Somewhere David Stevens is Smiling

Posted on December 2, 2011 by oaita

Do you remember David Stevens? 

He was the former CBA all-star for Long and Foster Realty and before that with Wells Fargo Mortgage.  In 2009, President Obama tapped him — much to the chagrin of those who care about the title insurance industry — to run FHA under current HUD Secretary Shaun Donovan.  The Stevens nomination was contested when it was learned that Stevens’ former employer was allegedly involved on the wrong side of a RESPA class action suit.  Stevens managed to get nominated several months later despite the opposition.

Stevens ran FHA for less than two years.  His tenure was gloriously summarized in this Washington Post piece back in April, 2011.  In essence, he had a tough job that required an industry insider to massage for a few years.  It is especially noteworthy that HUD Secretary Shaun Donovan was quoted talking about Stevens’ tenure in this way back in April of 2011:

“His leadership at a historic time for FHA has not only contributed to a renewed sense of confidence in the FHA, but also a restored trust in government and what it can do.”

Let’s be honest, though.  He did what he did, unremarkably, and then realized that he was the short-term captain of the RMS Titanic and then quit to take a job as CEO of the Mortgage Bankers Association (the trade organization that strategically defaulted on their own DC HQs; a fact hilariously satirized in 2010 on the Daily Show).  If you don’t remember that segment, we can’t let ignorance stand in the way of good comedy.

 

Anyway, fast forward eight months to today’s article in the Wall Stree Journal.  According to Democrats and Republicans on the House Financial Services Committee, it appears that FHA is on the verge of the next publicly-funded “bailout” because it is undereserved and will soon “run out of money”.

“FHA is likely a disaster in the making,’ said Rep. Jeb Hensarling (R., Texas). “If we’re not careful, it may even become Fannie and Freddie, the sequel.”

Apparently the shelf life on restoring confidence in the FHA lasts no more than eight short months.  One wonders what hyperbolic, overly-sunny language HUD Secretary Donovan wants to use to describe FHA or Mr. Stevens’ work as today?

Meanwhile, somewhere Stevens is breaking his arm patting himself on the back for one of the greatest escapes this side of Houdini.  Which reinforces the fact that referral sources never end up without a chair when the music stops.  Ever.

Posted in Uncategorized | Leave a comment

The Story of Pariahs and Fungible Services: What the Supreme Court’s Comments Say About Title Insurance Providers

Posted on November 29, 2011 by oaita

Earlier, we posted a link to the transcript for the Edwards v. First American Title case heard in oral arguments today before the United States Supreme Court.  The transcript is a fascinating read, if anything, to illuminate the nearly irrefutable truth that no one appreciates the work of a title insurance agent.

No one.

At one point during today’s oral argument, Justice Alito, while questioning First American’s counsel, said the following:

JUSTICE ALITO: So you could — the plaintiff could allege some kind defective service at the time when the title insurance was purchased? There really is no service provided at that time, is there? (Emphasis added).

MR. PANNER: Actually, most -

JUSTICE ALITO: You get a title insurance policy and that’s it; and you don’t know whether — you don’t know what will happen if there is some problem alleged with the title at some point down the road. (Emphasis added).

In actual practice and more than likely not known to Justice Alito is the fact that the curative title process is what separates title insurance from all other forms of insurance.  The curative title process is that inconvenient and, apparently, insignificant little nothing that he casually dismisses above. 

To help our readers and those who may still care, curative title work is a big deal.  Rather than attempting to minimize risk in a fashion similar to casualty insurers, title insurers seek to outright eliminate risks by performing a myriad of important, time-consuming processes prior to the actual real estate closing.  The premium, and to a lesser extent the other non-premium charges related to a settlement, are the fruits of this labor.  Unfortunately, as the Court’s research points out, there are those who — even today — clearly lack any meaningful understanding of the job performed by a title insurer and its agents.

Sadly, one side of this debate from within the title insurance industry (ALTA v NAILTA) is going to end up with Justice Alito in their corner and will likely celebrate that fact as though it vindicates their position on the title insurance industry.  However, hearing comments like Justice Alito’s only underscores a deeper failure that exists in our industry, win or lose:  we still do a lousy job explaining what title insurance professionals do for the premium.  

If Justice Alito is in the camp that would support First American’s and ALTA’s position on Article III standing (i.e. one must show an overcharge or other financial injury to have standing to sue under RESPA), it would apparently be premised upon a belief that the title insurance agent or insurer really does nothing to support the premium charge — a dangerous precedent to say the least.   

And win or lose, no one who claims to care about the title insurance industry can celebrate that fact.

But it continued today.

Consider this exchange shortly after the Justice Alito reference above:

MR. PANNER: Well, that’s really — the -the risk of that is really on the title insurer, which is why the title insurer has no incentive whatsoever to encourage poor service by a title insurance agent. (Emphasis added).

