ALTA® Update: RESPA\TILA Reform, April 6, 2000
April 6, 2000
Members of the American Land Title Association (ALTA) ask Congress to reject changes to the Real Estate Settlement Procedures Act (RESPA) and Truth in Lending Act (TILA) that limit consumer choice of real estate settlement services and provide exemptions from RESPA?s anti-kickback provisions for "bundled" or "packaged" services. While "packaging" of loan settlement services presently occurs in the marketplace, some proposed changes, coupling exemptions from referral fee prohibitions and liability, could limit consumer choice and destroy the availability, quality, and price of real estate services. (For background, see ALTA Testimony before Congress: 1) Louis c. Meyer, jr., President NIA/Lawyers Title Agency, LLC. on Behalf of ALTA Sept. 16, 1998 and, 2) Joseph M. Parker, Jr. President Parker Title Insurance Agency, Inc.on Behalf of the American Land Title Association, July 9, 1997.)
Consumers are now more sophisticated shoppers for mortgage credit and other real estate services than the consumers RESPA and TILA were designed to protect. Falling interest rates promoted residential sales and refinancing, and technology has not only facilitated consumer access to information on price and service, but changed the delivery of services. Therefore RESPA and TILA no longer fit the real estate industry. The title industry, consumer groups, and lenders are developing reforms, and HUD and the Federal Reserve System have devised some options. One proposed solution effectively mandating "packaging of settlement services" by lenders, could, particularly in the sale market, dramatically limit consumer?s access to and choice of services. (See July 17, 1998 joint HUD-Federal Reserve report for background on this issue)
Preventing Consumer Choice:
Mandatory packaging discourages shopping. A recent Gallup poll shows that almost 50% of consumers now personally shop for settlement services such as owner?s title insurance. However, packaging of loan settlement services can limit consumer choice when a consumer believes he might not get mortgage credit unless he purchases the provider?s settlement services.
"Blind" packages also discourage comparison shopping. Many packaging proposals deny the consumer information about the specific services, providers, or prices that make up the settlement package. Consequently, consumers cannot make an "apples to apples" comparison.
Destroying Real Estate Services:
Packaging of settlement services can be anti-competitive; can lower the quality of service and the number of service providers; and may not result in decreased costs to the consumer. An exemption from Section 8 of RESPA allowing packagers to charge consumers a fee for packaging would institute a new charge. Packaged service providers would have to compete to get into a limited number of packages, and might be forced to cut back the service they provide if packagers force down costs. Small businesses might not be able to compete at all. Even if packagers demand lower charges from service providers, discounts may not be passed on to consumers. Moreover, for regulated services, where packagers can?t negotiate a lower cost, a Section 8 exemption would invite solicitation of kickbacks and referral fees with no benefit to consumers.
Inhibiting Developing Technology:
Schemes effectively mandating bundling of services could hinder development of more efficient markets. Internet marketing for mortgages and ancillary services exists, automated loan machines dedicated to mortgages are in operation, and technology may soon provide new channels. Packaging may discourage development of other alternative delivery systems.
For additional information please contact Ann vom Eigen, ALTA Legislative Counsel, at 202-296-3671, ext. 233 or email@example.com