Federal Legislation Affecting The Title Industry
Texas Land Title Institute December 2‐3, 2010
Mr. James E. Hyland The Pennsylvania Avenue Group 1101 Pennsylvania Avenue, Suite 600 Washington, DC 20004 202.756.7745 Direct 202.756.7323 Fax [email protected]
James E. Hyland, Esq.
James Hyland, 49, is native of Virginia and the Washington, D.C. area. An eighteen year veteran of Capitol Hill, he has worked in both the U.S. Senate and the House of Representatives. He has worked for Committees and in Members personal offices, giving him a wide range of experiences in Congress.
He served as a Legislative Director to two U.S. Senators, including Senator Kay Bailey Hutchison of Texas, a senior member of the U.S. Senate Commerce, Banking, and Appropriations Committees. Additionally, he was the author of the first bill in the U.S. Senate to eliminate the marriage tax penalty, a bill to criminalize church burning, and he led the effort to create the unique Breast Cancer Stamp. He also served as a defense/foreign affairs assistant to Senator John Warner (R-Va.) early in his career.
During twelve years on the staffs of the House and Senate Banking Committees, he gained an intimate knowledge of the financial services industry. He served as Assistant Staff Director to the House Financial Services Committee, and as Staff Director of the Financial Institutions Subcommittee on the Senate Banking Committee.
Mr. Hyland is an experienced attorney and has been in private practice for seven years at two of the largest law firms in the U.S, both as Counsel and Partner. The clients he has represented include corporations, trade associations, localities, States, non-profit entities, Universities, transportation companies, and financial service firms.
During his tenures in the private sector, Mr. Hyland helped secure funding for the largest defense contract ever provided by the U.S. Army in the State of Texas. Additionally, high profile successes include, procuring a federal rule requiring every passenger vehicle in the U.S. to be equipped with anti- rollover technology and banning abusive pay day lending to members of the military.
In early 2008, he formed his own firm, The Pennsylvania Avenue Group.
Mr. Hyland has a BA from George Washington University (1982) and a JD from George Mason University School of Law (1989). He is a licensed Member of the Bar in the Commonwealth of Virginia and District of Columbia, as well as the Fourth Circuit Court of Appeals. He has been married for 24 years to his wife, Elizabeth, and has two children and resides in Fairfax County, Virginia.
Current Client List The University of North Carolina at Chapel Hill Texas Land Title Association The Texas Credit Union League American Share Insurance National Association of Bankruptcy Trustees The U.S. Ship Agents Coalition The Center for Responsible Lending & Community of Self Help in North Carolina Federal Legislation Affecting the Title Industry James E. Hyland, Esq. Pennsylvania Avenue Group
The 2010 Elections & The New Congress
Major shift will impact future financial legislation.
GOP will control the U.S. House 239 to 189 (7 undecided races at this time). GOP will likely have a relatively comfortable majority.
Democrats will control U.S. Senate 53-47.
2012 elections, because of re-districting, helps GOP in the House. Many Senate Democrats up for re-election in 2012.
2010 TEXAS LAND TITLE INSTITUTE
New Banking Committee Leadership
Senate Banking/House Financial Services will be very different Committees in 112th Congress. Senator Tim Johnson (D-SD) likely new Senate Banking Chairman. Of note, the first moderate western state Democrat to serve as senior Democrat on that Committee in decades. Representative Spencer Bachus (R-AL) to serve as Chairman of House Financial Services (FSC).
2010 TEXAS LAND TITLE INSTITUTE Texas Leadership in the Next Congress on Financial Isssues
Senator Kay Bailey Hutchison likely to serve on on Senate Banking Committee again. Senator Cornyn serves on Senate Finance (tax). Representative Jeb Hensarling (Dallas) will be the fourth ranking in GOP leadership and a member of FSC. Representative Randy Neugebauer (Lubbock) will serve as Vice Chairman of FSC. Kenny Marchant (Irving) will be key Member of FSC
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Legislative Issues Past & Future
Dodd Frank Act & Implementation Future of CFPB GSE Reform Borrower’s Right to Inspect Private Transfer Fees Foreclosures
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Dodd Frank Act (DFA) &CFPB
Title X creates the new Consumer Financial Protection Bureau (CFPB) within the Federal Reserve. The Congressional purpose: the Bureau shall “implement … markets for consumer financial products and services that are fair, transparent, and competitive.” It will have specific authority to make “model” disclosures for consumer documents.