If a title insurer can encourage title agents to adopt lesser title search and underwriting principles in order to improve the timing and profitability of closing real estate transactions, both direct and indirect, a title insurer would most definitely have an incentive to encourage title insurance agents to engage in “poor” services.  First American’s argument rings especially hollow when one considers the prevalence of “current owner” search standards from national title underwriters like the Petitioner and the dramatic increase in claims/loss ratios felt during the same timeframes.  We wish those facts were not true, but they are.

However, there was one Justice who either knew about these factors or who read the NAILTA amicus brief  which made an important and inescapable point: 

JUSTICE KENNEDY: Well, that — that leads me to this point. I thought — I never thought of title insurance companies as being fungible, and some were very, very good about narrowing the exceptions, about working with the seller of the property, if you represented the buyer, to get rid of the exceptions. And so I’m not sure that it’s just a question of a policy versus no policy. There’s a — there’s a quality to the — to the research they do. And the next — and related to that is this: you — you put the case as if the price is going to be the same for the insurance. A, I think there is nothing in the — in the State law that permits the insurance company to get — to set a lower rate; and second, don’t the title companies charge other fees, title search fees and so forth, other fees in addition to the price of the insurance? And those other fees, arguably — I know she didn’t allege any damage — but those other fees arguably are too high because of this fixed market.

Bingo, your Honor.  There is quality to the service of an untainted referral.  There is no incentive to take rates lower when the biggest companies control the rating process and the competition.  And whether Edwards pled it or not, the non-title insurance premium charges are higher because of the fixed market.

Bingo on all counts, Justice Kennedy.  That is the damage that Congress sought to prevent.

We were happy to read that ALTA was particularly pleased, as we were, with Justice Kennedy’s Eureka-moment during oral argument today.  ALTA CEO Michelle Korsmo, who attended today’s oral argument, was quoted as follows:

 ”The highlight of the argument was Anne [Anastasi] nearly breaking out in applause after Justices Kennedy and Scalia, in response to a statement by Justice Alito that title companies were fungible, explained the value of the curative process.”

While not an official record, yet, the transcript of today’s oral argument is the proper reference on a few inaccuracies.  First, Justice Alito did not say title companies were “fungible,” it was Justice Kennedy who said it and he was making the opposite point.  Justice Alito basically said title agents do not perform any service in conjunction with the issuance of a title insurance policy, a point Justice Kennedy was trying to refute.  Second, we could not find any reference made by Justice Scalia in the transcript where he explained the value of the title curative process.

We enjoy Justice Scalia’s sardonic wit on the bench (which he exhibited several times in the transcript) but we were unable to ascribe support for the curative process where there was none given.  Perhaps, we missed something?

In any event, ALTA’s point is fundamentally correct, but not for the reasons they would have you believe.  It is good that Justice Kennedy helped the Court understand the value of a title insurance agent and the curative process, even though his point was actually made as a refutation to Justice Alito who is likely to side with ALTA and First American when the case is decided in the Spring of 2012.   We think they get the point, but one can never be too sure.  After all, ALTA was ready to applaud Justice Kennedy for pointing out the common inequity supported by ALTA.

The Supreme Court’s understanding of the value of title insurance providers is incredibly telling and indicting.  Regardless of outcomes, there is much ground left to cover to help the public understand what we do.  The question is whether there is anyone left who really cares to tell that story, whether it benefits their economic interests or not.

Posted in AfBAs, class action, controlled business arrangement, RESPA | 2 Comments

Edwards v. First American: Oral Argument Transcript Now Available

Posted on November 28, 2011 by oaita

To those interested in reading how today’s oral argument in the Edwards v. First American case at the U.S. Supreme Court went, the transcript is now available here!

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Geauga County, Ohio Sues MERS in Statewide Class Action

Posted on October 19, 2011 by oaita

Regardless of what the MERS proponents keep saying (i.e. there’s nothing wrong with MERS), more litigation keeps piling up.  This time the litigation is local to Ohio.  Here’s a snippet of a press release that has circulated the wires over the last few days:

“Bernstein Liebhard LLP, a New York  City class litigation firm, with David P. Joyce, Prosecuting Attorney for Geauga County, Ohio, announced that a lawsuit has been filed in the Geauga County Court of Common Pleas by Plaintiff Geauga County, on behalf of itself and all other Ohio counties, (the “Class”) against MERSCORP, Inc., Mortgage Electronic Registration System, Inc. (“MERS”), and MERS’s members (collectively, “Defendants”).

In the class action complaint, Plaintiff Geauga County, on behalf of itself and all other Ohio counties, alleges violations of Ohio state law arising from Defendants’ failure to record intermediate mortgage assignments in, and pay the attendant county recording fees to, Ohio county recording offices. In failing to record, Defendants systematically broke chains of title throughout Ohio counties’ public land records by creating “gaps” due to missing mortgage assignments they failed to record, or by recording patently false and/or misleading mortgage assignments. Defendants’ purposeful failure to record has eviscerated the accuracy of Ohio counties’ public land records, rendering them unreliable and unverifiable — damage to public land records that may never be entirely remedied.

