Due to some of the more onerous provisions of New York State Department of Financial Services (NYSDFS) Regulation 208 that went into effect December 18, 2017, the various ‘constituencies‘ involved and affected will be meeting in Albany January 12, 2018!
‘The Assembly Insurance Committee is holding a hearing about DFS regulation of the Title Insurance Industry on Friday January 12.
Who are the varied title insurance industry ‘constituencies’ that will be in Albany tomorrow and, are they united in opposition to the provisions of Reg 208? Or, in some cases, are they at cross-purposes?
Truth be told the changes to the way in which the title insurance has done business for decades are many and varied (‘Title Insurance And Havoc In The New York Real Estate Market?‘) but to summarize involve marketing expenditures, the ancillary fee structure, compensation of title closers and ultimately a reduction in premiums. There is no doubt that this will have a great impact on the way companies can conduct business and for some, longterm viability as an ongoing concern.
Soon after taking effect, the marketing prohibition that is particularly onerous for anyone involved in business development of any kind, was been stayed to February 2, 2018.
And, suffice it to say, Regulation 208 will impact different firms in different way! For brevity let’s focus on the area of marketing and business development.
At the meeting you will have title insurance underwriters and title insurance abstract firms of varied size and financial strength. Some of the abstract companies are only involved with large commercial real estate deals while others have a mix of residential and commercial and still others work with residential real estate only.
Given the varied size, financial wherewithal and product mix, what’s considered marketing expenditures at one firm might be considered petty cash at another. This fact renders the term being used by the NYSDFS, inducement for business, somewhat vague. Is taking a prospect to a diner for lunch an inducement or is taking a prospect to a luxury suite at Yankee Stadium an inducement? Or is neither an inducement and merely marketing tools that are used across the spectrum of industries?
‘Inducement for business’ is therefore a very gray area that for the purposes of Regulation 208 has been painted with one large brush.
Independent title closers, key cogs to the closing process, have seen their normal payment mechanisms changed to where they rely on the title companies who engage them for compensation (‘…December 18 New Rules Concerning Title Closer Compensation Go Into Effect!‘). In some cases title companies have not necessarily made adequate provisions and so some closers will have to think twice before accepting a job for certain firms. While this new layer to the cost structure is painful, title closers are very necessary to the process of protecting our clients and so it is something that needed to be addressed in a way that was as acceptable to all parties involved as possible.
Thoughts And Ideas
These were some thoughts that I passed along concerning certain aspects of Regulation 208 with focus on the area of business development. The bottomline, however, is that whatever the outcome tomorrow the consumer needs to be protected in what for may will be the largest financial transaction of their lives!
Dated December 24, 2017
Subject: January 12 Examination of Recent Title Insurance Regulations in New York State
I would like to offer my opinion on the potential outcomes from the January 12th Public Hearing in Albany that I believe would be a reasonable compromise for the industry:
1) Refinance deals should have pick-up fees, if applicable, paid to the closer. Otherwise for refinance transactions at approximately $250,000 and below that includes a salesperson, according to the Hallmark Abstract schedule for title closer compensation, my firm and I assume others as well will be losing money. This situation could lead to firms choosing not to accept these transactions causing a disruption to the consumer and banking industry.
2) Section 228.2 of Regulation 208: It was interesting that of all of the new guidelines facing title insurance firms, that this was the portion of Regulation 208 receiving a stay until February 2, 2018.
It seems that if the DFS is concerned with title firms providing inducements in return for business then allowing them to continue doing so runs contrary to that goal.
By the same token it is unreasonable, in any industry, to outlaw basic business development and business continuity activities such as a lunch. My recommendation would be to reinstate activities such as lunches with the proviso that the expenditure for that activity is ‘reasonable’.
For example if a limit of $50 per person for a meal were to be imposed it would allow for business development to take place while not being grand enough to be considered an inducement. This, as opposed to a client or prospect being given floor seats to a Knicks game.
Conclusion: The ultimate goal should be for title firms of all sizes and economic resources to compete for a clients business based not on the things we give, but on the work product that we provide! I believe that the compromise position in #2 would allow for that to happen.
Michael Haltman, President
Hallmark Abstract Service
(646) 741-6101, (516) 741-4723