2010 TEXAS LAND TITLE INSTITUTE CFPB Objectives and Functions
An additional objective from Congress. “Consumers are provided with timely and understandable information to make responsible decisions about financial transactions.” Other functions of the Bureau “collecting, investigating, and responding to consumer complaints…collecting, researching, monitoring, and publishing information relevant to the markets for consumer financial products.” Importantly, RESPA will be transferred to CFPB.
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CFBP: Unique and Powerful
Congress insulated the CFPB.
There will be a single Director, subject to Senate Confirmation (not a Board like other agencies, FTC, SEC, etc.) The term will last five years.
An effective date for the new CFPB will July 2010. The CFPB will reportedly have a potential budget of $800 million. It will not be subject to annual appropriations, limiting annual Congressional influence.
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CFPB Offices
The CFBP will have a large institutional structure, by statute.
It will have the following divisions: Fair Lending; Service Members; Financial Education; Older Americans; Minority and Women Inclusion. It will also have two “units” – Research and Community Affairs. Community Affairs will provide “information, guidance, and technical assistance (for) consumer financial products or services to traditionally underserved consumers and communities.”
A National Consumer Hotline/Website will be established. Calls can be routed to state regulators.
2010 TEXAS LAND TITLE INSTITUTE Title Insurance Under the CFPB
Title insurance is not considered a “financial product” (specifically removed by the House and Senate from the Obama Administration’s original proposal).
The term “financial product or service” does not include– “the business of insurance or electronic conduit services.” But, settlement services is considered a financial product, yet is not defined in the bill.
At the request of TLTA, in the Act, settlement services will not include the “business of insurance” and the Committee summary of the change, stated: “further clarifies that title insurance is not covered by the CFPB.” 2010 TEXAS LAND TITLE INSTITUTE
New RESPA and TILA Disclosures There will be a new RESPA/Truth in Lending (TILA) rule in the extended future.
Section 1032 of the DFA specifically authorizes “rules and model disclosures that combine the disclosures required under the Truth in Lending Act and sections 4 and 5 of the Real Estate Settlement Procedures Act of 1974, into a single, integrated disclosure for mortgage loan transactions covered by those laws..”
CFPB is actively working on this now.
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CFBP Enforcement
The CFPB will have its own enforcement authority. In most cases, the CFPB will conduct enforcement through cease and desist authority. CFPB will have the authority to seek civil penalties in federal court. Before doing so, however, the CFPB will have to notify the State Attorney General and coordinate their litigation.
The CFPB can levy large civil penalties, through Court action. As low as $5,000 a day for civil violations, but up to $1 million for “knowingly” violating statutes, rules or orders. There will be mitigating factors and procedural safeguards.
2010 TEXAS LAND TITLE INSTITUTE State Law & CFPB
State Authority Preserved. DFA does not pre- empt state law, except if the law, rule, etc., is inconsistent with the provisions of the federal statutes or rule -- and then only to the extent of the inconsistency.
State Attorneys General and regulators can enforce CFPB rules. The new agency will issue regulations on such coordination. Of note, States can pro-actively seek CFPB.
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Mortgage Reform Under the DFA
Title XIV of the bill makes major changes to the mortgage market. “It is the purpose of this section … to assure that consumers are offered and receive residential mortgage loans on terms that reasonably reflect their ability to repay and that are understandable and not unfair, deceptive or abusive.” Most provisions will take effect within 18-30 months from July 2010. Mortgage originators must be licensed and all loan documents must include the unique identifier under the Nationwide Mortgage Licensing System and Registry.
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Ban on Yield Spread Premiums
The bill prohibits financial incentives (including payments known as ‘‘yield spread premiums’’) that steer consumers to higher-cost mortgages.
In addition, the bill prohibits prepayment penalties for any adjustable rate mortgage and other mortgages that do not meet the definition of “Qualified Mortgage.” The bill bans single premium credit insurance. Generally, the bill prohibits mandatory arbitration clauses.
2010 TEXAS LAND TITLE INSTITUTE High Cost Mortgage Protections
DFA expands protections under “high cost mortgages.” (Generally defined as any loan with 5 percent total fees, excluding third party charges, and generally 6.5% above prime offers).
For high cost loans, it prohibits financing of points and fees; excessive fees for payoff information, modifications, or late payments; and, practices that increase the risk of foreclosure, such as balloon payments and call provisions.