As a result, the Class seeks declaratory and injunctive relief, as well as damages, to remedy Defendants’ persistent, and purposeful, failure to comply with Ohio’s legal requirement to record mortgage assignments in the proper county recording office. In doing so, Defendants avoided paying the attendant county recording fees as required by Ohio state law. Ohio’s recording laws have been in place for nearly 200 years.

The case is captioned State of Ohio, ex rel. David P. Joyce Prosecuting Attorney of Geauga County, Ohio v. MERSCORP, Inc., et al., No. 11-M-001087.”

In response to the lawsuit, MERS representatives have stressed that there is nothing illegal or faulty about their registration system.

A copy of the complaint is now embedded below:

 

State of Ohio v MERS and Banks

Posted in MERS, mortgage electronic registration systems | Leave a comment

NAILTA Files Amicus Brief in U.S. Supreme Court

Posted on October 19, 2011 by oaita

The National Association of Independent Land Title Agents (NAILTA) filed an Amicus Brief in the Edwards v. First American case currently pending in the U.S. Supreme Court.  The brief is filed in support of Denise Edwards, the Respondent, a consumer who closed a real estate transaction in Cleveland, Ohio with the Petitioner, First American.  A copy of the brief is embedded below.  Oral arguments for the case are set for November 28, 2011.

 

NAILTA Amicus - Edwards v. First American

Posted in CBA, RESPA, title insurance, title insurance; kickbacks | Leave a comment

FHFA Inspector General Slams Fannie Mae for Shielding Foreclosure Mill Abuses From Regulators

Posted on September 23, 2011 by oaita

Another excellent piece from the fine folks at Source of Title who inform us that:

In 2005, Fannie Mae was tipped off by an shareholder that foreclosure firms were engaged in abusive and illegal practices. It hired a law firm, Baker & Hosteller LLP, to look into the matter. When Baker & Hosteller issued its report in May 2006, it confirmed the allegations of abuses and illegal practices at the foreclosure law firms, including the creation of false affidavits containing misrepresentations about how loan documents had been lost. But despite this, Fannie Mae did little or nothing to stop the abuses until years later. “Fannie Mae did not take steps to ensure the quality of its foreclosure attorneys’ conduct, the legal positions taken in the attorneys’ pleadings, or the manner in which the attorneys processed foreclosures on the Enterprise’s behalf,” according to the recent Inspector General report.

The Baker & Hosteller report also revealed that some officials within Fannie Mae were aware of the foreclosure abuses as early as 2005. This clearly showed that fraudulent affidavits were used to cut corners in many foreclosures even at a time when few foreclosures were occurring. Despite this, foreclosure law firms would later claim that these kinds of abuses only occurred because of the crushing workload they incurred due to the foreclosure crisis.

While there has been much recent attention paid — and rightly so — to the MERS component of the foreclosure crisis, it appears that there were a number of law firms across the United States that were engaging in questionable foreclosure-related practices to enhance the volume and efficacy of foreclosures without the proper paperwork.  These events were allegedly happening even before the foreclosure crisis hit its stride in 2008 and 2009. 

Representatives from foreclosure firms in Ohio suggest that these “problems” are nothing more than ”technical” and have little bearing on whether the mortgagors paid their mortgage, etc.   While probably true, the greater problem overlooked by that narrow view is the fact that the Court’s have always entrusted the bar with the faith that the documents presented in court were, in fact, true and accurate copies of the original instruments and properly executed in all respects.  News that foreclosure firms were short-cutting the procedural elements of a foreclosure does little to engender confidence that the problem wasn’t even bigger during the highwater mark of the foreclosure crisis.  Not unlike our system of banking, our legal system and its procedural safeguards are built upon trust and confidence.  Lose both and the result is more than just “technical”.

Further, Fannie Mae and Freddie Mac — both shareholders in the MERS product — are heavily involved in the selection of and continued work with their foreclosure mills (i.e. those law firms that exclusively handle Fannie and Freddie related mortgage foreclosures).  To find out that an investigation uncovered actions suggesting that one of these GSEs hid potentially damaging information concerning the foreclosure practices of its approved foreclosure mills is also more than “technical,” it may be criminal.

Surely more on this to come.

Posted in foreclosure | Leave a comment

National Title Underwriters, RESPRO and the “Referral Source” Amici File Amicus Briefs in Edwards

Posted on September 15, 2011 by oaita

In addition to ALTA’s amicus brief in the Edwards v. First American case currently pending in the United States Supreme Court, there were other amicus brief filings in support of First American including the following:

  • Stewart Information Services Corporation (Stewart Title)
  • Fidelity National Financial, Inc.
  • Old Republic National Title Insurance Company

 Stewart Amicus

  • Real Estate Services Providers Council, Inc. (RESPRO)

 Respro Amicus

  • American Bankers Association
  • American Escrow Association
  • Community Mortgage Banking Project
  • Consumer Bankers Association
  • Consumer Mortgage Coalition
  • The Financial Services Roundtable
  • Housing Policy Council
  • Mortgage Bankers Association
  • National Association of Realtors

 

Posted in Uncategorized | Leave a comment

What a Difference Thirty Years Makes?

