ALTA® Letter to HUD RE RESPA (4/23/00)
April 23, 2000
Kenneth A. Markison, Esq.
Assistant General Counsel
U.S. Department of Housing and Urban Development
451 Seventh Street, S.W.
Washington, D.C. 20410
Dear Mr. Markison:
We very much appreciated the opportunity for me, our incoming President Cara Detring, and our counsel Sheldon Hochberg, to meet with you and other members of the staff to discuss our concerns, as reflected in Jim Maher?s June 15 letter to you, about an aspect of HUD?s guidance to the Massachusetts Bankers Association on the completion of the HUD-1 forms. As discussed in that letter, we are very troubled by the interpretation that in addition to listing the amount of the title insurance premium on Lines 1108-1110, the amount of the title insurance agent?s retention (or commission as it is referred to outside the industry) should also be reported.
During our meeting, we discussed several points that were not emphasized in Jim?s letter and that I would like to highlight in this letter.
First, the guidance given to the MBA assumes that information regarding the amount of the agent?s commission will be readily available to the person completing the HUD-1 form or, if the form is being completed by the title insurance agent, the agent will be ready and willing to disclose the amount of the commission. That is not the case.
Commission arrangements between insurers and agents ? whether in the title insurance industry or in other lines of insurance whose products may be deemed settlement services subject to disclosure on the HUD-1 forms ? are generally business confidential matters. While commission arrangements may be publicly known in some states ? such as Texas, where the state insurance department promulgates the title insurance rates and agency commissions ? in the vast majority of jurisdictions the amount of the commission is a privately negotiated matter between insurer and agent. Insurers generally do not want third parties (including other agents) to know what the company?s commission arrangement is with a particular agent. Similarly, agents generally do not want other agents or other insurers for whom they issue policies to know of their commission arrangements with a particular insurer.
Accordingly, unless insurers and agents are under a clear legal obligation to disclose the amount of the agent?s commission in the particular transaction (an obligation we do not believe can be found in, or derived from, the statutory language of RESPA), it can be expected that they will be quite reluctant to disclose this information in the HUD-1 forms or to other parties who may be completing the forms.
Second, as we discussed at our meeting, we do not see how the disclosure of commission information on the HUD-1 form enhances the usable knowledge of the homebuyer or seller. The buyer and seller need to know what amounts they will have to pay at settlement and how the total amount they will be paying was derived. That is the function of the HUD-1 form. What expenses the various settlement service providers incurred in providing the services for which the consumer will be paying a charge is of no real relevance at the closing.
Moreover, knowledge of the amount of the commission, whether at closing or at some earlier point in time in the home-buying process, is basically irrelevant to any comparison shopping for title service providers. What the consumer needs and can readily obtain in order to shop for title insurance services is timely information on the charges of various title insurance providers in the community ? not information on the costs incurred in providing the services.
Third, in at least 5 major states, the amount of the agent?s commission is either set or approved by the insurance department, and title insurance rates are subject to regulation in virtually all states. Accordingly, there is no need to require the disclosure of the agent?s commission on the HUD-1 in individual transactions if the concern motivating such disclosure is to ensure that agency commissions are reasonable. State insurance regulation is the better and proper forum in which such issues can and should be addressed.
Finally, to the extent HUD is concerned about consumers understanding the services that attorneys or title companies provide for the fees that may be charged, the existing Instructions for completing the HUD-1 forms are clear that the attorney?s fee listed in Line 1107, and the title company?s fee listed in Line 1108, should include on those lines "the item numbers of the services listed which are covered in the overall fee." (We are in the process of collecting sample HUD-1 forms to demonstrate how this is handled and will forward them to you shortly.) Requiring the disclosure of the amount of the agent?s commission will add nothing to the consumer?s understanding in this regard.
In conclusion, for the reasons discussed in Jim?s letter of June 15 and in this letter, we urge HUD to take prompt action to clarify the guidance it provided in the letter to the Massachusetts Bankers Association by making clear that title insurance retentions (and commissions for any other insurance charge that constitutes a settlement service) do not have to be separately disclosed on the HUD-1 forms.
We very much appreciate your attention to this issue and your willingness. If there is any further information we can provide, please do not hesitate to contact me.
Ann vom Eigen
cc: Stephen J. Sacks, Esq.
Theresa Baker, Esq.
Rebecca J. Holtz
Cara Detring, President, ALTA
Tanya M. Duncan, Massachusetts Bankers Association