The Claims Canard

You’ve probably heard some version of this refrain: "Why should I buy title insurance? It’s a scam. Title insurers never pay claims." That canard has been knocking around the real estate business for decades and is simply not true.

Following that type of thinking, each year, approximately 20 percent of homebuyers fail to protect their investment by not being certain they obtain an owner’s title insurance policy. Unfortunately, this leaves them exposed to serious financial risks. Title insurers do pay claims – millions of dollars worth each year – but the focus of title insurance is on preventing claims rather than assuming risk the way other types of insurance such as auto and homeowner’s do.

So our efforts are upfront. During the home-closing process, title professionals diligently examine public records, and if a problem is discovered the title professional works to resolve it before a purchase closes. In fact, during the title search, title companies find and fix problems with the title in more than 30 percent of transactions – usually unbeknownst to the consumer or lender.

While most problems can be located in a title search by skilled professionals, there can be hidden hazards that even the most thorough search will not reveal. Examples include:

• Undiscovered tax liens
• Forged signatures in the chain of title
• Recording errors
• Undisclosed easements
• Title claims by missing heirs or ex-spouses

Owner’s title insurance protects property rights from threats like these. Here’s a real-life example of how it works.

True Story

A family in Missouri unknowingly purchased their home from a seller who had taken out a $419,000 loan on the property. This fact was not discovered during the closing process, and the family’s lender paid the seller directly instead of paying off the existing loan. The family eventually faced foreclosure because that other lender had a claim against their property. Fortunately, the family had owner’s title insurance. The title company paid the debt and the family kept their home—and peace of mind. 

This story has a positive ending, but without owner’s title insurance, the family could have faced serious costs, and even eviction.

The next time you hear that claims canard, assure the speaker there is no basis in fact for it. No home owner should ever be without title insurance.
 

Notes from Boston

Mary and I are just back from the annual American Land Title Association Convention, held in Boston this year. Two topics were top of mind for title insurance professionals as we gathered from across the country: TRID and outreach to homebuyers.

As far as TRID is concerned, we’re now a week past the implementation date, and new loans are being processed under the new rule. In the title business, most of us are still awaiting our first new Closing Disclosure Forms as lenders work their way through the new process. Most of the talk about TRID at the convention revolved around potential issues that title underwriters and agents feel might be coming down the pike and efforts in Congress to institute a formal grace period for those moments when good faith efforts fall a little short.

The House of Representatives passed the Homebuyer Assistance Act in veto-proof, bipartisan fashion last week, and we hope the Senate will follow suit soon. While the White House has threatened a veto, let’s hope that the President will relent when the bill reaches his desk, or at least the Senate also passes the bill with a veto-proof majority. Asking Washington to institute a grace period is not asking for special treatment. Lenders, attorneys and title industry members simply want to be able to implement the new rule as seamlessly as possible in the coming months without being overly concerned about daunting repercussions for honest mistakes. 

I urge you to contact your senators in support of this bill. As third in command of Democrats in the Senate, Illinois Sen. Dick Durbin is a particularly crucial leader to get on board.

Regarding consumer outreach efforts, ALTA is urging members to get more deeply committed to educating home buyers and sellers about the residential real estate process. There is growing awareness that consumers in the coming years will increasingly be making decisions regarding vendors throughout the transaction process. Arming them with comprehensive, easy-to-understand information is a first step in helping consumers make good choices.

Take a look at ALTA’s homeclosing101.org web page and direct your customers to the page for more information about our industry. The Realtors’ and Mortgage Banking Association’s web sites also have consumer-oriented educational tools. Better consumer outreach is critical, I believe, as members of the home-buying public become more sophisticated in their approach to the residential real estate process. Let’s help them get there.

Questions, comments? Please post your thoughts for all to see and respond to. 


Frank
 

To Raise or Not To Raise - that is the question.

When the Fed decided not to raise interest rates, at least for now, at its mid-September meeting, the action left many experts as well as lenders and real estate professionals surprised and perhaps a little bit puzzled. Leading up to the meeting, it seemed likely that rates would rise but the Fed came to the conclusion that… “in light of the heightened uncertainties abroad and a slightly softer expected path for inflation, the committee judged it appropriate to wait for more evidence, including some further improvement in the labor market,” in the words of Fed Chair Janet Yellen.

Many economists argue that the time was right for the Fed to raise rates in September (or perhaps even before that). For instance, BMO Harris Chief Investment Strategist Brian Belski maintains that the next step for the Fed “must be a rate hike.” next step for the Federal Reserve must be a rate hike.