Posted on September 7, 2011 by oaita

In 1980, ALTA’s President expressed the position of ALTA concerning controlled business arrangements as follows:

[C]ontrolled business arrangements “are as harmful as the payment of outright kickbacks prohibited by Congress under Section 8 of RESPA.  [T]he American Land Title Association clearly and unequivocally opposed controlled business arrangements, and HUD should issue regulations to eliminate the problem.”

In 2011, ALTA filed an amicus curiae brief in the United States Supreme Court supporting the position that says the following concerning controlled business arrangements:

The business arrangements that [the consumer] alleges violate RESPA are decades old, widespread, and exceedingly popular. If they are found illegal even where they do not harm consumers at all, let alone in any tangible way, the primary effect will be to raise costs and lower quality industry-wide, counterproductively causing precisely the effects Congress intended to prevent with RESPA.

History is often times an inconvenient record that tarnishes the selective agenda of the present.  Clearly, ALTA is no stranger to this fact.  Thirty years ago, controlled businesses of any kind were unequivocally harmful for the title insurance industry and were deemed so bad that they were to be “eliminated”.  Today, those same arrangements are considered by ALTA to be “widespread and popular” within our industry.  So widespread and popular that the self-proclaimed voice of the title insurance industry now finds it part of its moral imperative to save them at all costs — lest we risk raising the costs of our premiums and lowering the quality of our title insurance product.

Their words, not ours.  The turnabout is simply amazing — and potentially embarrassing for ALTA.   

In case you have not read ALTA’s amicus brief, a copy of it is embedded below.  Several themes stand out from the brief: (1) Article III standing; (2) injury-in-fact analysis; and (3) the industry’s “we-are-too-big-to-be-undone” salvo.

It is the latter of the three that troubles the rational mind. (Leave the others for the lawyers to figure out) 

To support its amicus, ALTA argues that controlled business arrangements — especially those in which larger national underwriters purchase minority interests in smaller title insurance agencies in exchange for the exclusive referral of all of their settlement business — are good for consumers AND good for small business owners.  Why?  Because it gives small business owners the access to necessary capital that it might otherwise require to stay in business. 

Hold that thought, though.

Not only that, ALTA also argues that undoing the alleged harm of the controlled business arrangement would be expensive and harmful to the participants who allowed them to flourish in the first place.  All of this coming from the same organization that thirty years prior argued vehemently to Congress of the harmful evils they represent.  It is a strange and inconsistent history. 

The new ALTA gospel says “controlled business arrangements could be illegal, but since they are so widespread and harmful to undo, they must not be undone because the harm to the small businesses (that ALTA does not really represent) would be too great”.  Again, a strange and inconsistent argument when viewed with the prism of history.

One must dispense with the obvious at this point.  ALTA is the trade organization for the title insurance industry which by its own account created nearly $10 billion dollars in operating revenue in 2010.  Nearly 90% of that sum was constituted by four national title insurance underwriters — all with a vested interest in the outcome of the Edwards suit.  To characterize these statistics as proof that ALTA is the champion of small business is to throw the definition of a “small business owner” or an “independent title agent” on its head and argue that there is no material difference between General Electric and Bob’s General Store.  Preferring not to do that in this post, it must be assumed that ALTA is making its amicus position in order to protect the largest contributors to its cause — the national title insurance underwriters — who by any measure are not small businesses and by ALTA’s own measure are billion dollar entities. 

Under ALTA’s public policy argument expressed in the Edwards brief, the law is only meant to be observed if the malfeasor is caught shortly after the beginning of the illegal act and only if the CBA ingratiaties itself with relatively small amounts of money.  The ALTA amicus argument goes further and implicitly constructs a corollary that if a CBA engorges itself over time with large amounts of money — as is the case with the numerous CBAs now actively sponsored by ALTA and its four largest members – and outlasts what can only be described as historically weak state and federal regulatory enforcement for a sufficient period of time (i.e. 10 – 20 years), the CBAs and their benefactors should be rewarded with a free pass from legal scrutiny.  In other words, “too-big-to-fail” all over again.

The record is clear that ALTA never pushed this argument when RESPA was designed in the 1970′s and later modified in the 1980′s.  With the growth of the national underwriters over that timeframe, the convenience of this argument is now too good to pass on. 

Does ALTA really believe that there are those who are too big and too powerful for the law’s reach and should therefore be rewarded for their efforts by having the law not apply to their business arrangement?  As a small business owner, this position is as insulting as it is illogical.  Yet, there it is being presented as the new policy maxim for the direct consumption of the highest court in the United States.  Think about the potential consequences of this argument beyond title?  It is huge.       

