[Congressional Record Volume 160, Number 135 (Friday, September 19, 2014)]
[Extensions of Remarks]
[Pages E1469-E1470]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




         INSURANCE CAPITAL STANDARDS CLARIFICATION ACT OF 2014

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                               speech of

                           HON. KEITH ELLISON

                              of minnesota

                    in the house of representatives

                       Monday, September 15, 2014

  Mr. ELLISON. Mr. Speaker, I oppose The Insurance Capital Standards 
Clarification Act of 2014 (H.R. 5461). While I support efforts to 
provide flexibility under the Dodd-Frank Act's Collins amendment by 
explicitly stating that regulators are not required to apply minimum 
leverage capital and risk-based capital requirements to firms with 
state-regulated insurance operations, this bill does more than that. It 
contains The Mortgage Choice Act of 2013, (H.R. 3211).
  Mr. Speaker, as I stated during the hearing and the mark up on The 
Mortgage Choice Act of 2013 (H.R. 3211), there are serious concerns 
about steering consumers into buying title insurance with hidden 
commissions and inflated costs.
  I bought two homes in my life. Like most homebuyers, I was asked to 
sign a bunch of papers with lots of fees such as origination charges, 
appraisal fees, scoring fees, recording charges, tax service fee and 
title insurance. Like most consumers, I chose my title insurance 
provider based on referral: I did not comparison shop.
  For most of us, title insurance is the most expensive of the closing 
cost fees--sometimes running in the thousands of dollars. These fees 
are poorly understood by homebuyers. This can lead to paying higher 
fees than is necessary or appropriate.
  When Congress passed the Dodd-Frank Wall Street Reform and Consumer 
Protection Act, we required the newly created Consumer Financial 
Protection Bureau (CFPB) to do a better job at protecting consumers 
when buying a home.
  We know that the housing finance system had too much predatory and 
discriminatory lending. African Americans and Latinos were frequently 
charged much higher interest rates than they qualified for. Homeowners 
were refinanced into high fee and interest rates they could not afford. 
The result was more than five million foreclosures and a colossal loss 
of wealth.
  In response to the new law, the CFPB wrote rules to protect people 
buying homes from products which would strip their wealth. One of those 
rules defined a Qualified Mortgage (QM) standard which was established 
in Dodd-Frank. As part of that QM standard, the CFPB established a 
``points and fees'' bright line limit for mortgages that qualified 
under the Ability to Repay provision.
  The CFPB established a limit on ``points and fees''--which account 
for a loan's origination costs--that exceed 3 percent of the loan 
amount--although it can be up to 8 percent for lower cost homes. 
Because of concerns that the affiliated title insurance system was 
leading to higher costs for borrowers in a market based on reverse 
competition, the CFPB wisely chose to require title insurance charges 
from affiliated title agents be within the points and fees cap.
  H.R. 3211 reverses the CFPB's decision.
  By excluding affiliated title insurance firms from within the points 
and fees cap, H.R. 3211 restores an incentive to overcharge homebuyers.
  We know how hard it is to get people into homes. Homebuyers need to 
save thousands of dollars for a downpayment. So why should we make it 
easier to let them get overcharged as much as a thousand or more 
dollars on title insurance? Some say that as much as half or more of a 
title insurance premium goes to the referral agent. Why would we want 
to preserve this practice of overpricing title insurance to fund 
referral commissions?
  At the Financial Services hearing that included this bill, I 
requested that we hear from