Jeff Cox of CNBC argues that “The Federal Reserve may have missed its last, best chance to raise interest rates,” while Bill Gross of Janus urges the Fed to “Get off Zero, now.” Gross argues that, “…zero destroys existing business models such as life insurance company balance sheets and pension funds, which in turn are expected to use the proceeds to pay benefits for an aging boomer society."

As it affects housing, rising interest rates may be viewed through two lenses. There are legitimate concerns that rising rates will severely damage our industry. At the same time, we all want the economy to prosper since a healthy economy typically stimulates activity and growth in the real estate sector.

In my view, the best outcome lies in achieving just the right balance. For now, current rates are advantageous for consumers looking to get into the market, move up to a bigger house, or simply refinance existing debt. However, we know they will rise at some point. We hope that policy-makers are deliberate, cautious, and prudent in searching for the perfect balance.

What do you think?

In The News - TRID and Rates

In the News

Presented by Prairie Title          

Commentary by Frank Pellegrini, Prairie Title CEO

September 22, 2015

In less than two weeks, our industry world will “change, change utterly” to paraphrase the Irish poet W.B. Yeats. Our industry changeover will be nothing like the upheaval Yeats wrote about in his tribute to Irish revolutionaries (a number of whom lost their lives) in 1916. Yeats went to say “A terrible beauty is born.” Perhaps that echoes our situation a little bit — with no lives at stake, of course.

Our business is undergoing a revolution, and while the forced change in the way we do business may seem “terrible,” recognizable “beauty” can come out of our implementation of TRID. Most importantly, the new TILA-RESPA Integrated Disclosure rule is intended to benefit consumers by making the residential real estate lending and closing process simpler and easier to understand. In my view, a more consumer-friendly process has been a long time in coming. We should be able to lend and close on residential real estate transactions in a manner that is not intimidating to the uninitiated while protecting consumers and industry interests alike. I see the beauty in that.

My best advice as we move forward? Keep calm, be prepared and keep you arms and legs in the car as the ride begins. Things may get a little wild but the payoff will be there.

When you get the inevitable questions from home buyers and sellers about TRID, there are great resources out there you can recommend. MBA, NAR and ALTA all have terrific consumer-oriented information on their sites, and the CFPB just released new consumer TRID Tools.

In other news, on September 17 the Fed announced that it would not raise interest rates — for now. In the announcement, Fed Chief Janet Yellen said, “Recovery from the Great Recession has advanced sufficiently far, and domestic spending appears sufficiently robust, that an argument can be made for a rise in interest rates at this time,” Yellen said in her opening statement. “We discussed this possibility at our meeting. However, in light of the heightened uncertainties abroad and a slightly softer expected path for inflation, the committee judged it appropriate to wait for more evidence, including some further improvement in the labor market, to bolster its confidence that inflation will rise to 2 percent in the medium term.”

Yellen affirmed that a rate increase could be in the works as soon as next month. In other words, stay tuned. What if rates do rise in the near term? NAR has some thoughts.

Let’s keep the discussion going. Call or email me; or write a comment below.

 

Other stories we’re following:

Mortgage Bankers See Seller’s Market in 2016.

Millennial Magnet: Transparency and Technology.

The Vitals on Title Insurance.

Fannie: Economy to Grow in Second Half.

TRID Enforcement

TRID Enforcement Remains a Big Question


An impressive coalition of nearly 20 trade groups representing lenders, banks, credit unions, title companies and others have banded together to urge federal regulators to provide guidance on how they plan to enforce the new mortgage disclosure regime that goes into effect Oct. 3.

The implementation of the CFPB’s new integrated disclosure rule (TRID) in less than 3 weeks poses significant "challenges" for mortgage lenders, according to a letter signed by the 18 groups. CFPB has indicated that regulators will be "sensitive to the good-faith efforts" of lenders to comply with what is known as TRID, but what constitutes a “good-faith effort” is rather subjective. We really need more specifics from regulators on what that means. (Though the CFPB wrote the rule, enforcement of the new disclosures is spread out among various regulators.)

In their letter of September 8, trade group leaders said: "We urge the Federal Financial Institutions Examination Council to provide needed certainty by articulating precise policies for examining and supervising financial institutions for the initial months after the TRID implementation. The FFIEC should formally implement a clearly articulated transition period that addresses how regulators will oversee and examine regulated institutions for TRID compliance during this transition period."

