On July 21, 2010, President Barack Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act into federal law as a response to the financial crisis of 2008. The purpose of the act was to place steeper regulations on the financial industry and boost the government’s control over major financial institutions. Of course, this was all in an effort to prevent another significant financial crisis from happening in the U.S. Once enacted, government officials enforced new financial regulatory processes that required transparency and accountability of the banking system while protecting consumers.
Now it’s 2017, and President-Elect Donald Trump has pledged to completely dismantle the Dodd-Frank Act. So, what does this mean for the title insurance agency? Well, we will cover our thoughts and predictions on that momentarily, but before we do, we would like to look back on the impact this act had on the industry years prior. As you know, the title insurance industry is a substantial service provider to banks and other lending institutions. When a real estate transaction occurs, you can assume, for the most part, that a lender will be involved in the process. For refinance transactions specifically, the lender typically chooses the title agency to work with and, in turn, the title agency will do the title search and prepare other pertinent information and documents.
When Dodd Frank went into effect, the Consumer Finance Protection Bureau enforced a $210 million fine against Capital One Bank. According to HDEP International, this particular financial institution, and many others, were considered, “responsible and liable for the actions of companies they hired to sell products and services to their credit card customers.” As a result, banks were held liable for the actions of partnering companies, which often included title and escrow agencies. In some instances, title agencies were either required to invest in numerous technologies to adhere to the procedures and processes asked of the large lending institutions, or they were forced to sever their partnership with the banks altogether.
This obviously led to some turmoil within the title insurance industry. If smaller title agencies couldn’t commit to these new changes and shell out the money for new security features and quality control metrics, they would lose business. Over time, many of the smaller agencies had to either merge with larger agencies to save their business, or they would go under. Many of the large lending firms integrated the services of a title insurance agent into their bank operations.
Still, many have argued that instead of preventing another financial crisis, the Dodd-Frank Act actually discouraged banks from lending. According to Steven Eisman, the strategist portrayed by Steve Carell in “The Big Short,” “the only lending area that’s really been negatively impacted since the 2008 crisis has been mortgages. That’s not a Dodd-Frank issue. That’s a post-crisis, banks-have-been-fined issue.”
Fast forward to today, President-Elect Donald Trump and his team are promising to repeal the Dodd-Frank Act. While this may seem like good news for many banks, lending institutions, and title agencies, there are a few things to keep in mind. One, it’s important to consider the impact this change may have on the economy, good and bad. Two, the level of accountability and responsibility these financial institutions may or may not have after the repeal. And three, the level of financial stability we can expect to see in our nation’s economy if the act is dismantled. Regardless of what your political affiliations are, repealing the Dodd-Frank Act could mean the following:
- The Bureau of Consumer Financial Protection could be eliminated completely, which would greatly impact the regulation of unfair, deceptive, or abusive practices by financial institutions.
- The Mortgage Reform and Anti-Predatory Lending Act would be repealed. This act provides protections and defense against foreclosure and regulates mortgage servicing and appraisal activities.
- The act makes it difficult for banks to process loans under $100k due to high overhead costs. If repealed, microloans to small businesses in low-to-moderate income communities could increase, which could increase new businesses and job creation.
At the end of the day, change is clearly in motion. The question is what regulations will remain and what will no longer be in play and what will it mean for business and real estate loans.
If you have any questions or concerns about your title insurance and what this may mean for your business, please do not hesitate to reach out to our experts! Call (602) 748-2800 to speak to one of our Title or Escrow Officers today.