the Washington, D.C., law company Weiner Brodsky Sidman Kider PC.Doubting ThomasesBut the apparent consensus between HUD and the GAO doesn’t indicate these recommendations will see the light of day, at least in the foreseeable future, stated some skeptical industry leaders.Some industry players are hedging their bets that the recommendations will be swept under the carpet since Congress contemplates changes to predatory lending and FHA reform.

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