As Congress moves toward the fall elections, few Capitol Hill observers are expecting major real estate finance reform legislative activity in the year 2000, due to enactment last session of long-contested and widespread financial reform in the Gramm-Leach-Bliley Act, (Public Law 106-102). On the other hand, it is likely that House and Senate Commerce Committee proposals to validate electronic signatures in real estate transactions and other financial transactions will be enacted early in the session. Prospects for major initiatives this year are regarded as slim given the length of the federal legislative session, which is shortened by the recesses for the political conventions and the November Presidential and Congressional elections.
This article features the views of several members of Congress on issues facing the title industry - the Gramm-Leach-Bliley Act (formerly the Financial Services Modernization Act); RESPA and Truth in Lending Act reform; and electronic commerce.
ALTA® will be keeping a close watch for new congressional development, including Gramm-Leach-Bliley technical corrections legislation. Generally, after major legislation is enacted, provisions containing technical changes to the law (as opposed to substantive changes) are considered. However, when speaking to an ALTA® representative recently, Representative Jim Leach (R-IA), Chairman of the House Banking Committee, indicated that House Banking Committee action on technical corrections legislation is unlikely during this Congress. According to Chairman Leach, "Because the Gramm-Leach-Bliley Act had been under development for so many years, there are fewer technical errors than there have been in past bills. Further, there is more discretion given to regulators. Finally, even if someone had a potentially terrific idea, the fact that it [technical corrections legislation] may carry a train, would limit the viability of that legislation." Consequently, ALTA® will closely follow implementation of the Gramm-Leach-Bliley Act at the Federal Reserve, which will regulate the new financial holding companies established under the Act, and the Office of the Comptroller of the Currency (OCC) - the national bank regulator.
Senator Wayne Allard (R-CO) chairs the Housing Subcommittee of the Senate Banking Committee. Each time financial services modernization legislation reached the Senate Banking Committee, Chairman Allard brought up ALTA®’s position on financial services modernization. Unfortunately, as an Allard spokesperson noted with respect to those issues, "We lost the battle, but not the war."
Regulators at the Department of Housing and Urban Development (HUD) and OCC can expect close scrutiny from Congress as they begin work on Gramm-Leach-Bliley Act changes. Phil Gramm (R-TX), Chairman of the Senate Banking Committee favors ownership of non-financial concerns by banking operations, but through "complementary" powers rather than full scale combination of banking and commerce. He said he expects banks and commercial firms to be ready for purchasing each other outright within 10 years, which is likely to create a need for further amendment of Gramm-Leach-Bliley.
The delineation of bank underwriting and sale of title insurance under federal and state regulation is another title industry issue expected to receive further attention from the federal agencies, the state legislatures, and regulators from Gramm-Leach-Bliley. Gramm-Leach-Bliley does allow national bank participation in the market if state banks are allowed to engage in that activity. But financial subsidiaries of national banks are required to comply with state licensing and other regulations unless these "significantly" interfere with the business of banking, the so-called Barnett standard from the 1996 United States Supreme Court decision.
ALTA® fought hard to obtain special treatment for title insurance in this bill. While the overall bill sought to encourage one-stop shopping for banks, insurance and securities products, Gramm-Leach-Bliley allows only those national banks or their subsidiaries engaged in underwriting or sale of title insurance as of November 1999, to continue to do so. The statute, through ALTA® efforts, overturns an OCC decision on underwriting. Title insurance underwriting can only be done through a financial holding company. As pointed out to Congress by ALTA®, this separation is important because of the conflict of interest that may emerge when lenders are in a position to insure titles on their own real estate transaction.
In the final weeks before Gramm-Leach-Bliley was enacted, Congressmen Bill McCollum (R-FL) and Spencer Bachus (D-AL) offered an ALTA®-supported amendment during Banking Committee deliberations, providing that national bank operating subsidiaries, as well as their parent organizations, be limited to existing state limitations on sale of title insurance. The amendment lost by one vote. Look for this issue to be addressed in the federal agencies, including the Federal Trade Commission, the OCC and the Federal Reserve which will propose regulations as implementation proceeds under Gramm-Leach-Bliley.
Representative Kenneth E. Bentsen, Jr. (R-TX) Member, House Banking Committee, and a key sponsor of several title amendments, says, "As Federal Reserve Chairman Alan Greenspan has said, The changes in the rules of affiliation in the Gramm-Leach-Bliley Act will create new opportunities and risks for all financial institutions.’
"It is estimated that consumers will save $3.5 billion due to this law," Bentsen continued. Through the efforts of groups such as ALTA®, state insurance commissioners remain the primary regulators of title insurance underwriters. During consideration of this law, as a member of the House Banking Committee and a conferee on this bill, I worked hard to ensure that state laws are respected and that consumers will have fair access to title insurance.