Now going back for a moment on the argument ALTA made in the amicus to show how these arrangements are good for small business owners, one needs to ask a simple question.  How many starving ”Mom and Pop” title insurance agencies do you know that received $2 million dollars in cash and national title insurance underwriter stock in exchange for a minority share and an exclusive agency agreement in the last year?  2 years?  5 years?

ANSWER: None. 

Missing from ALTA’s rather hollow argument about serving the needs of small business is the fact that these captive title insurance agency agreements, which are at issue in the Edwards case, are not made with small businesses (i.e. those who close 10-50 orders per month).  Rather, they are made almost exclusively with only the largest competitors in any particular title insurance market.

The title insurance agency at issue in Edwards was arguably the largest title insurance agency operating in Cleveland, Ohio at the time of the agreement and was anecdotally closing 500-700 mortgage transactions per month.  There was no cash crunch or Depression-era bread line at issue in the Edwards case.  No sad kitchen table scenes with husband and wife figuring out how they were going to make ends meet.  Instead, First American wanted to tie up the biggest title insurance agency in Cleveland, Ohio, wanted to keep other national title insurance underwriters from doing the same thing and paid a hefty ransom to make it happen.  Plain and simple.  Any characterization that title insurance underwriters sought charitable motivations for these captive title insurance agency agreements other than buying market share is not a credible statement in any way.

The fact that ALTA would try to frame the reasons why these captive agreements were allegedly good for small business owners by using today’s poor market conditions is a questionable tactic.  Today’s business climate is wholly unlike the climate five years ago or even ten years ago.  If the national underwriters really believed in that argument, they would be grabbing small title insurance agencies up by the scores in today’s market.  Surely, in today’s poor market, the asking price for capital infusions would be a true buyer’s market.  Yet, where are the national underwriters?  They aren’t buying up small title insurance agencies.  They are cutting them off by the hundreds.  Canceling appointments.  Selling off interests.  Divesting themselves of the overhead.  To argue that these arrangements are good for small business owners and provides them with an important option to their survival is shockingly erroneous.

But in the end, up is down in the title world.  Black is white.  What was once the great evil is now the great savior.  And as long as no one questions why, the largest market participants will continue to degrade the quality of the title insurance industry in order to maximize profits and hasten the further consolidation of our greatest asset — the value of our land title records.  ALTA can do good things for national underwriters and, by proxy, the title insurance industry.  The argument it is making in Edwards is not one of them.

And because they probably paid a ton of money for their lawfirm to write this Brief, you should probably read it and decide for yourself.       

ALTA’s Amicus Curiae Brief in Support of First American (Edwards v. First American – U.S. Supreme Court Case)

Posted in Uncategorized | 2 Comments

RESPRO Goes the Full George Orwell to Support Stance on QRM

Posted on August 18, 2011 by oaita

Credit the Real Estate Services Providers Council (RESPRO) for their consistent use of Orwellian-like propaganda.

On August 1, 2011, RESPRO submitted their written testimony concerning the Credit Risk Retention Rule found in Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the Dodd-Frank Act).  This is the same subject known by normal human beings as the Qualified Residential Mortgage (QRM) rule.  RESPRO’s target in the QRM proposal is the 3% “points and fees” threshold that federal regulators propose to adopt as part of the QRM definition in their Risk Retention regulation.  RESPRO says the rule unfairly discriminates against the affiliated business model to the detriment of consumers and the mortgage marketplace.

According to RESPRO, Title XIV of the Dodd-Frank Act provides that a mortgage loan would not be a qualified mortgage if the total “points and fees” paid by the consumer in the transaction exceed 3% of the loan amount.  In determining what “points and fees” are included in the 3% threshold, the Act uses the “points and fees” definition found in the Home Owners and Equity Protection Act (HOEPA), which counts fees retained by a mortgage lender’s affiliated company towards the 3% threshold, but not fees paid to a third party.  RESPRO is lobbying hard to get the Fed to except CBAs from the “points and fees” class because:

“[I]f the regulation takes effect as proposed, companies with affiliated mortgage and title operations will withdraw from either the mortgage or title markets in certain marketplaces throughout the country, particularly low-income and low-middle income marketplaces, which will reduce competition in these marketplaces and thereby reduce the affordability of mortgage credit.”

Hopefully, you weren’t drinking your coffee when you read that explanation.  I nearly ruined my computer monitor when I read it.  Since RESPRO has since suspended public access to their non-sensical letter to the Fed, we took the liberty of providing a copy of the letter below:

RESPRO Letter to Fed on QRM

Reading the rest of RESPRO’s letter to the Fed made me think of George Orwell’s famous novel “1984″.

“The key-word here is blackwhite. Like so many Newspeak words, this word has two mutually contradictory meanings. Applied to an opponent, it means the habit of impudently claiming that black is white, in contradiction of the plain facts.”