[[Page E1470]]

independent land title agents as well as from groups like the Consumer 
Federation of America, the Center for Responsible Lending, Americans 
for Financial Reform and its 100 affiliates and the AFL-CIO.
  I requested that the National Association of Independent Land Title 
Agents be invited to testify. I have heard concerns directly from title 
agents in my state that some referral sources ask to share ownership of 
their business. Since title insurance is based on referrals, when 
realtors, homebuilders and mortgage brokers refuse to provide referrals 
to a title agent firm, the firm may not be able to survive financially. 
Unfortunately, these independent unaffiliated title agents were not 
invited to testify nor was there another hearing on the bill.
  Many organizations opposed the bill including the AFL-CIO, Alliance 
for a Just Society, Americans for Financial Reform, Center for Economic 
Justice, Center for Responsible Lending, Connecticut Fair Housing 
Center, Consumer Action, Consumer Federation of America, Consumers 
Union, Empire Justice Center, Home Defenders League, The Leadership 
Conference on Civil and Human Rights, NAACP, National Association of 
Consumer Advocates, National Association of Independent Land Title 
Agents, National Consumer Law Center (on behalf of its low income 
clients), National Council of La Raza, National Fair Housing Alliance, 
New Economic Project, Public Citizen, Woodstock Institute and Center 
for Responsible Lending.
  These concerns about hidden referral commissions are not 
hypothetical. Last month, the Consumer Financial Protection Bureau 
(CFPB) fined RealtySouth, the largest real estate firm in Alabama for 
violations of the Real Estate Settlement and Practices Act (RESPA). 
RealtySouth improperly steered consumers to its affiliated firm, 
TitleSouth LLC. In addition, The CFPB has taken action against Borders 
& Borders PLC in Kentucky for funneling kickbacks to shell companies. 
In June, the CFPB fined Stonebridge Title Services in New Jersey for 
paying illegal kickbacks to referral sources.
  Some who support H.R. 3211 say there are some fixed costs in lending 
that could result in lower valued mortgages to need to pay loans higher 
than the Qualified Mortgage guideline of points and fees established by 
smaller loans. However, the Consumer Financial Protection Bureau 
already provided for flexible definitions based upon the amount of a 
borrower's mortgage:
  3 percentage cap on a loan balance at $100,000 or greater, 5 
percentage cap on a loan balance from $20,000.00 to $60,000, or 8 
percentage cap on loan balances of less than $12,500.
  Since the average mortgage origination fees are below one percent 
according to the Center for Responsible Lending, the caps set by the QM 
are appropriate. I have not seen any compelling evidence that shows 
that lenders will not make loans if the title premiums charged by their 
affiliates are included in the points and fees cap. Lenders are free to 
make loans outside the ability to repay rules as well.
  I have also heard the proponents of H.R. 3211 arguing that the 
availability of affiliate service providers helps reduce the overall 
cost of obtaining a mortgage loan. I question their evidence. The 2010 
Harris Interactive study paid by the National Association of Realtors 
is suspect. In that study, more than 70% of buyers ``did not know'' 
what an affiliate service provider provided or what benefit it 
allegedly gave.
  By contrast, in 2013, The National Association of Independent Land 
Title Agents (NAILTA) commissioned the first-ever national settlement 
preference survey of American real estate consumers. More than 900 
consumers participated in the nationwide survey. The results include:
  93% of American real estate consumers surveyed said it was important 
that title insurance agents remain a neutral third party in the 
performance of title insurance-related services.
  62% of American real estate consumers surveyed said that a title 
agency cannot remain objective if it is partially owned by a bank, real 
estate firm, mortgage company or homebuilder.
  Only 1% of American real estate consumers surveyed prefer a ``one 
stop shop''.
  For all the efficiencies that proponents assert existed prior to this 
new rule that provided a disincentive to refer homebuyers to 
controlled/affiliated title firms, settlement costs--exclusive of 
inflation--continue to rise. I believe the CFPB's rule could actually 
lower title insurance premiums and increase homeownership for 
Americans.
  I have concerns about a market where people assert that half or more 
the cost of the product is a referral fee unlinked to the product 
itself Consumers and independent title insurance agents say that title 
insurance premiums can provide remuneration to the referral source 
based on the capture rate such as lower desk rental fees, bonuses, 
gifts or higher commissions. This should not be permitted.
  I urge members to stand with homebuyers who want to understand all 
the fees they are charged.
  I urge members to support a market free of pressures for referral 
commissions.

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