Congress Urges Cordray to Drop ‘Optional’ From Owners’ Title Insurance on Forthcoming Mortgage Disclosures

“I would just suggest get rid of the word optional.”

That was the message from Congressman Ed Perlmutter (D-CO, and this year’s recipient of the Protecting the American Dream Award) to Consumer Financial Protection Bureau Director Richard Cordray at a hearing on Thursday on the Bureau’s semiannual report to Congress.

Congressman Perlmutter’s statement came after Congressman Gary Miller (R-CA) and Director Cordray had an exchange on the topic of calling owners’ title insurance “optional” in the final rule. Here is the exchange:

REP. MILLER: I enjoyed your opening statement. You talked about empowering consumers, fair and transparent competitive marketplaces, dealing with bad actors, which we saw plenty of those before 2007 and you supervise a program to create larger credit reporting companies. The one thing that’s kind of glaring to me is you took title insurance and you tagged it as optional for the buyer. And that’s a real concern for me? Now, anytime a buyer would look at something and they’d say optional and it cost money, generally they don’t do it because most people really don’t understand what optional means or they don’t know what title insurance really means. But your bank regulators and GSEs all require a title insurance before they’ll make a loan?And if we’re concerned about empowering consumers, we really should be concerned about their safety. And why would you take something that I believe is very, very important that could arise in the future and put optional on it?

MR. CORDRAY:  First of all, I take your point. Your point is, you know, obviously meritorious that, you know, title is often in question with properties, and different parts of the country more so than others. Title insurance obviously is meant to address the risks of that. I will be happy to go back and take a look at the point you’re raising about how we’re characterizing it on that proposed form.

In addition to the owners’ title insurance questions, Congressman Randy Hultgren (R-WI) pushed Director Cordray on the implementation timeline for the rule and the topic of machine-readable forms. Hultgren asked:

REP. HULTGREN: I know you’re working on one more major mortgage rule- making, the merging of RESPA and TILA mortgage disclosures into one document. And the proposed rule was over 1,000 pages and will affect everyone involved in a home purchase: home-buyers, lenders, realtors. As I understand it, given how much technical work must go into getting everyone’s system updated and ready, I’d like to think it would be impossible to have this rule implemented before January 15th. Is that true? Why or why not?

CORDRAY: So the (inaudible) rule was one of the—it was a special mortgage rule in the sense that Congress required us to do it, but didn’t give us a deadline, which told us that Congress wanted it done, but not quite on the same priority maybe as some of the other rules. We will now finalize that rule later this year. We will give an implementation period for that that I think will be sufficient for industry. And we’re talking and—and listening closely to what they have to say about that. We recognize that’s going to require a fair amount of systems and process changes. And that will lag behind the changes that they’re making for January...

REP. HULTGREN: So there will be a delay in implementation requirements...

CORDRAY: It’s not even finalized yet, that one, unlike all the others. And when it is finalized, there will be a period of time to recognize they need to finish implementing this rule and then have ample time to bring that into effect.

REP. HULTGREN: Getting very specific on this, I know one of the requirements of the Bureau’s RESPA-TILA proposal is to require all disclosure forms to be machine-readable record format. I wonder if you could tell me what that means, what the purpose of machine-readable forms are. While I understand and appreciate that this will help the Bureau in examination, convergence to these systems, as you can imagine, will be incredibly costly for small lenders, ESCO agents and title companies. I wonder what efforts you’re doing—taking to help minimize the cost burdens on this rule on small businesses.

CORDRAY: Yeah, thank you for the question. Just as you’re hearing about that, we’re also hearing about it. We’re trying to think about exactly what purpose that serves and—and to what extent those benefits are worth the burdens. Obviously, the point I—I know is to create some uniformity so that there can be more comparison, more analysis and more understanding of the market. Whether—whether that’s all appropriate or needs to be done now is something that we’re looking at.

REP. HULTGREN: My time is just about done. Just, you know, I hope you’ll look at cost benefit analysis. That doesn’t happen enough in this. And it absolutely is having an impact on small businesses.

You can view an archived webcast of the hearing here.

We are grateful to Congressmen Hulgren, Miller and Perlmutter for posing these important questions to Director Cordray. As we move closer to the release of the final rule, we will eagerly watch for how the Bureau resolves these and other issues brought up in ALTA’s comment letter. We're still hearing sometime in October and will provide a webinar shortly after the release to go over what the CFPB unveils.

If you have any questions about the hearing please contact please contact ALTA’s vice president for government and regulatory affairs, Justin Ailes, at [email protected] or 202-261-2937.

You can also view ALTA's advocacy efforts regarding the integrated mortgage disclosures here.