For those unfamiliar with Orwell, let me explain what a quote like that found above means.  There’s an ugly concept in our human sociology called the “Big Lie” theory.  The theory has permeated our culture since the early 1930s.  The theory suggests that if you repeat a big lie enough times to enough people –without the lie being adequately contested by the truth – the lie becomes the truth.

In the real estate settlement services field, RESPRO is the undisputed king of using “blackwhite” propaganda to support its tenuous argument that CBAs, and “one stop shops” in particular, are the superior form of real estate settlement service, especially in the title insurance industry.  RESPRO’s latest letter to the Fed to contest the QRM definition is a sad ”doubling-down” of CBA propaganda and otherwise discredited data to support a position that is fundamentally flawed and dangerously contradictory to the spirit and intent of the Dodd-Frank Act.

First, despite RESPRO’s claims of ”gloom and doom” if the Fed’s QRM rule is not changed, there will be no shortage of viable and competitive mortgage and title operations in low-income and low-middle income marketplaces across the United States.  Throw out the CBAs and competition will improve in these neighborhoods as consumers will be able to openly shop for better service and lower prices.  Put CBAs out of business and remove the unmistakable conflicts of interest that helped to foster the housing crisis of 2008 – a crisis that still plagues our country. 

RESPRO’s hyperbole notwithstanding, CBAs, as currently constituted, are stifling the very competition RESPRO claims the QRM rule will undermine.  Banks and real estate firms have simply bought out the competition in most urban and suburban markets using strong-arm purchase agreement tactics, anti-competitive captive business agreements and the inadequate enforcement efforts of state attorneys general or departments of insurance who heretofore have been powerless or unwilling to stop these referral sources from entering the title insurance industry and creating a potentially dangerous casualty landscape.  RESPRO’s effort to rewrite or exempt the CBAs from the QRM rule is merely an attempt to save a revenue stream.  It is certainly not an effort to make loans more affordable for lower income borrowers.

Second, RESPRO claims that loans closed by mortgage lenders with affiliated title companies have “underwriting and product features that lead to a lower risk of default,” therefore, the Fed should be more sympathetic to CBAs in the QRM rule. 

There is simply no proof that this is true.  Yet, RESPRO does not stop with the blanket statement. 

While admitting there is no data to compare delinquency rates of loans closed through affiliated versus unaffiliated title operations, it attempts to buttress its Orwellian “blackwhite” statement with data from two of its larger real estate firm members — Prudential Fox & Roach Realtors of Devon, Pennsylvania and Howard Hanna Real Estate Services of Pittsburgh, Pennsylvania.

The two real estate firms closed 15,119 loans in 2010, the majority of which the borrower also used the CBA title company for both real estate firms and the corresponding CBA mortgage company for both real estate firms.  Without boring you with the statistics, RESPRO found that the two CBAs had delinquency rates that, in 2010, were less than 1% on average.  According to RESPRO’s analysis, national delinquency rates in the 1Q of 2011 was 6.19%, thus RESPRO concluded that affiliated mortgage and title operations are superior — presumably — to all other kinds of settlement service providers, including independent title insurance agents, mortgage companies, real estate firms, etc.

Strangely, RESPRO concludes its letter by stating the following:

“Since the vast majority of loans originated through theses [sic] real estate brokerage firms’ affiliated mortgage companies utilized title services of their affiliated title companies, there is no evidence of a lower risk of default associated with loans in which an affiliated title company is used.”    

In other words, RESPRO admits having no data to support that CBAs result in lower rates of default on loans in which a CBA title company is used, therefore, one can disregard the part about how their two biggest realtor-driven CBAs have sub-one percent delinquency rates?  

Huh? 

Perhaps we missed something, but doesn’t that quote undo the whole point of their argument?

Well, if it didn’t perhaps these inconvenient facts might.

First, the Prudential Fox & Roach and Howard Hanna CBA mortgage arms are most likely not underwriting their mortgage loans under the pre-bust methodology — and thank God for that.  Because their assignee’s loan underwriting standards have finally risen to an appropriate level, the corresponding rate of delinquency has fallen.  The lower delinquency rate has nothing to do with the CBA element and everything to do with smarter regulation leading to smarter underwriting – something RESPRO is loathe to admit.

Second, purchase money mortgages for persons with higher credit scores (i.e. what Prudential Fox & Roach and Howard Hanna real estate firms are closing on) have historically been less risky, in terms of default or delinquency, than their refinance brethren.  RESPRO didn’t pull data from their subprime mortgage lender members to support the “CBAs-do-it-better” theory.  One good reason?  Higher rates of default or delinquency on those loans.  It would not fit RESPRO’s narrative to use those numbers.

Facts always seem to get in the way, don’t they?

