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Title Industry Report Recommends Federal Regulators

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The current regulatory environment enveloping the title insurance industry is clouded by constrained enforcement tools, minimal supervision of title agents and a lack of coordination among state and federal regulators, as stated by the U.S. Government Accountability Office’s (GAO) long-awaited report on the title insurance market.The report, titled”Title Insurance: Actions Needed to Improve Oversight of the Title Industry and Better Protect Consumers,” identified significant barriers to the successful regulation of this title business, but for every weak link in the regulatory sequence, the GAO provided a remedy, calling for the active participation of national, state and local regulators.”Given consumers’ weak status in the title insurance marketplace, regulatory efforts to guarantee fair rates and discourage illegal advertising activities are crucial,” the report said. “Given the wide variety of professionals involved in a property transaction, a lack of coordination among various regulators within states, and between HUD and the states, could hinder enforcement efforts against reimbursement for consumer referrals. Due to the involvement of both state and federal regulators, including multiple regulators at the country level, successful regulatory improvements are going to be a struggle and will require a coordinated effort among all involved.”Frustration exists at national and state levelsRestricted state and federal oversight of the title industry has led to suggestions for change, the GAO found, but these changes are focused on the nation level, largely from the affiliated business arena.”Some state regulators expressed frustration with HUD’s level of responsiveness to their requests for help with enforcement, and some industry officials stated that RESPA rules regarding ABAs and citizenship fees need to be explained,” the GAO stated.However, the more limited regulation and oversight of title agents and AfBAs in less busy states could provide greater opportunity for possibly illegal advertising and sales practices, the GAO said. While the GAO listed states like Colorado, California and Minnesota as leaders in enforcement and supervision, the report concluded that states’ authorities of anti-kickback and referral fee provisions were uneven.”According to HUD officials, it’s difficult to deter future offenses without stronger enforcement jurisdiction, such as civil money penalties, since… companies view small settlements as only a cost of doing business,” the GAO stated.Seeing these issues as crucial to the health of the market, the GAO made numerous recommendations to improve oversight at every government level and to better coordinate the various efforts of those regulators.Agents: Where is the beef? State regulators may most profit by analyzing title representative costs, the GAO found. Officials in a number of state insurance departments annually questioned whether agents are worth their premium splits, along with the GAO quickly picked up with this debate, finding that regulators do not fully evaluate title agents’ prices during speed reviews.”Few regulators review the prices that name agents incur to determine if they are in accord with the costs charged,” the report stated. “In fact, in nearly all nations, agents’ costs for search and evaluation services are not considered part of their premium and so, get no review by regulators. Consequently, title brokers charge separately for their investigation and search services, yet they receive roughly the exact same percentage of the premium as brokers in states where these costs are included in the premium.”Title carriers told the GAO that they generally share the exact same percentage of the premium with their brokers, around 80 to 90 percent, irrespective of whether those agents were in states where consumers pay for brokers’ search and examination services inside the premium rate — known as all-inclusive states — or if they were in states where agents can charge consumers individually for those services — known as risk-rate states.However, reliable data to determine whether consumers in risk-rate states consistently paid over those in comprehensive states does not exist, ” the GAO stated, and thus recommended a”multi-step procedure which could involve detailed analysis of some title representatives.” While the GAO placed the onus of this auditing function on state insurance regulators, some business experts pointed out that reporting requirements currently vary by country, making it hard for many companies to provide the kind of uniform information necessary to form constructive conclusions.In California, for example, some companies are concerned that the Department of Insurance’s proposed statistical reporting requirements may force them out of business, since they can’t now provide data from previous years which wasn’t required of them in the moment.”Some of the data that the GAO wants to collect drills into hiring and personnel practices and micromanages that 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 people have. It’s a huge layer of fixed overhead which no one anticipated, and it’s not like you can snap your fingers and find that sort of detail”Things for Congressional consideration”Revisiting RESPA to ensure consumers receive this information as soon as possible when they are thinking about any type of mortgage transaction… could be advantageous,” the GAO said.The GAO’s recommendations to Congress were twofold. Congress could provide HUD with increased enforcement authority for Section 8 offenses, like the ability to inflict civil money penalties. Congress could also produce a detailed homebuyer information booklet available to consumers.These recommendations are based on 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 accounts, the GAO’s Congressional recommendations endure a reasonable prospect of becoming reality.”HUD has sought such authority, along with the GAO report could be HUD’s best opportunity to get it,” explained Rich Andreano, partner with the Washington, D.C., law company Weiner Brodsky Sidman Kider PC.Doubting ThomasesNevertheless, the clear consensus between HUD and the GAO does not mean these recommendations will see the light of day, at least in the near future, said some skeptical industry leaders.

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