This wide variety of issues affects underwriting, the structural marketplace in which the industry operates, and the means through which we deliver our services. Here is a brief look at some of the successes of this past year.
Reducing Government's Burden on Business
Over the years, ALTA® has sought to minimize the administrative burden involved in needless information reporting, and our efforts produced results in two areas last year. ALTA® filed comments and testified on proposed IRS regulations on gross payments to attorneys, suggesting critical modifications to the regulations. Because concerns like ours were raised, implementation of the rule was delayed in December 2000. Consequently, compliance with the regulations proposed in 1999 would undoubtedly provide a safe harbor. However, title agents and underwriters can argue, if audited, that differences of opinion in reasonable interpretations of the statute continue to exist. Therefore, a disbursement from escrow for closing services is not reportable.
Also in 2000, the IRS gave the industry some positive news in releasing proposed regulations on the treatment of "middlemen." As the party responsible for disbursing checks at real estate closings, a title insurance agent or underwriter is technically a "middleman." The IRS included an example suggested several years ago by ALTA®: when a settlement agent performs a real estate settlement, no reporting is required. Only when the settlement agent becomes actively involved in management does reporting become necessary.
The Federal law which will have perhaps the most dramatic structural change on the industry's service delivery system is the "The Electronic Signatures in Global and National Commerce Act." ALTA® members actively lobbied this legislation when they came into Washington for the Federal Conference in March, 2000.
The Electronic Signatures Act essentially preempts state laws to provide for the validity and enforceability of inter state contracts which use electronic signatures and "records." The legislation includes, as ALTA® originally sought, provisions which specifically states that transferrable records "relate to a loan secured by real property" and covers insurance. In addition, the bill provides that notarization requirements are met if an electronic notarization, together with all other information required to be included by statute, regulation or rule of law, is attached to or "logically associated with the signature or record." This is also a provision which ALTA® members originally lobbied. Title insurance agents are not liable for any deficiency in the electronic procedures if they are not negligent, were not engaged in the development or establishment of the electronic procedures, and did not deviate from the procedures. Title insurance companies and agents may also take advantage of provisions in the Electronic Signatures Act which provide that effective March 1, 2001, state law requirements for records retention may be met through electronic means.
Because of our assistance on this matter and our continuing relationship, Freddie Mac has been positive to the industry about title issues involved in electronic transactions. Freddie Mac's preliminary specifications for electronic transactions include a requirement to include title insurance as part of the electronic file. Further, concerns about consolidation of the preliminary notices given to consumers may also be addressed. We expect that Freddie Mac's outreach to the industry will continue to be a productive partnership on both a technological and legal level.
"Consumer privacy," or protection of consumer's personal information collected by banks and insurance companies, also became a Congressional concern. Congress included in the Gramm-Leach-Bliley Act requirements that businesses notify customers what they do with any personal information collected during their normal business process. This notification requirement is applicable to all "financial institutions," as they are defined under the act. In addition to the initial notice requirement, the law requires that consumers be given the ability to "opt-out" or direct that this information not be shared with third-parties. All "non-bank" financial institutions, including title insurance underwriters and agents, fall under the auspices of the Federal Trade Commission (FTC).
ALTA® had several successes in lobbying the FTC. As a result of a series of meetings with the ALTA® Government Affairs Committee, staff follow-up meetings, and comments submitted to the FTC, the FTC regulations specifically recognize that "customer relationships" with members of the real estate settlement services industry effectively terminate after the real estate settlement service has been completed. Thus, we are relieved of providing annual privacy notices to customers who hold our title insurance policies. Second, the definition of "nonpublic personal information" included in the FTC and Federal bank regulator regulations, exclude "publicly available information." The term "publicly available information" specifically covers real estate records. This definition should help to exempt many title insurers and agents from providing "opt-out" notices before they share information. Third, both the FTC and the financial institution regulations include several provisions that help minimize the burden on companies seeking to comply.
ALTA® also successfully convinced the NAIC to include similar language in final NAIC Regulations adopted in September, 2000. The NAIC had been working on a Privacy of Consumer Financial and Health Information Regulation covering insurance companies and insurance agents. The final draft contained a provision specifically recognizing that a "customer relationship" with a member of a real estate settlement services industry effectively terminates after the settlement has been completed, and thus providers should be relieved of providing subsequent annual privacy notices.