One more fact?  Delinquency rates fall when the economy improves.  It has nothing to do with the fine folks at Prudential Fox & Roach or Howard Hanna.  They may close a ton of real estate transactions using their Orwellian wizardry, but their size and their CBA title company’s alleged competence in handling a transaction has little to do with mortgage delinquency rates.  Simple economics suggest that when people have jobs, they have money to pay their bills.  When they do not have money or jobs, they do not pay their bills.  Not noted in RESPRO’s latest “blackwhite” letter is the fact that delinquency rates have risen in the 2Q 2011 as our economy has stumbled recently.  Surely RESPRO knows this, but strangely they do not mention this in their analysis or their testimony before Congress.  Under RESPRO‘s faulty hypothesis, though, if delinquency rates are rising again and their members are closing those loans, RESPRO is helping to contribute to that problem.  If RESPRO is arguing that decreasing delinquency rates are caused by RESPRO members, then certainly the opposite is true — i.e. if delinquency rates rise, RESPRO members are to blame.

I wouldn’t make that assumption, but you must in order to accept RESPRO’s argument on the subject.  

RESPRO’s selective interpretation of facts is nothing new.  After all, this is the same group that still pulls the Harris Interactive Poll from 2008 (see prior blog post) out of the trash heap to support a false idea that real estate consumers prefer “one-stop shops.”  If you recall from reading the Executive Summary on that snakeoil job, it was an overwhelming fact that consumers actually had no clue what a “one-stop shop” or CBA was, let alone prefer one.

And that is the problem with RESPRO and its orthodoxy.  RESPRO is predicated on a falsehood and sold to members of Congress as the truth.  Without intervention, the danger is that what RESPRO wants Congress to believe — whether true or not — will, in fact, become the truth.

Now that you know what RESPRO is selling are you going to buy it?

Posted in AfBAs, controlled business arrangement, Howard Hanna, RESPRO, title insurance | 2 Comments

Meet the New Boss, Same as the Old Boss? ALTA CEO Transition Exposes Ideological Shift

Posted on July 29, 2011 by oaita

ALTA announced earlier this week that, Kurt Pfotenhauer, current MERS Chairman and then-CEO of ALTA, was leaving his post at ALTA to take a position “in the private sector”.

His new position? Chief Lobbyist for First American Title.

To those who follow the advocacy efforts of ALTA and the big four national underwriters, a move from ALTA to First American is like getting a job doing what you were already doing.  The big four title underwriters — i.e. First American, Stewart Title, Old Republic and Fidelity — run ALTA.  After all, the combined market shares of the four entities is 90% of the entire United States title insurance business.  Therefore, at best, going from ALTA to First American to do the same thing he was doing at ALTA is a lateral move.  Have to imagine the pay is good, though.

Kurt’s replacement at ALTA?

Current ALTA COO, Michelle Korsmo.

Who is Michelle Korsmo? Well, she isn’t a title industry veteran. In fact, she has no background in title or real estate — unless you count the last three years as COO of ALTA.  Prior to joining ALTA, Korsmo was the executive vice president of the Americans for Prosperity (AFP) Foundation, where she managed a team of 52 people and a $10 million budget, and grew the organization from one state chapter to 21 in four years.  At AFP, she dabbled in a range of politically charged subject matter.

Click on the link below to see a sample of one such subject:

Michelle Korsmo @ 2008 Conference on Climate Change

Since I am not a climatologist or meterologist, I see no value in challenging Korsmo’s version of the Poor Richard’s Almanac for 2008.  For the record though, I do know that weather and climate are not the same things.

What then is the AFP?  It is a right-wing non-profit group backed by David and Charles Koch. AFP has been at the center of anti-labor bills in Wisconsin and Ohio, anti-tax and anti-spending initiatives in Washington DC and operating as a fundraising arm of the GOP since 2007.  AFP is a Tea Party off-shoot.  It is the consequence of the Citizens United decision.  Unlimited corporate donations for one cause: getting government out of the business of free market regulation.  

Before AFP, Korsmo served three years as deputy chief of staff to U.S. Secretary of Labor Elaine L. Chao, where she managed non-political agency heads, served as a member of the budget committee, exercised approval authority on all Departmental action to be published in the Federal Register, and developed an outreach program to the non-profit community.  Former Labor Secretary Chao was a George W. Bush appointee and is the spouse of Senate Minority Leader Mitch McConnell.

Korsmo is clearly a well-connected DC insider and an obvious continuation of the ALTA slant towards K Street policymaking from the right side of the aisle.  Right or wrong, that’s what it is.  

Is that a problem?   

Well, it might be. 

AFP is not a ”middle-of-the-road” organization, and no, we are not suggesting that we oppose all right-leaning or even right-wing causes.  Instead, the problem here is the lack of moderation exposed by a relationship with the AFP.  AFP is an ideological organization much like MoveOn.org is for the left.  Trust us, if we had a situation where a George Soros lieutenant was running ALTA, you’d have us making the same blog post — but we don’t have to worry about that because it didn’t happen.

