ALTA® Letter Kenneth A. Markison- RE: Consumer Privacy: Regulations on this Issue (6/15/00)

June 15, 2000

June 15, 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 recently became aware of a memorandum entitled "HUD?s Response to Questions from the Massachusetts Bankers Association," which was sent to that association under a cover letter from you dated February 25, 2000. On page 9 of the memorandum, HUD responds to several questions relating to the disclosure of title charges on the HUD-1 form. For the reasons discussed below, we believe that the conclusion expressed in the answer to question 1 and the explanation given for that conclusion are clearly incorrect. We hope that HUD will correct this error as quickly as possible.

The question and answer were as follows:

(1) Is it required to indicate anywhere on the HUD-1 the actual dollar amount of the commission earned by the settlement agent (closing attorney) for issuing a title insurance policy?

Answer: Yes. The Instructions specifically state that the HUD-1 must "itemize all charges imposed upon the borrower and the seller by the lender and all sales commissions, whether to be paid at settlement or outside of settlement." (See Instructions) (Italics added).

Not only is the answer wrong, but the quote from the HUD-1 Instructions does not support ? and, indeed, has nothing to do with ? any purported requirement that the amount of any insurance commission must be separately itemized on the HUD-1 form.

To begin with, nothing in RESPA, in the regulations, or in the HUD-1 Instructions requires or suggests that any insurance commission or title agent "retention" 1/ has to be separately itemized on the form. Until the memorandum to the Massachusetts Bankers Association, we have never seen a suggestion from HUD or from any other source that such itemization was required.

Indeed, there would be no reason grounded in RESPA policy for such separate disclosure. It is the title insurance premium that is paid by the consumer and that amount is disclosed. Moreover, a requirement that the commissions or retentions realized by insurance agents must also be disclosed on the HUD-1 form would greatly complicate the form since such disclosures would have to be made for any homeowner?s insurance policy, credit life policy, and mortgage insurance policy issued in connection with the transaction.

Second, the reference in the answer to the language in the Instructions that "all sales commissions" must be disclosed is completely irrelevant to whether "insurance commissions"must be disclosed. The language quoted in the answer is taken from the second paragraph of the General Instructions section of the Instructions, not from any of the Line Item Instructions that relate to title insurance or other insurance charges. More importantly, the phrase "sales commissions" in the General Instructions unambiguously refers to the "sales commissions charged by the sales agent or broker" that must be entered on Line 700, i.e., the commissions charged by the real estate broker or salesperson for handling the sale of the property. The phrase "sales commission " is only used in the series 700 Line items and has no relevance to the commissions paid to insurance agents. /2/

Third, nothing in the Instructions relating to the Line 1100 series ? the line items that address title insurance and attorney charges ? suggests such a requirement. The only remotely relevant reference to this topic is contained in the instructions to Line 1113, which specify that this line should be used "to disclose services that are covered by the commission of an attorney acting as a title agent when Line 1107 is already being used to disclose the fees and services of the attorney in representing the buyer, seller, or lender in the real estate transaction." (Emphasis added.) There is no reference to using any line in the 1100 series to disclose the amount of the title insurance agent?s retention ? whether the agent be an attorney or a non-attorney.

In sum, the Instructions provide no basis for the conclusion expressed in the HUD memorandum on this question. Indeed, to the best of our knowledge, HUD-1 forms are never completed in the manner suggested by the answer to question 1. We are obviously concerned that HUD?s answer to this question is at odds with the universal understanding of the industry and those who complete the HUD-1 forms, and that this answer, if it became generally known, could create significant and unfortunate confusion.

Accordingly, we urge HUD to take prompt action to clarify that insurance commissions and title insurance retentions do not have to be separately disclosed on the HUD-1 forms.

If you have any questions about this letter or would like to discuss this matter, please do not hesitate to contact me.


James R. Maher,

cc: Rebecca J. Holtz
Tanya M. Duncan
Massachusetts Bankers Association

1/ Title insurance agents, unlike agents in other lines of insurance, do not merely "sell" insurance policies but are significantly involved in evaluating the risks, in determining insurability, and, in fact, generally issue the insurance policies on behalf of the insurer. As a consequence, they retain a portion of the one-time title insurance premium for these services and remit the net premium to the insurer. The amounts they retain are referred to in the industry as agent "retentions" rather than agent "commissions," a term that reflects the unique role they play in the policy issuing process.

2/ As discussed in note 1, above, the term "sales commissions" has even less relevance to the retentions of title agents in light of the fact that the compensation they receive is, in significant measure, for the work performed on behalf of the insurer in the issuance of the policy.

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