The signers rightly note that the TRID framework represents a "sea change for every participant in the mortgage lending process," including borrowers, lenders, appraisers, real estate agents, mortgage brokers, builders and other service providers. Not providing detailed guidance as to how regulators will judge “good-faith efforts” is clearly not fair to industry members who are working very hard to implement the new rule.

I urge you to contact your trade group to express your support for the industry-wide effort to get clarity on this important issue. The fall and early winter will be challenging enough without an undefined enforcement threat hanging over everyone’s head.

Referrals and Inducements

Shedding Light on Inducements

I am struggling to understand what constitutes an illegal inducement —and what to do about it — and I seek your input. As we all know, the Real Estate Settlement Procedures Act (12 USC §2607) specifically prohibits the exchange of anything of value for referral of business related to a federally insured mortgage transaction.

We all agree that under RESPA payments tied to numbers of referrals are not allowed. Recently, a number of agreements through which payments are made to “business partners” (generally considered compliant in the past) have been scrutinized by the CFPB and found to be illegal inducements under RESPA. These cases have resulted in crippling fines and other onerous consequences for the participants.

So, what about an instance where a branch manager of a title insurer entices an attorney agent away from a competitor with the offer of a more generous agent split? Or when a service company for attorney agents offers searches and support services for a nominal amount (or free for that matter) to secure an attorney’s membership in its attorney-agent program? What about when referrals of clients are predicated upon required use of an affiliate? Are these practices the natural flow of a briskly competitive free market? Do they constitute questionable market conduct, at best? Or are they simply illegal inducements?

Traditional free market practices (such as these) may not be suitable where the selection of the provider is not made by those who ultimately foot the bill. Because of the state’s inability to adequately enforce RESPA (significantly exacerbated by the current budget crisis in Illinois), we do not receive much guidance through local enforcement. That’s where the consumer comes in.

I wonder how consumers might react if they were made aware of sweet deals among referral sources? Are the costs to consumers higher as a result? With the new CFPB consumer complaint portal we may have an opportunity to see how they react. Educating and engaging consumers about questionable practices may be just the way to get some sunshine on a very shadowy corner of the business. As Justice Louis Brandeis said, “Sunlight is said to be the best of disinfectants.”

What do you think? Let’s talk about it. 

TRID, of course.

In the News  

Presented by Prairie Title         
Commentary by Frank Pellegrini, Prairie Title CEO        

August 24, 2015 – TRID. What else? As we move toward implementation of the new TILA-RESPA integrated disclosure rule in six short weeks it’s a challenge to focus on anything else. On Oct. 3 our world will change dramatically. Rarely does such a drastic, externally-imposed change in the way business is transacted occur in an industry, but occur it will.

TRID is a direct descendant of the Dodd-Frank act, passed into law in 2010 in the wake of the financial calamity that roiled the world beginning in late 2008. At more than 2,300 pages, Dodd-Frank is a behemoth. Among its offspring is the Consumer Financial Protection Bureau which is charged with creating and then enforcing hundreds of rules like TRID that will govern how financial services businesses will interact with consumers.

CFPB’s advice to consumers before they enter the home buying process is: Know before you owe. On the industry side, we had all better “know” long before we get the closing table. Dodd-Frank enforcement penalties are steep. Even one violation can cost you $5,000 and it goes up sharply from there.

It is unclear at this point exactly how stringent CFPB enforcement policies will be in the early months of the TRID era. Directory Cordray stated in a June 3 letter to members of Congress that the CFPB’s “oversight of the implementation of the Rule will be sensitive to the progress made by those entities that have squarely focused on making good-faith efforts to come into compliance with the rule on time.” Clearly, the key term is “good-faith efforts.” We will all make mistakes, but it seems if we prepare properly and make every effort to comply with the new rule the Bureau will be tolerant of those mistakes in the early going.
If you’re looking for more information as you continue to prepare, there are resources aplenty, including:

· CFPB’s Know Before You Owe page
· TRID questions answered during ALTA town hall
· Mortgage Bankers Association guidance
· Realtor.org’s TRID page

Let’s keep the discussion going. Call or email me, or write a comment.

Other stories we’re following:    

NAR: Home Prices Rise in Nearly all U.S. Metros.                      
Cook County Opens e-Recording of Deeds.              
REITs up 5 Percent in July.
Q2 Loan Originations up 22 percent.