There is no question that ALTA’s previous CEO, Kurt Pfotenhauer, leaned right.  His resume is an accomplished expose of Republican insider ties:  he worked for Rep. Denny Smith (R-OR) and Senator Gordon Smith (R-OR).  He lobbied for UPS and the Mortgage Bankers Association.  His wife is a regular contributor on Fox News.  Et cetera.  But, to his credit, Kurt is not an ideologue.  His tenure at ALTA didn’t represent a seismic shift towards ideologically connected policymaking.  He is a middle-of-the-road Republican and his leadership accurately reflected that stance.   

The concern is that ALTA, now being run by a former AFP ideologue in Korsmo, will now commence with the business of ideology instead of being in the business of broad policy for the improvement of the title insurance industry.

Is it fair to raise these issues in the first week of Korsmo’s tenure as CEO of ALTA? 

Yes, it is.

First, ALTA is run by the national underwriters whose big corporate interests trump many of the issues facing regional underwriters and independent title agents across the United States.  Not everyone in the ALTA tent thinks proactive regulation of the free market is a bad thing.  Will Korsmo, who clearly believes the opposite, be able to represent that side of the coin when it matters to ALTA’s membership?  I have my doubts judging by her record and her outspoken stance on many of these issues.

Second, is the ridiculous notion of faux populism that ALTA is now playing with Korsmo.  The new CEO’s credentials are meant to give credibility to the idea that ALTA is a grassroots organization.  After all, Korsmo helped launch the expansion of AFP and its viral upbringing.  It is supposed to translate to title insurance.

Going back a few sentences, I mentioned that ALTA is run by the national underwriters.  The largest four underwriters grossed $8.4 billion dollars in premiums in 2010.  The net profits of the underwriters were mixed.  First American had a net profit of $76 million dollars.  Fidelity reported a net loss of $188 million dollars.

What grassroots organization starts with controlling members whose gross business is counted in the billions of dollars and whose net profits are counted in the millions of dollars?

Nice try. 

Finally, let’s talk about the money.  ALTA is raising more money than it did prior to 2008.  Part of that is a credit to Mr. Pfotenhauer.  He pushed the lobby factor upon arriving at ALTA.  Where that money ends up going, though, needs to be carefully examined, especially with a former AFP ideologue now running the show.  Let’s not be confused with the effusive praise of Pfotenhauer’s fundraising ability, though.  ALTA’s PAC raised $500K or thereabouts in 2010.  By comparison, the National Association of Realtors (NAR) spent more than $17 million dollars on lobbying in 2010 and raised over $3 million dollars for its PAC.

ALTA is no lobbying juggernaut and without supporting the banking, mortgage finance and realtor lobbies, it has no real influence as its own player.  More disturbing is that when you parse the numbers on ALTA’s recent fundraising efforts and see who they gave their money to, it begins to show a few anomolous trends.  Curiously, not all member donations from ALTA’s PAC are going to those with an opportunity to impact change on the housing and title fronts.  Instead, some appear to be used to support AFP-related causes that have little or nothing to do with the title insurance industry.

In 2010, ALTA gave 51% of its PAC money to Republicans and 49% of its PAC money to Democrats, which reflects favorably to the trends in DC during the 2010 election.  However, digging deeper into the numbers, there were two strange $10,000 expenditures from the PAC in 2010.  The first was to the Blue Cross/Blue Shield Association PAC.  The second was to Senator Mitch McConnell’s Bluegrass PAC.

Why does a land title association need to donate member PAC money to an unrelated health insurance PAC?  Well, one could surmise that the money was used to support the AFP’s position on preventing a “government-run” health care system.  And how does that relate to title insurance – right or wrong?

It doesn’t and that is the point.  

With Korsmo in ALTA’s COO chair and her connections to Senator McConnell’s wife, why did ALTA’s member PAC make donations to McConnell’s PAC at the exclusion of other PACs more closely related to the issues in housing and mortgage finance?  Other than his role on the Senate’s Appropriations Committee and a tangential connection from there to policymaking as it pertains to HUD and the new CFPB, there is no direct link to McConnell and the hot-button RESPA or financial reform issues that impact title insurance.  Yes, he is the Republican Minority Leader in the Senate, but where’s the bang for that buck?  Or is it something else? 

In fairness, ALTA’s PAC also donated to other PACs, including some with left-leanings.  However, even those donations are a bit misleading.  The New Dem PAC and the Blue Dog PAC that received ALTA PAC funds in 2010 are PACs that support “Democrats” in red districts.  These are not the left-wing influencers who are enacting regulatory overhauls of the financial and mortgage systems.  It is quite the opposite.

The bottomline is that any perceivable balance that could be excused by ALTA is now disappearing.  Hiring someone with ideologue credentials to lead ALTA is a troubling development and one that apparently has received little consideration.  

Until now.

Posted in ALTA, title insurance, Uncategorized | 6 Comments