Speaker 1: Hello, everyone. My name is Vincent Danze. I am Vice President of Operations here at the Security Title Guarantee Corporation of Baltimore, and I'm here today to talk with you about title insurance marketing compliance. This is a subject that often only gets attention when something goes wrong, but like many things, an ounce of prevention is worth a pound of cure. With some advanced planning, staying compliant with marketing rules and guidelines is as achievable as it is important to the long-term success of any title insurance agent. This is the first of what is intended to be several videos about title insurance marketing compliance. While there are many resources available for title insurance agents and their personnel to learn about how to underwrite title policies, marketing compliance is a subject that is often not given as much attention as it deserves, especially when you consider that this is an area of compliance that has been growing in importance for years. When it comes to title insurance marketing compliance, it is important to understand the rules and regulations come from two separate and distinct sources, which have different and distinct purposes, even though those sources end up regulating much of the same activities. On the one hand, as a provider of a type of insurance, title insurance providers are regulated at the state level by our respective state departments of insurance. And on the other hand, because the federal government is heavily involved in subsidizing the availability and cost of consumer mortgage loans, our industry is indirectly but powerfully regulated at the federal level through our position as service providers to mortgage lenders originating with federally subsidized loans. This state level of regulation comes from the perspective of ensuring that our type of insurance business is conducted in a way that supports our solvency and financial wherewithal and in a way that is fair, non-discriminatory, and free from corrupt practices that unnecessarily increase cost to consumers. As service providers to lenders, though, we are regulated as providers of services that are paid for by federally subsidized mortgage loans. Both regulation sources ultimately, commonly zero in on ensuring that prices for our services are not made unnecessarily higher because of the ability to steer business. In general, the regulations are designed to keep title insurance providers from paying referral sources for business that is ultimately funded by the insurer. If you've applied for a mortgage loan recently, you will surely have received a number of disclosures concerning third-party services that the bank is going to require you to obtain and pay for, an appraisal, homeowner's insurance, perhaps mortgage insurance, and certainly title insurance. In some cases, the consumer is entitled to choose the providers of those services or at least to choose among several providers. However, practically speaking, the consumer usually has little knowledge of the services required and is more than ready to let the bank or the loan broker or the real estate agent choose for them. For those service providers, the natural target for their promotional and advertising efforts are those very professionals who are most familiar with their product and who are routinely in the position of making referrals on such business. Though this may be the natural result, it is a position that can be abused, at least insofar as those who are footing the bill are concerned. This is the light with which our industry is often examined by regulators. Seemingly innocuous things that would be considered normal in other industries, such as a dinner lunch, can take on an unfavorable appearance because of it being in the context of a title insurance provider meeting with a potential insurance applicant or representative of one. One of the best ways to address such things is to develop a company policy on marketing that shows your knowledge of the rules and a procedure to follow to ensure that reasonable steps are regularly taken to conform the company's activities to the applicable rules. However, before you can do that, you need to get a notion of what the relevant rules are. The Real Estate Settlement Procedures Act of 1974, or RESPA for short, is a federal law applicable to transactions involving federally related mortgage loans, which is a defined term that includes most consumer mortgage loans on residential real property. RESPA covers three basic subjects, those being the settlement of mortgage loans, the servicing of mortgage loans, and the solicitation of business for mortgage loans, with the common nexus being that they are federally related mortgage loans. So, a foundational primary question when it comes to RESPA compliance is whether the particular transaction is RESPA regulated in the first place. Some of the most commonly encountered transactions that would not be subject to RESPA regulation would be transactions that do not involve consumer mortgages, such as an all-cash purchase. Another type of transaction that is not RESPA regulated are transactions with or without mortgage loans that concern commercial property. To the extent that we can determine the type of business a particular marketing event is likely to generate, that information can be helpful to calibrating a compliant marketing approach. On the state level, however, so long as you are providing title insurance, the regulations are generally applicable, notwithstanding the type of real property or the identity of the applicant. The states are not uniform in their approach to title insurance marketing, with most leaving the detailed regulation of that subject to RESPA, but some states do have their own comprehensive set of marketing compliance rules, and many reference the anti-kickback provisions of RESPA as an example, either explicitly or implicitly. So, it is important to understand the regulatory background that RESPA provides. New York has a relatively recently promulgated, comparatively robust set of marketing regulations, some of which are more strict than RESPA's rules. However, no matter the type of transaction or business, knowledge of and understanding the state-level rules within your state is critical, and it cannot be assumed that a marketing activity that is RESPA compliant would necessarily also be compliant with applicable state law or vice versa. So, what are some examples of the interplay of federal and state marketing regulation? Well, first, RESPA does not place hard limits on the amount of business that may be generated from affiliated or controlled sources. However, several state insurance departments do have such regulations. So, if you are operating in multiple states and some have a hard limit and some do not, that type of issue can be an important, often complicating consideration. Second, while state title insurance laws and regulations may be more applicable to a greater variety of your transactions, RESPA often reaches its targets indirectly through other parties. This type of distinction can be particularly important in the context of disclosures because the obligation to provide some of these disclosures may ultimately be out of the direct control of the referred party, and compliance becomes a function of ensuring that things are happening as they should, even if you are not always in control of their execution. Thirdly, another important issue that arises with regard to state-level regulation is that there is the potential for conflict between the various states' rules and their jurisdiction. In any case, we must determine which state's marketing activity rules apply to our activities. Does a state's rules apply solely because the title agent has a license from that state, even when the marketing activity is elsewhere and the target audience is customers from other states? Is the promotional event governed by the rules of the state of the location of the event or by the location of the customers that attend the event, or is it both? If a state does not license title agents but nevertheless has regulations for title insurance business, when does a state, when does a title agent become obligated to abide by those regulations, and upon what is that answer dependent? As you can see, there are several important issues to consider. The overall point is that you don't want to be put into a situation where the only compliant approach may be to turn down business because it was sourced in a way that only with retrospect appears non-compliant. As suggested earlier, I think the best approach to this dilemma is to create internal policies and procedures to apply the laws and rules of the affected jurisdictions in a systematic and analytical way, and that is really what this series of presentations is intended to assist you in doing. So, in summary, title insurance marketing regulation comes primarily from two different sources, a state mandate to oversee the provision of title insurance as a form of insurance and a federal mandate to keep those involved in originating federally related mortgage loans from abusing government-sponsored liquidity by unnecessarily increasing the cost of incidental mortgage costs. In our next installment, we will begin to tie the two converging bodies of law and regulation together as we consider how to host and plan a real-life promotional event in an actual state looking at present-day regulations. Thank you for your attention, and I hope you'll join me next time for our next installment.