Wednesday, January 10, 2018

New Regulatory Initiative in Illinois



Illinois Moving Forward on Regulatory Guidance for Title Insurance Fees


In a most welcome development, last week I attended a meeting at the Thompson Center in downtown Chicago called by the Illinois Department of Financial and Professional Regulation. The topic was IDFPR’s proposed regulatory guidance with respect to premium-sharing practices and update fees. The official document can be found here.
In my opinion, the proposed guidance and regulatory action is long overdue and is a good start in addressing certain questionable practices which have been occurring with greater frequency in recent years.

Several important items emerged from the meeting that I wanted to share with you:
·         IDFPR feels that premium splits should reflect market concerns. However, no clear definition was offered. I questioned whether premium splits should be considered compensation for work actually performed or reflect division of liability. The Title Act and RESPA require agents to perform “core services,” understood to be: 1) examine title; i.e. determine insurability, 2) clear exceptions, and 3) underwrite title risks.
·         Contracts between underwriters and their agents may be reviewed by IDFPR to determine if the premium splits reflect the prevailing market. Further, there may be a need to audit actual transactions to confirm the contract terms are carried out according to the agreed split.
·         IDFPR indicates that certain fees for settlement services should not be paid to nor shared with attorney agents. These include later date fees, chain of title fees, commitment update fees, policy update fees, etc. Paying these fees or sharing them may constitute illegal inducements. Further, unless services are actually performed, sharing or paying these fees to attorney agents may violate RESPA.
·         It was generally agreed that consumers do not understand the mechanics behind the division of title fees. There is a possibility that the disclosure forms may be revised to create greater transparency.
·         The question was raised of whether an attorney at the closing who believes certain fees or arrangements are inappropriate has an ethical obligation to report that conduct. The IDFPR officials indicated that they could not opine on the Rules of Professional Conduct, but they welcome reports of bad behavior, and gave assurance that anonymity would be would be protected as much as possible.
·         On the issue of required reciprocal referrals by several real estate brokerages which operate affiliated title companies, IDFPR is interested in these matters and indicated they may address them at some time, but they wanted to limit the discussion to the issues raised in the proposed guidance.

During the meeting, I made the point that title insurance and the advocacy provided by attorneys for the respective parties are important consumer protections and any guidance issued should take this into account. We should not create disincentives in the market where consumers may opt out of title insurance or forego the advice of legal counsel. Let’s be careful not to throw the baby out with the bath water as has occurred in other parts of the country.

Overall the discussion was candid and open. IDFPR Secretary Bryan A. Schneider referenced shedding light on the issues; this is a positive outcome. If nothing else, the meeting raises awareness and gives us the opportunity to more openly talk about inappropriate behavior in the market.

I applaud the Department for initiating the discussion and raising awareness. Perhaps more clarity will come as more light is cast on proper market conduct.

As always, I welcome your comments and questions, and I assure you that if Prairie Title provides you with support services, nothing will change for you. Our invoicing, billing, and remittance practices are already (and always have been) in line with the proper conduct suggested by the IDFPR guidance document.

I would love to have your thoughts and comments. Please share them below. Let's start a conversation.

Thursday, December 21, 2017

So Long 2017



In the News   Presented by Prairie Title  
December 21, 2017
         
Closing a Volatile Year
As 2017 comes to a close, I am hard pressed to think of a year in my lifetime that witnessed so much Washington-based controvery since Vietnam coupled with Watergate. Front and center on my mind at the end of a tumultuous year is that state of the real estate economy and just how much real estate impacts the U.S. economy as a whole. 

An interesting piece in Mortgage Professional America recently spoke of the benefits to the real estate economy if a home purchase tax credit were adopted, and a statistical note in the article really stood out to me: “According to the Bureau of Economic Analysis, the GDP reached $18.6 trillion in 2016. Of this amount, real estate chipped in $2.48 trillion, or 13.3 percent. In comparison, manufacturing was worth $2.18 trillion, retail contributed $1.1 trillion, and lawyers produced services worth $245 billion."

Clearly, the need to promote real estate transactions through the tax code is imperative. Thankfuly, the tax bill just passed in Congress ended up being less unfavorable to real estate than previous versions. Some deductibility for property taxes was maintained and the mortgage interest deduction was largely preserved, while capital gains treatment on the sale of a primary residence was  preserved. Commercial real estate also should benefit as pass-through entities such as LLCs will be treated more favorably in the new tax environment.
For my part, I am keeping an open mind on the possibilities for the real estate market as the new tax laws come into greater focus during 2018. 

CFPB Follies. There’s no need to discuss the spectacle of the agency temporarily having two diretors, but there has been movement onTRID disclosures since we last published.

On Dec. 6, CFPB issued an updated version of the TRID Guide to the Loan Estimate and Closing Disclosure forms, which did not really help solve disclosure issues. More hopefully, there is some momentum behind a bipartisan effort in Congress to legislate needed changes to the disclosure rule. We hope the new year will bring good news in this arena.