Requires a “risk retention” rule for loans securitized.
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“Ability to Repay” Excludes a “Qualified” Mortgage
DFA sets minimum standards for mortgages by requiring lenders to establish that consumers have a reasonable ability to repay a mortgage, however, the bill provides that certain loans (defined as “Qualified Mortgages”) are presumed to meet this standard.
A qualified mortgage will largely be defined by regulations issued by the Federal Reserve.
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“Qualified Mortgage” Defined
In statute, a “qualified mortgage” means a documented ability to repay; excludes interest only loans or where principal can increase; for ARM’s, the payment ability is amortized 5 years; all taxes and insurance are included in payment ability; no balloon payments twice as large as the final payment; points and fees do not exceed 3% of the loan and bona fide third party fees are not included in the fees calculation)
The Federal Reserve Board will develop exceptions for small loans, and assess the impact of this on rural areas.
2010 TEXAS LAND TITLE INSTITUTE Appraisal Reform
Under the new law, lenders must provide mortgage applicants with copies of any and all written appraisal reports in connection with a mortgage at least 3 days before the scheduled closing date.
The bill further creates enforceable Federal appraisal independence standards that prohibit the parties involved in a real estate transaction from influencing the independent judgment of an appraiser through collusion, coercion, and bribery, among other activities. Requires new regulations from the CFPB and banking agencies.
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Misc. Issues for Mortgage Transactions
The bill requires the CFPB to update the Mortgage Information Booklet to provide consumers with a greater understanding of the terms of the home buying process. It must be updated every five years thereafter.
Additionally, it requires increased information to consumers about the need for home inspections and avoidance of foreclosure scams.
Directs the HUD Secretary to develop software to allow consumers to comparison shop for mortgages.
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New Federal Office of Insurance Created
The DFA will establish a Federal Insurance Office in the Department of the Treasury. This is widely considered to be the first step in a national insurance charter process, particularly for life insurance.
The Office will gather information about the insurance industry, including access to affordable insurance products by minorities, low- and moderate- income and underserved communities. The Office will also monitor the insurance industry for systemic risk purposes, and will serve as a uniform, national voice on insurance matters for the US in the international market.
2010 TEXAS LAND TITLE INSTITUTE A Newly Created Financial Stability Council
The Financial Stability Oversight Council will be made of 10 federal financial regulators and five non-voting members, one of whom will be a state insurance regulator. (John Huff of Missourit). The Council will make recommendations to the Federal Reserve for rules on capital, leverage, liquidity, risk management and other requirements as companies grow in size and complexity, with significant requirements on companies that pose risks to the financial system. It will have authority to regulate nonbank Financial Companies. It can break up large and complex companies– but only as a last resort.
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Other notable provisions in DFA
Permanent deposit insurance increase to $250,000 per account. Repeal of Reg Q in one year, thus, banks can pay interest on demand accounts. FDIC can guarantee debt of still solvent banks to prevent runs.
Consumers can get a free credit report if their score affects them in a financial transaction or hiring decision.
Abolished the Office of Thrift Supervision, but preserves the thrift charter. Now regulated by the OCC.
Federal Reserve rule on debit fees paid by retailers. New disclosure rules on remittances to foreign countries.
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Impact on General Business from DFA
Tighter credit could result. Companies will have to adjust to a myriad of new rules and regulations. As a result, compliance costs will increase.
Large companies will have to weigh the new impact of lending to each other against the new Orderly Liquidation Authority (OLA). The FDIC will have the ability to seize control of a company whose imminent collapse could threaten the financial system. This will be outside the scope of traditional bankruptcy.
2010 TEXAS LAND TITLE INSTITUTE General Business Impact, cont.
Larger banks will pay more in FDIC insurance costs, and costs to recapitalize the FDIC, possibly reducing their earnings, thus, minimizing credit.
Banks will likely increase miscellaneous fees on business customers. Why? Debit card revenue could be reduced because of new regulations on interchange fees.
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General Business Impact, cont.
Regulation Q has been repealed. While industry can earn funds on interest business checking accounts, revenue will likely be recouped in other areas. Some good news for smaller companies. The Sarbanes Oxley requirements for outside auditor attestations have been modified for small companies – “non accelerated filers” below $75 million and possibly $250 million. Executive compensation, golden parachutes, and executive bonuses will have more scrutiny at publically traded companies. There will be mandatory “say on pay” votes.
