As the congress continues to lash out at the Dodd-Frank Bill and attempt to diminish its effectiveness, certain members of congress continue to wage the fight for preservation of the law, maintaining the integrity of the settlement process and protecting  the consumer. NAILTA is proud to be a supporter of Congressman Ellison and members of the Democratic Caucus who continue to speak out in defense of our industry.

Keith Ellison

General Leave on H. R. 5461

September 16, 2014

Mr. Ellison. Mr. Speaker, I oppose The Insurance Capital Standards Clarification Act of 2014 (H.R. 5461). While I support efforts to provide flexibility under the Dodd-Frank Act’s Collins amendment by explicitly stating that regulators are not required to apply minimum leverage capital and risk-based capital requirements to firms with state-regulated insurance operations, this bill does more than that. It contains The Mortgage Choice Act of 2013, (H.R. 3211).

Mr. Ellison. Mr. Speaker, as I stated during the hearing and the mark up on The Mortgage Choice Act of 2013 (H. R. 3211), there are serious concerns about steering consumers into buying title insurance with hidden commissions and inflated costs.

I bought two homes in my life. Like most homebuyers, I was asked to sign a bunch of papers with lots of fees such as origination charges, appraisal fees, scoring fees, recording charges, tax service fee and title insurance. Like most consumers, I chose my title insurance provider based on referral: I did not comparison shop.

For most of us, title insurance is the most expensive of the closing cost fees – sometimes running in the thousands of dollars. These fees are poorly understood by homebuyers. This can lead to paying higher fees than is necessary or appropriate.

When Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act, we required the newly created Consumer Financial Protection Bureau (CFPB) to do a better job at protecting consumers when buying a home.

We know that the housing finance system had too much predatory and discriminatory lending. African Americans and Latinos were frequently charged much higher interest rates than they qualified for. Homeowners were refinanced into high fee and interest rates they could not afford. The result was more than five million foreclosures and a colossal loss of wealth.

In response to the new law, the CFPB wrote rules to protect people buying homes from products which would strip their wealth. One of those rules defined a Qualified Mortgage (QM) standard which was established in Dodd-Frank. As part of that QM standard, the CFPB established a “points and fees” bright line limit for mortgages that qualified under the Ability to Repay provision.

The CFPB established a limit on “points and fees” – which account for a loan’s origination costs – that exceed 3 percent of the loan amount – although it can be up to 8 percent for lower cost homes. Because of concerns that the affiliated title insurance system was leading to higher costs for borrowers in a market based on reverse competition, the CFPB wisely chose to require title insurance charges from affiliated title agents be within the points and fees cap.

H. R. 3211 reverses the CFPB’s decision.

By excluding affiliated title insurance firms from within the points and fees cap, H. R. 3211 restores an incentive to overcharge homebuyers.

We know how hard it is to get people into homes. Homebuyers need to save thousands of dollars for a downpayment. So why should we make it easier to let them get overcharged as much as a thousand or more dollars on title insurance? Some say that as much as half or more of a title insurance premium goes to the referral agent. Why would we want to preserve this practice of overpricing title insurance to fund referral commissions?

At the Financial Services hearing that included this bill, I requested that we hear from independent land title agents as well as from groups like the Consumer Federation of America, the Center for Responsible Lending, Americans for Financial Reform and its 100 affiliates and the AFL-CIO.

I requested that the National Association of Independent Land Title Agents be invited to testify. I have heard concerns directly from title agents in my state that some referral sources ask to share ownership of their business. Since title insurance is based on referrals, when realtors, homebuilders and mortgage brokers refuse to provide referrals to a title agent firm, the firm may not be able to survive financially. Unfortunately, these independent unaffiliated title agents were not invited to testify nor was there another hearing on the bill.

Many organizations opposed the bill including the AFL-CIO, Alliance for a Just Society, Americans for Financial Reform, Center for Economic Justice, Center for Responsible Lending, Connecticut Fair Housing Center, Consumer Action, Consumer Federation of America, Consumers Union, Empire Justice Center, Home Defenders League, The Leadership Conference on Civil and Human Rights, NAACP, National Association of Consumer Advocates, National Association of Independent Land Title Agents, National Consumer Law Center (on behalf of its low income clients), National Council of La Raza, National Fair Housing Alliance, New Economic Project, Public Citizen, Woodstock Institute and Center for Responsible Lending.

These concerns about hidden referral commissions are not hypothetical. Last month, the Consumer Financial Protection Bureau (CFPB) fined RealtySouth, the largest real estate firm in Alabama for violations of the Real Estate Settlement and Practices Act (RESPA). RealtySouth improperly steered consumers to its affiliated firm, TitleSouth LLC. In addition, The CFPB has taken action against Borders & Borders PLC in Kentucky for funneling kickbacks to shell companies. In June, the CFPB fined Stonebridge Title Services in New Jersey for paying illegal kickbacks to referral sources.

Some who support H.R. 3211 say there are some fixed costs in lending that could result in lower valued mortgages to need to pay loans higher than the Qualified Mortgage guideline of points and fees established by smaller loans. However, the Consumer Financial Protection Bureau already provided for flexible definitions based upon the amount of a borrower’s mortgage:

  • 3 percentage cap on a loan balance at $100,000 or greater,
  • 5 percentage cap on a loan balance from $20,000. 00 to $60,000, or
  • 8 percentage cap on loan balances of less than $12,500.[i]

Since the average mortgage origination fees are below one percent according to the Center for Responsible Lending, the caps set by the QM are appropriate. I have not seen any compelling evidence that shows that lenders will not make loans if the title premiums charged by their affiliates are included in the points and fees cap. Lenders are free to make loans outside the ability to repay rules as well.

I have also heard the proponents of HR 3211 arguing that the availability of affiliate service providers helps reduce the overall cost of obtaining a mortgage loan. I question their evidence. The 2010 Harris Interactive study paid by the National Association of Realtors is suspect. In that study, more than 70% of buyers “did not know” what an affiliate service provider provided or what benefit it allegedly gave.

By contrast, in 2013, The National Association of Independent Land Title Agents (NAILTA) commissioned the first-ever national settlement preference survey of American real estate consumers.[ii] More than 900 consumers participated in the nationwide survey. The results include:

  • 93% of American real estate consumers surveyed said it was important that title insurance agents remain a neutral third party in the performance of title insurance-related services.
  • 62% of American real estate consumers surveyed said that a title agency cannot remain objective if it is partially owned by a bank, real estate firm, mortgage company or homebuilder.
  • Only 1% of American real estate consumers surveyed prefer a “one stop shop”.For all the efficiencies that proponents assert existed prior to this new rule that provided a disincentive to refer homebuyers to controlled/affiliated title firms, settlement costs — exclusive of inflation — continue to rise. I believe the CFPB’s rule could actually lower title insurance premiums and increase homeownership for Americans.

I have concerns about a market where people assert that half or more the cost of the product is a referral fee unlinked to the product itself. Consumers and independent title insurance agents say that title insurance premiums can provide remuneration to the referral source based on the capture rate such as lower desk rental fees, bonuses, gifts or higher commissions. This should not be permitted.

I urge members to stand with homebuyers who want to understand all the fees they are charged.

I urge members to support a market free of pressures for referral commissions.