Title Underwriting Issues
Early in 2000, a title insurance underwriting concern that had unsettled the industry for many years was finalized. A multi-year effort to control the Supreme Court's strong law enforcement stance and protect individual property rights culminated in the enactment of the Civil Asset Forfeiture Reform Act of 2000. Title insurers benefit in three major ways. First, the new law limits the Federal Government's ability to seize real property which has been involved in the commission of crime. In addition, it establishes new procedural requirements for real property forfeitures. Third, it fosters legal certainty in real estate transactions by clarifying protections for persons owning real property through a statutory "innocent owner" defense. ALTA®'s effort to overturn a 1996 Federal Court decision, McConville, stalled, because the bankruptcy bill in which it was contained, was vetoed by President Clinton. We are optimistic our amendments will be included by the new Congress. In McConville, the Ninth Circuit failed to apply section 549(c) of the Bankruptcy Code to allow perfection of a lender's lien after the borrower filed an undisclosed bankruptcy.
On the plus side, as Title News goes to press, the House Judiciary Committee has reported the 2001 version of bankruptcy reform and legislation has been introduced. The Senate bill also contains our McConville amendments.
Title Fees Excluded from Predatory Lending
While state issues are traditionally managed by the state associations, ALTA® has succeeded in limiting efforts to sweep us into the predatory lending problem at the Federal level. One effort, suggested by some interest groups and recommended by HUD and Treasury in the last Administration, is to include currently excluded points and fees (such as title insurance ) in the "trigger" calculation for determining whether or not a loan becomes a high cost loan. Under HOEPA (Home Owners Equity Protection Act), additional disclosures are required to be provided to consumers when a loan is deemed a "high cost" loan.
On December 19, 2000, the Federal Reserve Board issued proposed amendments to Regulation Z implementing HOEPA that maintained the current treatment of points and fees for title and closing services. This is a major victory for ALTA®, given the pressure by the consumer groups and other trade associations, including RESPRO, to include points and fees in the HOEPA test.
TIPAC, the Title Industry Political Action Committee, enhances our lobbying efforts in Washington and works to strengthen our industry and work place. ALTA® members raised $89,492.50 for TIPAC in 2000. TIPAC spent $137,531 toward congressional campaigns during the 2000 election cycle, dipping into a balance raised in prior years. Consequently, the industry was able to assist many incumbents who were friends of the industry and also support candidates who were seeking open seats. TIPAC supported 12 Senators and 76 Representatives. Overall, 92% of the members TIPAC supported won their races. The passage of the Electronic Signatures Act is a strong example of how TIPAC facilitates and enables important dialogue to take place between ALTA®'s Government Affairs department and Congress. In addition to ALTA®'s staff lobbying efforts, members participating in the Federal Conference in March lobbied to achieve inclusion in Federal legislation several provisions relating to transferrable records and notarization requirements. Rep. Jay Inslee (D-WA), a TIPAC recipient and a key House sponsor of the Consumer protection provisions of the bill, visited with the ALTA® Finance and Planning Committee last summer to discuss the genesis of those consumer protection provisions. In the end, this piece of legislation will have a lasting effect on the way we conduct business. Visits to corporate offices can also be an invaluable way to educate a member about an industry. This is particularly helpful for our industry, as we seek to change our image from an industry that has relied on paper records to one in which technology issues and investment has become a paramount concern. For example, ALTA® helped facilitate a visit by former Governor, now U.S. Senator, George Allen to the LandAmerica office in Richmond.
Outlook for the New Congress and Administration
The new Administration is just beginning to prioritize policy changes, and political appointments are being made. To date, President Bush's policy initiatives are focused on education and taxes. It is highly likely that enactment of a Bush tax bill, if it includes changes to the estate tax, and the income tax rate, will have a great effect on the title business. However, increased enforcement or changes to the major Federal statute which affects our industry, the Real Estate Settlement Procedures Act (RESPA), could also have a substantial effect. Secretary Mel Martinez, of the Department of Housing and Urban Development, which has enforcement and interpretive jurisdiction over RESPA, is just beginning to learn the department and the issues. A former litigator, and elected chief executive of Orange County, FL, his exposure to HUD programs was developed through his service on the Orlando Housing Authority from 1982-1986. ALTA®, on the basis of the Government Affairs Committee research and recommendation, endorsed Mr. Martinez' nomination as Secretary of HUD.