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Summary of the DFA for the Title Industry
Title insurance will not be regulated by the CFPB. The title insurance function of settlement services is not in the scope of CFPB. There will be new RESPA changes and a new HUD 1 proposal. Key will be disclosure in simplified form and timeliness. Small step in the direction of a federal insurance charter. Major mortgage changes coming. Lenders will want to be making “qualified” mortgages.
2010 TEXAS LAND TITLE INSTITUTE But that is not all !
A Major fight in Congress over the future of Fannie Mae and Freddie Mac is coming in 2011 and will affect the housing markets!
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Future of Housing Government Sponsored Enterprises (GSEs)
The Dodd Frank Act (DFA) calls for a Treasury Department Study on the future of housing finance to be delivered to Congress in January 2011. The new GOP Majority in the House will be anxious to begin action on reform, since Fannie and Freddie were not part of DFA.
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GOP vs. Obama Administration
Cong. Jeb Hensarling (R-Tx) introduced H.R. 4889. The bill would wind down the operations of Fannie and Freddie and eliminate their charters within 5 years. Senator Tim Johnson (D-SD) has yet to give his own views, but wants to work in a bi-partisan fashion. U.S. Treasury thoughts outlined on August 17, 2010, when Secretary Tim Geithner stated: “We will not support returning Fannie and Freddie to the role they played before conservatorship, where they fought to take market share from private competitors while enjoying the privilege of government support.”
2010 TEXAS LAND TITLE INSTITUTE Obama Sees Role for Govt. Guarantee in the Housing Market
However, Secretary Geithner went on to say:
“As I have said in the past, I believe there is a strong case to be made for a carefully designed guarantee in a reformed system, with the objective of providing a measure of stability in access to mortgages, even in future economic downturns. “The challenge is to make sure that any government guarantee is priced to cover the risk of losses, and structured to minimize taxpayer exposure. ”
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What’s Next for GSE’s?
This is, at least, a two year process on legislation.
Urgency derives from projected losses at Fannie and Freddie. Currently $226 billion and rising.
ALTA and TLTA are working on a strategy to protect the role of title insurance. Likely the need for an independent standard setting entity.
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Other Issues at the Federal Level
Borrowers Right to Inspect Private Transfer Fees Foreclosures
2010 TEXAS LAND TITLE INSTITUTE Borrowers Right to Inspect
Borrowers Right to Inspect. H.R. 4229. Outlook unclear in the next Congress. ALTA supports this bill. What does it do? Requires the lender to furnish all relevant documents (defined in the bill) to the settlement agent, at least four business days before closing date. Requires the settlement agent to furnish the borrower the same, at least three business days before the settlement date. Shields the settlement agent from liability for the lender's noncompliance with this Act.
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Private Transfer Fee Covenants
Competing legislation in Congress. H.R. 6220, introduced by Rep. Waters (D-Ca.) would ban such fees, but for non- profits. H.R. 6332 by Rep. Gingrey (R-Ga.) would require disclosure. The Federal Housing Finance Agency (FHFA) is proposing to issue a Guidance to Fannie Mae, Freddie Mac, and the Federal Home Loan Banks that they should not deal in mortgages on properties encumbered by private transfer fee covenants. Issue is new at the federal level. Unclear what action Congress will take. FHFA will likely promulgate a rule.
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Foreclosure Issues
Hearings in Congress in mid November. Expect more hearings next year, even Sen. Shelby (R-Al), ranking Republican on Senate Banking has asked for more. While the issue has generated attention, it is not likely that Congress will act legislatively anytime soon because there is no consensus. For the title industry, at ALTA’s urging, Fannie and Freddie have directed servicers to “take actions as may be required to ensure that title insurance is available to the purchaser for the subject property in light of the facts surrounding the foreclosure actions.”
2010 TEXAS LAND TITLE INSTITUTE Conclusion
The Dodd Frank Act (DFA) does not regulate title insurance, but the powerful new agency will have a long reach. DFA will change the mortgage marketplace significantly. Title industry will be affected by the changes and new RESPA disclosures. DFA marks a small beginning to federalization of insurance. Coming GSE changes could alter housing finance system permanently. Title insurance must secure its role in any new system.
2010 TEXAS LAND TITLE INSTITUTE