Monday, June 25, 2012

a new letter from Steve Adkins in response to a WSJ article

To the Editor:
As a real-estate title examiner with decades of involvement in efforts to bring some transparency to the real-estate settlement and title insurance processes, I read with great interest the editorial "Consumer Bureau Brushback" [June 4], particularly the aside, "The consumer bureau now enforces Respa, thanks to Dodd-Frank" (after nearly 40 years of lobbying and lawyering, Respa, the 1974 Real Estate Settlement Procedures Act, could better be called the Real Estate Specialinterests Protection Act).
Barney Frank has a history with title insurance reform, and for homeowners it isn't a good one.  He singlehandedly extinguished the most promising attempt to date.

In January 2006, Rep. Michael Oxley, then-chairman of the House Financial Services Committee, directed that the Government Accountability Office investigate title insurance to determine where the homeowner's premium dollar alights.  In its preliminary report, the GAO related that it found that 80-85% of the premium is retained by settlement agencies, but it hadn't been able to follow the money past that.
The title industry asserts that most of the premium is used for extensive and exacting title examination and risk elimination.  On April 26, 2006, the president of the American Land Title Association swore before Mr. Oxley's committee that "premiums mainly pay for searches of public records...most of the premium goes toward identifying and eliminating the bulk of the risks the insurance is intended to cover."  But when the GAO's final report was issued in April 2007, it still hadn't been able to find where the premium dollar comes to rest.  State and federal regulators couldn't tell the GAO, and the title insurers couldn't confirm the ALTA's assertion (so much for the industry's claim that it is highly regulated).
By then, Mr. Frank had succeeded Mr. Oxley as chairman of Financial Services, and Poof! -- the reform effort disappeared.

Had Mr. Frank directed the GAO to resolve the matter, the GAO would have found that when a new home is purchased from a builder, most of the title premium takes a path to that builder, via an agency controlled by the builder.  In the case of a resale, the premium takes a path to the realtor, via an agency controlled by the realtor.  And often in the case of a refinance, there is a similar path to the mortgage lender.  The prominent title-insurance blogger Diane Cipa recently marveled at the ever changing terms applied to the various contrivances and mechanisms -- first, they were "controlled businesses"; then, "affiliated businesses"; then, "joint ventures"; and now, they are "affinity relationships." But whatever the term, the result is the same.  Entities that can direct the settlement to an agency that they control, pocket the title insurance premium.  Bless 'em in their legitimate lines of business, but when it comes to title insurance, builders, realtors, and mortgage lenders are the unholy trinity of profiteers.  And there's enough vigorish to make Sonny Corleone blush.

While the Consumer Financial Protection Bureau now has oversight of Respa, Respa's present configuration was formulated by David H. Stevens, as Federal Housing Administration commissioner and assistant HUD secretary in charge of housing.  Before his appointment by President Obama, Mr. Stevens was the CEO of the realtor Long & Foster, where his duties included management of its settlement and title insurance adjuncts.  In connection with that, he also headed the Real Estate Services Provider Council (RESPRO), a lobbying group for realtors, builders, and mortgage lenders, whose purpose is to convince politicians that the diversion of the title insurance premium to RESPRO's members is a good thing for the homeowner.  (Mr. Stevens was confirmed by the Senate in July 2009, with nary a complaint from any consumer advocate.  As FHA commissioner, he had many areas of concern other than title insurance, but still...  Stevens has since left his government position and presently heads the Mortgage Bankers Association.)

So with, RESPRO...guarding the chicken house, don't expect any meaningful reform of title insurance from Respa or the consumer bureau.  I suggest a much more direct route.  The Department of Justice should conduct forensic audits of the settlement operations of a few RESPRO members and their like -- I suggest Mr. Stevens' own Long & Foster as the representative realtor, and NVR, Inc., which has a policy of avoiding title liability by foisting special warranty deeds on its naive customers, as the representative builder -- and determine where the title insurance premium dollar alights.  The auditor will find that the premium doesn't go for extensive examination and risk elimination, as asserted by the industry.  Rather, the auditor will find that nearly all of the premium comes to rest in the pockets of the companies' executives and owners.  Respa, schmespa, it's a matter of simple fraud; one product (an examination-backed assurance that the homeowner's title will not be challenged) is represented, and a lesser product (a promise to defend, if the title should be challenged) is delivered.  Prosecute and fine accordingly -- Long & Foster has directed 100,000 settlementts a year, the amounts diverted run into real money.  Then, with Mr. Frank no longer in congress to protect them, the special-interest third-party interlopers in the title insurance business will be forced to take note.

Sincerely yours,
Steve Adkins
3502 Cobb Drive
Fairfax, VA 22030-2918

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