Mr. Martinez has outlined his mission at HUD as "good, strong, management." He is developing his list of priorities on the basis of the General Accounting Office (GAO) recommendations. GAO, a Federal Congressional "watchdog" agency, performs both financial and management audits of Federal agencies, and has made many recommendations for management improvements. While Clinton Administration Secretary Andrew Cuomo developed a plan to hire 900 employees, including additional RESPA enforcement staff, Mr. Martinez is expected to freeze that initiative. Thus, for the moment, the future at HUD is uncertain. The extended presidential election cycle, as well as the large number of contested races, delayed final organization of the House and Senate Committees.
Senator Phil Gramm (R-TX) will again be chairing the Senate Banking Committee, which has jurisdiction over RESPA. One issue on the Committee's agenda with the most relevance to the title insurance industry, is the plan for the Government-sponsored enterprises, Fannie Mae and Freddie Mac. In recent years, both have been highly criticized in the business community for expanding their activities beyond their initial charter requirements into business activities which compete with private businesses that are already meeting market needs. Chairman Gramm indicated in his initial press statement that "while no legislation is currently planned, there will be a continuing need for oversight of the activities of the government sponsored enterprises." In addition, Senator Wayne Allard (R-CO), Chair of the Housing Subcommittee has placed RESPA reform on his agenda, and specifically mentioned potential changes to mortgage disclosure during the confirmation hearings for Secretary Martinez.
In the House of Representatives, Chairman Mike Oxley (R-OH), a speaker at ALTA®'s 2000 Federal Conference, was handpicked to chair the newly established Committee on Financial Services. This new committee is the successor to the House Banking and Financial Services Committee, but has expanded jurisdiction, including securities and the exchanges, and, important to the title insurance industry - insurance.
The House Financial Services Committee also has several new Subcommittees. Chairman Richard H. Baker (R-LA), was the primary sponsor of HR 3703 the "Housing Finance Regulatory Improvement Act"—commonly referred to as the Government Sponsored Enterprise (GSE) Reform Bill—in the last Congress. He has a newly established Capital Markets, Insurance, and Government Sponsored Enterprises Subcommittee. Rep. Paul Kanjorski (D- PA), a constant title industry friend, will serve as ranking member. The new Subcommittee on Financial Institutions and Consumer Credit will be chaired by Rep. Spencer Bachus (R-AL), the major sponsor of the title industry amendment in the Financial Services Modernization legislation. The Subcommittee has announced a comprehensive review of the implementation of the Gramm-Leach-Bliley Act. Also on the Subcommittee's agenda will be hearings on consumer financial privacy. Of key interest to the Subcommitee is Electronic Signatures Legislation, and whether the financial services industry is able to provide new services to consumers without the potentially anticompetitive obstacles of outdated statutes.
Also on the Subcommittee's agenda and one of the first issues to be considered by the Banking Committees in this Congressional session, will be the issue of allowing banks to offer interest on checking to small businesses. Legislation to allow banks to pay interest has broad Congressional support, and almost passed in the last Congress. The bill provides that, effective three years from the date of enactment, banks will be allowed to pay interest on business checking accounts. If enacted this year, it is likely to have dramatic implications for the title insurance industry. It will affect current bank and title agency escrow relationships, since it would lift the current prohibition against banks paying interest on escrow funds.
The Housing Subcommitee will be Chaired by Rep. Marge Roukema (R-NJ), with Mark Green (R-WI) as Vice-Chair, and Rep. Barney Frank (D-MA) as the ranking Democratic member. Sensitive to Secretary Martinez' priorities on management of HUD, the Subcommittee plans include conducting a comprehensive review of the management reform initiatives implemented at HUD in the past five years, and possible hearings on comprehensive mortgage finance reform to address the evolution of mortgage finance for the 21st century. Their plans note that "outdated statutes" such RESPA and TILA should be reexamined. Also on the Congressional and regulatory agenda will be a review of the Federal Reserve Board's proposed rule to allow finanical holding companies to engage in real estate brokerage and management activities. As this has become a dramatically controversial proposal as it will further increase consolidation of service providers, the Federal Reserve Board has extended the normal rule comment period to May 1, 2001.
So for now, 2001 promises to be another interesting year for the title industry. Look for further updates on ALTA® legislative and regulatory issues in the Government & Agency News section of Title News. For more in depth information on ALTA® issues, visit www.alta.org and click on ‘'Government Action."
Ann vom Eigen is legislative/ regulatory counsel for ALTA®. She can be reached at 1-800-787-2582 or email@example.com.