FILED: NEW YORK COUNTY CLERK 02/20/ :36 PM INDEX NO /2018 NYSCEF DOC. NO. 31 RECEIVED NYSCEF: 02/20/2018

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2 Page 1 Tradition, Excellence, Knowledge and Vision Comments of Richard Estrella for January 12, 2018 Hearing Before N.Y. Assembly Standing Committee on Insurance Good Morning. My name is Richard Estrella and I am the President of the New York "Association" State Land Title Association (the "Association"). I am also a Senior Vice President and the New York State Agency Manager for Fidelity National Title Group, based in White Plains, New York. I would like to thank you for giving all the panelists the opportunity to speak at this Public Hearing. I am here today to speak on behalf of the Members of the Association that include title insurance underwriters, title agents, independent closers and title examiners. The Association has always supported rules, regulations and a professional code of conduct for the title insurance industry. Our Members are seasoned professionals who take pride in our industry, and who strongly advocated in favor of licensing requirements for title insurance agents. Over the past several years, we have regularly made ourselves available to meet with regulators to discuss the title insurance industry, and have always expressed our strong desire to work together to address issues facing our industry. In that spirit, I am speaking today on behalf of the Association to underscore what we believe are the severe, if unintended, state-wide consequences of Insurance Regulation 208 on the title insurance industry, particularly small businesses, which are vital to our State's economy, and the impact on consumers. First, title closers face serious harm from provisions of Section 228.5(d) of the Regulation that both prohibit in-house closers from receiving pick-up fees for sale transactions (while permitting independent closers to accept them), and ban pick-up fees in refinance transactions for all closers. By way of background, when a seller conveys title to his or her property, the seller is required to have any open mortgages satisfied at closing. This service is fee" typically provided by an individual known as a title closer, who is paid a "pick-up to attend the closing of the transaction with a satisfaction of mortgage, a very cost-effective option for consumers who would otherwise be forced to pay bank attorneys to provide this service. While Section 228.5(d) permits independent title closers-that is, title closers who are not employed by a title insurance agent or underwriter-to charge reasonable pick-up fees, it prohibits in-house closers from doing so. This makes no sense. We believe that inhouse closers from accepting pick-up fees is punitive and unreasonable, and by definition fails to forbidding comply with the requirement of Section 228.5(d)(2) itself that "sellers should be charged the services." same amounts for the same The Department of Financial Services appears to have assumed that pick-up fees are encompassed by premiums, and that title insurance companies therefore should pay in-house closers out of the premiums collected. However, that is simply false. In reality, pick-up fees are compensation for an ancillary service provided outside the scope of the issuance of a title policy. Title companies cannot afford to pay in-house closers the traditional rate for this service out of premiums, especially small businesses.

3 Page 2 Treating in-house and independent closers differently will, moreover, harm the industry, its employees, and consumers, because title insurance companies cannot reasonably bear the additional expense of paying in-house closers out of pocket to cover the lost pick-up fees. In the short term, in-house closers-whose compensation will also be significantly reduced by the regulation's prohibitions on pick-up fees for refinance transactions and gratuities-will exit the business because they will not be adequately compensated in the absence of these fees, potentially causing a shortage of title closers. Over the longer term, companies will need to raise premiums or find another way to be compensated for the service provided to be able to employ a sufficient number of closers, harming customers who will have less transparency into the costs of closers than at present. Prohibiting in-house closers from accepting pick-up fees and gratuities will thus harm consumers by causing delays in the scheduling and length of closings, as experienced in-house title closers whose schedules can be more closely supervised than independent closers are let go or exit the business. This regulation will also harm members' hardworking employees, as in-house closers who-unlike independent closersclosers receive health and other benefits, will be forced to become independent closers and lose these benefits, or exit the business entirely, because they cannot make ends meet as in-house closers if they cannot collect a pick-up fee and gratuity. The effects of these restrictions on closer fees are already being felt. Our members have already begun to see contracts of sale that require closing to be handled by in-house closers, a new requirement apparently intended to avoid paying pick-up fees. However, most agents-and in particular, small, "mom-and-pop" businesses that have operated for a long time-do not employ in-house closers, and now find themselves at an unfair competitive disadvantage. Nor can these businesses afford to hire title closers, in light of other provisions of Regulation 208, which I will address in turn, that will cause further economic harm to the industry. As such, these new, untested restrictions on closer fees are already putting companies across New York, many that have been in business for decades, in great jeopardy. I spoke to one agent who told me that because they cannot charge a pick-up fee for the closer, they have to consider closing buyers' their doors. The result of this is that consumers will have fewer choices, buyers attorneys, who have developed trusting relationships with agents, will need to develop new relationships, all without any logical reason for this to occur. New York is about growing employment, not limiting it. Additionally, prohibiting closers from accepting pick-up fees in refinance transactions will likewise have significant adverse consequences. These consequences will affect consumers, who may no longer be able to close refinance transactions promptly, and agents that rely on refinance business, who may not be able to afford to stay in business. Most residential refinance customers are not represented by counsel. As a result, title agents and underwriters must spend considerable time performing curative work to clean up title issues that arise during refinance transactions. Refinance transactions are accordingly labor intensive, and because the premiums in these transactions are low due to regulations over the last decade that have reduced premiums significantly, they already generate only nominal profits for agents. If title agents are required to closers' pay significantly more to closers in refinance transactions to replace lost compensation from pick-up fees (and gratuities), title agents may no longer break even on these transactions, and may exit the business.