Finally, We recently saw Mudbound, an early 2017 movie release set in post World War II Mississippi. While I enjoyed the entire movie, one scene struck me as it unfolded: A family arrives at a home they believe they have rented (and indeed put $100 down on, quite a sum in those days) only to find that the homeowner has sold the home in the interim and they are out their money. The renter had made the deal on a handshake, with no paperwork, and unfortunately paid the price for that mistake.

To me, the scene was a reminder that real estate fraud has always been and always will be with us, and the need for vigilance to guard against fraud and theft remains and grows greater every day.

Monday, November 13, 2017

Taxes, TRID, and Cyber Threats



In the News   Presented by Prairie Title  
November 13, 2017
         
The Tax Plan Cometh

We have to address the elephant in the room: tax code changes and their effect on housing in 2018 and beyond. First, NAR reports that next year could see an increase in existing home sales due to an improving economy, job growth and rising confidence; however, it will be limited by continued supply shortages. NAR forecasts home sales will grow to 5.67 million in 2018, the highest point since 2006.

But, and this is a big but,  NAR also predicts that if the House tax bill or a similar version becomes law, it could act as a disincentive to homeownership and hold back strong sales activity.

NAR explains that the House tax bill could affect home sales and even home prices in 2018 and beyond, claiming that in its current form, the bill is a direct tax hike on homeowners. NAR’s analysis of the bill estimates it would cause home values to drop 10% and raise taxes on middle-income earners by an average of $815

On the bright side, Senate Republicans last week weighed in with a tax plan that would preserve the mortgage interest deduction.

We’ll see what happens over the next few months. I am very skeptical that slashing the mortgage interest deduction will have anything but a negative effect on the housing market. Let’s hope that doesn’t happen. I encourage all you to contact your representative in Congress and push to preserve the deduction.

Automation will fix TRID? The CFPB has published its final TRID amendments which, as expected, did nothing to fix the issues with fee disclosures (particularly title insurance) on the Closing Disclosure form. Beyond that, we don’t know what the future holds for CFPB as the court case challenging its constitutionality (PHH vs. CFPB) continues, the Republican Congress seems determined to de-fang if not eliminate it and Director Cordray’s term expires in June.

There is some bipartisan movement on the issue in Congress that is worth watching, but a tantalizing question is whether technology will help cure the problems in the long run regardless of what happens in Washington. A technology expert recently made just that case in Scotsman Guide. On related note, NAR recently published a good explanation of blockchain technology and its coming impact on the real estate market.

The scamming crisis. Hackers continue to scam homebuyers out of millions and it’s getting worse. I urge you to read this excellent summary of the situation by real estate writer Ken Harney, and pass the warning along to your staff and customers.

What’s your point of view? Call or email me, or write a comment here. Let’s keep the conversation going.

Tuesday, September 26, 2017

In The News



In the News   Presented by Prairie Title  
September 21, 2017
         
Housing Inventory Still an Issue
Prices remain high, interest rates are low, inventory is not adequate, existing home sales are sluggish  — those are the hallmarks of the residential real estate market as we enter the final quarter of this year. The news is ever-confusing and contradictory, even in the same week. Overall, it’s not a pretty picture.
For a variety of reasons, prominent among them lost equity following the recession which began nine years ago, many households that we would have expected to move up from starter and mid-range homes have stayed put, reducing available inventory. Also, many mid-life families who want to move up have been caught in the middle between second home purchasers who are not selling their homes and millennials who are slow to get into the starter home market, many of whom are held back by crushing student debt.  
Taken together, these factors combine to prolong a shortage of residential real estate inventory, which drives up prices and keeps large numbers of potential home buyers from getting into the market or moving up. There is some light in the tunnel, however. Encouraging data recently shows that move up buyers are starting to get into the market in greater numbers. At the same time, mortgages with less than 10 percent down are available now, and that may bring more millennials to get into the market.
Also on a positive note, commercial real estate remains on “sound fundamentals” NAR reports, while the National Retail Federation notes that retail store openings increasing this year. Even with new supply, solid absorption led to increases in rents,” the NAR report said. “Office demand was stable in the second quarter of 2017, fueled by higher tenant interest in technology, advertising and marketing, healthcare and life sciences sectors. Net absorption totaled 8.8 million square feet.”

An important final point: The recent Equifax data breach is yet another reminder of the critical importance of cybersecurity. In our business, building awareness about wire fraud schemes among consumers is a key component of preventing data theft – and in this case the direct theft of thousands of dollars from unsuspecting home purchasers. To help, ALTA has created both a video and an infographic that you can use with your customers to help them be vigilant.

ALTA has many other helpful tools for consumers on homeclosing101.org. Be sure to point your clients to the site to answer all their questions about title insurance and closings.

What’s your point of view? Call or email me, or write a comment below. Let’s keep the conversation going.