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ALTA Successful Insulating Industry from Extra Burdens of Financial Reform

July 16, 2010

TitleNews Online | June 15, 2010

The monumental financial reform bill passed the U.S. Senate on Thursday (July 15) by a vote of 60-39 and now awaits President Obama’s signature, which will bring an end to nearly two years of debate.

While the American Land Title Association (ALTA) was successful in greatly limiting the authority of the new bureau over the title industry, the mortgage finance system will nevertheless be dramatically affected.

“Whether a business was explicitly included or excluded, Congress passed a massive financial regulatory bill that will impact all sectors of the mortgage industry,” said Kurt Pfotenhauer, chief executive officer of the American Land Title Association. “With the passage of the bill, we now move into the next phase of implementation and promulgation of rules that could take years. There will inevitably be subsequent legislation and modifications, and ALTA will work to ensure what evolves has minimum impact on the title industry with maximum effect for consumer protection.”

Congress retained language in the legislation that clarifies title insurance is not covered by the Consumer Financial Protection Bureau (CFPB) as it was under the original Obama Administration proposal.

The language specifically reads:

”The term “financial product or service”(A) means (iii) providing real estate settlement services, except the business of insurance,” which is defined as, “the writing of insurance or the reinsuring of risks by an insurer, including all acts necessary to such writing or reinsuring and the activities relating to the writing of insurance or the reinsuring of risks conducted by persons who act as, or are, officers, directors, agents, or employees of insurers or who are other persons authorized to act on behalf of such persons.”

Without this language, the CFPB, which will be housed in the Federal Reserve, would have had broad authority to examine and enforce regulations of title insurance. RESPA oversight will still move from HUD to the new CFPB. The regulation gives the new agency the ability to revisit RESPA reform in order to harmonize RESPA and TILA disclosures.

As it was originally written, the Consumer Financial Protection Agency (as it was called in the original House version) would have imposed a third layer of regulation and an additional federal bureaucracy onto the title insurance and settlement services industry. Without the amendment, the agency could have issued any number of new regulations regarding the types of services that can be offered and also would have had the authority to conduct costly examinations of businesses to verify compliance. The CFPA also could have required standardized reports from businesses, including title agents, at any time. This would have required new technology to produce the reports if the amendment had not passed.

The bill also creates a new Federal Insurance Office (FIO) within the Treasury Department, ushering in a new era of Federal involvement in the U.S. insurance industry, which has historically been dominated by the states. The FIO will: (1) monitor the U.S. insurance industry, (2) coordinate Federal efforts and policy relating to international insurance matters, (3) determine which state insurance measures are preempted by international agreements, (4) report to Congress annually on the state of the insurance industry, and (5) identify insurers that could pose a threat to financial stability. The FIO has authority over all other lines of insurance. Notably, the FIO director will have the authority to determine when state insurance measures are inconsistent with international agreements relating to prudential measures for insurance or reinsurance.

Don’t miss coverage in next week’s TitleNews Online as we discuss one piece of the reform that extends escrow requirements to a broader range of loans.

See The New Financial Reform Legislation: Overview and Impact on the Title Insurance Industry for more information on the impact the legislation will have on the title insurance industry.

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