"Because title insurance is a one-time expense for consumers which is done in conjunction with the consummation of a real estate mortgage transaction, there is no renewal or after-sale market. Therefore, I believe that title insurance should be treated in a different manner than other types of insurance products, and I should note that the title insurance market is already a competitive one. That’s why I was concerned last year when the House and Senate Conference on H.R. 10/S. 900 Committee made changes to the title insurance provisions which could negatively affect the marketplace.
"The Manager’s amendment eliminated important provisions that require operating subsidiaries to adhere to state laws and be functionally regulated. I believe that, in order to protect consumers, state laws governing title insurance activities should be equally applied to bank-controlled title insurance operations. Without that assurance, there exists a danger that banking institutions will be able to create a captive title insurance market for any mortgage products they may offer."
With the publication of proposed privacy rules by the federal agencies pursuant to Gramm-Leach-Bliley, ALTA® remains concerned over their possible application to title companies. As expected, the proposed rules would determine when a customer can request personal and other private information not be shared with third-party vendors and affiliates within the new affiliations and subsidiaries formed under Gramm-Leach-Bliley. Whether the information is sold would be considered a possible cutoff for when a company would be subject to the new rules. A leading question raised by ALTA®: If not in the business of selling private, personal information, should title companies be excluded from the privacy regulations?
ALTA® also remains focused on the Federal Reserve and HUD for possible near-term moves by the agencies to encourage reform of RESPA and the Truth in Lending Act - in line with their recommendations in a July 1998 joint report to Congress on RESPA/TILA reform. Remaining as concerns here are issues raised by the title industry during a Mortgage Reform Working Group which sought development of a consensus among the real estate industry trade associations and industry groups about the direction of reform. ALTA® remains concerned about one of the proposals in the RESPA/TILA reform report from the agencies - the impact of lender packaging or "blind bundling" of settlement services which, in an effort to promote consumer one-stop shopping, may limit informed consumer selection of quality services, including title insurance. During any Congressional debate, ALTA® will continue to emphasize that consumer shopping for quality title insurance is essential for full protection of a real estate investment - something unlikely to take place if lenders remove title insurance from a settlement service package or "bury" whatever title coverage is made available.
On the House side of the U.S. Capitol, action on RESPA appears unlikely. House Banking Committee Chairman Jim Leach (R-IA) does not have RESPA reform on his agenda for the term.
Representative Bruce Vento (D-MN), Ranking Member of the Financial Institutions Subcommittee and always a key player on RESPA, will be retiring at the end of the session to engage in treatments for his recently diagnosed lung cancer.
In commenting on RESPA reform and the report from the Fed and HUD, Representative John J. LaFalce (D-NY), Ranking Democrat of the House Banking Committee, stated that, "Bundling may represent a potential opportunity for increased competitiveness and one-stop shopping, both of which might benefit the consumer. However, in assessing proposals like this, we must be sure that borrowers have a true ‘apples to apples’ comparison, and that we look at market-oriented solutions before we impose government rules. Crafting a solution along these lines will not be easy. But it is the obligation of Congress to at least look at these and other recommendations in the HUD-Fed report."
On the Senate side, Senate Banking Committee Chairman Phil Gramm (R-TX) has failed to put RESPA on the agenda. And, with respect to RESPA reform, Wayne Allard (R-CO), Chairman of the Housing Subcommittee of the Senate Banking Committee, indicated that "I am always ready to look at simplification of RESPA and TILA, but this will require broad consensus from industry and consumer groups and HUD. I do not see anything being enacted this year."
Two measures affecting the settlement industry are more likely to receive congressional and agency attention this year: measures that would sanction the validity of electronic signatures in contracts; and those that allow electronic delivery of RESPA and other credit-related disclosures. The National Conference of Commissioners on Uniform State Laws has developed a Uniform Electronic Transmissions Act (UETA) which regulates all aspects of contract formation, execution, and retention, in an electronic environment. The federal legislative proposals will pre-empt state laws until states enact their own versions of UETA. Representative Tom Bliley (R-VA), who chairs the House Commerce Committee indicated that, "We are hopeful that the Bliley legislation will be signed into law this year. This is a very important piece of legislation for the future of the Internet. The Internet growth potential will be limited without standardized contract laws. People will not make complicated business transactions on-line if they do not have the same protections that exist in the paper world."
While the Federal Reserve Board proposed rules allowing electronic delivery of disclosures commerce proposals several years ago, HUD is just beginning to turn its attention to the issues involved in electronic delivery of RESPA disclosures. The issue is on the HUD business plan, and Becky Holtz, Head of the Office of Consumer and Regulatory Affairs, has indicated that HUD will begin to look at this issue this year.
While most activity at the federal level will be on the regulatory side, state legislatures will also consider a variety of issues. ALTA® will continue to update you on these issues in ALTA® Advocate and Title News.