Two seemingly unrelated events this week impacting the title insurance industry in New York highlight the efforts state lawmakers and regulators are taking to rid the industry of illegal practices and bad actors.
First, following through on its promises to lower title insurance costs for consumers in New York, state lawmakers have approved new rates for mortgage refinancing transactions that will provide up to a 65 percent savings on current rates.
On April 29, Gov. Andrew Cuomo and Benjamin M. Lawsky, superintendent of the New York State Department of Financial Services (NYDFS), jointly announced proposed regulations intended to slash title insurance rates by limiting ancillary charges and restricting the expenditures that title companies can give to their real estate partners.
The proposed regulation is the result of an NYDFS investigation that Cuomo’s office said “uncovered … significantly inflating title insurance premiums for consumers,” but the details of this investigation have not been made public.
On May 12, Lawsky announced title insurance rate reductions on refi transactions that will vary depending on the term, size and duration of the loan. Lawsky gave an example of a $200,000 loan, for which the borrower will pay 30 percent less to refinance 10 years or less from origination, and 65 percent less 10 years or more after origination, when using his original lender.
If the borrower uses a different lender, he will save 15 percent within the first 10 years, and 57.5 percent after 10 years.
Lawsky added in the announcement that “Additional savings are expected as further title insurance reforms are fully implemented. The newly approved rate filing is one in a series of steps NYDFS is taking to reform and cut costs in the title insurance industry.”
New York lawmakers and regulators have taken a particular interest in the title insurance industry for more than a decade. Around 2005, when the nation’s top title insurers settled charges of inducement and price-fixing practices for millions of dollars in several states, former Attorney General Eliot Spitzer led the charge to reduce title insurance premium rates and crack down on title companies allegedly engaging in illegal rebate and referral agreements with real estate agents, mortgage brokers, attorneys, real estate developers and others.
Spitzer settled cases with the top title insurers for millions of dollars, and the NYDFS approved a 15-percent rate reduction for the insurers with the largest market share in New York.
But these recent efforts to reform the title insurance industry are relatively new territory for state regulators, as last year, Cuomo’s budget authorized the NYDFS, for the first time, to issue licenses to title insurance agents, the same way it licenses agents and brokers in other lines of insurance. The state’s new title insurance licensing law requires agents to meet qualification standards and undergo regular training.
In announcing the new refi rates, the NYDFS added that it “will also have the authority to monitor abuses by agents and to revoke licenses accordingly, as well as help root out conflicts of interest that drive up costs for homeowners.”
Speaking of conflicts of interest: Earlier this week, state senator Dean G. Skelos vacated his post as Senate Majority Leader amid allegations of federal corruption — involving, in part, the business of title insurance.
Both the Republican senator and his son, Adam Skelos, were arrested May 4 by federal authorities on extortion, fraud and bribe solicitation charges. The six-count, 43-page complaint has been making headlines for its references to burner phones, secretly taped conversations and strong-arm tactics.
The senator is charged with taking official actions to benefit AbTech Industries, a small, Arizona-based environmental company, and Glenwood Management, a New York real estate developer, in exchange for the companies hiring his son.
Adam Skelos has worked for several title companies, including Liberty Title Insurance, Chicago Title Insurance Co., and East Coast Abstract. Liberty Title donated $10,500 to the senator, and later on, its president, Brian Madden, was sentenced to 20 months in prison for embezzling $2.2 million from clients’ escrow accounts.
Both Dean and Adam Skelos have denied the allegations and pledged to clear their names in court.