4 Page 3 Let's put some historical context to this as well. In 2007, title agents were no longer able to charge for a survey endorsement for refinance transactions (which was an additional 10% premium charge), and in 2015, the mortgage refinance premiums were further reduced by up to 30%. Now, in addition to the elimination of gratuities, no closer (independent or in-house) is permitted to charge for a pick-up fee in a refinance transaction. Following previous reductions in mortgage premiums, fewer agents were soliciting and accepting applications for residential mortgage refinance transactions. Today, this type of business is handled primarily by smaller agents or agents that have a large volume of mortgage refinance transactions. I have been hearing from many agents that they may not be able to continue to afford to insure these type of transactions because now they will need to be 100% responsible for paying for the professional services of the closer and the mortgage premiums are too small to adequately compensate the closers and allow the title agent to generate a profit to stay in business. If small agencies that do significant refinance work-for some, these transactions represent as much as 90% of their business-are forced to shut down, consumers will be harmed by the reduction in the number of people in a position to complete these transactions, which will drive up costs for the consumer. Second, Section 228.5(a) of Regulation 208, which limits the fees that may be charged for certain government title searches and other services, is commercially unreasonable. The owners' costs of these searches are specifically excluded from coverage in standard policies, but attorneys representing owners and lender frequently ask title insurance companies and agents to provide this additional service. The time and resources title insurance companies and agents devote to servicing customers with respect to these searches go far beyond the out-of-pocket costs incurred. For example, title companies and agents frequently spend significant time answering follow-up questions related to searches for no additional charge. As a result, limiting charges for these services to 200% of out-of-pocket costs-as the new regulations do-would hardly (and may not at all) permit agents to recoup the real-world costs of the services they provide, and certainly would not permit them to make a reasonable profit sufficient to cover salaries, rent, and other overhead costs, as the fees charges for services traditionally have done. If, as a result of the regulation, insurers and agents can no longer afford to provide these services, consumers will be forced to obtain these services from other parties, such as attorneys, who may charge a higher-and unregulated-rate. The particular limits imposed are arbitraryarbitrary that is, without any economic or other analysis substantiating the specific caps selected. They are also so low that they will likely drive small companies out of business-a serious concern given that these limits will primarily apply to residential transactions involving smaller insurers and agents, thereby causing particular harm to small businesses and consumers. Third, the requirement in Section of the regulation that title insurance companies take a 5% reduction in premiums unless they can certify that they have made no prohibited expenditures over the last six years effectively imposes a retroactive penalty for conduct that was not prohibited at the time it was engaged in. Title insurance companies did not collect, and do not maintain, records concerning expenses over the last six years in a way that would enable them to make the required certification, for the simple reason that they collected data, and maintained their records, in accordance with the data call procedures that the Department had

5 Page 4 approved at the time; they had no way of knowing Department would later change the requirements. It is a violation of due process, and also unreasonable, arbitrary, and capricious, to put companies to the choice between making a retrospective certification based on data they do not have or suffering a significant financial penalty. The 5% figure chosen by the Department is inconsistent with existing provisions of the Insurance Law that require premiums to be based on actual experience. Finally, the spending restrictions in Section of the regulation, in conjunction with the 5% reduction in premiums, will disproportionately harm small businesses, and raise serious due process concerns. Insurance Law section 6409(d), which the new restrictions supposedly interpret, is an anti-inducement statute that prohibits an individual from offering something of value as an inducement for the issuance of a title insurance policy. Section of the regulation now prohibits traditional marketing expenditures such as meals and entertainment without requiring that there have been quid pro quo. The regulation thus expands Insurance Law 6409(d) to cover any number of innocent marketing activities, including something as simple as purchasing a client a cup of coffee. Title insurance agents and underwriters must regularly solicit new business relationships and maintain their existing client relationships to remain healthy businesses. Business lunches, for example, provide title agents with an opportunity to promote their services and expertise. The new restrictions prohibiting marketing expenditures will make it difficult for agents to grow their businesses. Notably, no other lines of insurance are prohibited from marketing their services in a similar manner. These marketing restrictions will have a particularly negative effect on small insurers and agents, by preventing such businesses from effectively marketing their skills and expertise in the large group settings that are crucial to building relationships and attracting new clients. Moreover, Section requires that marketing expenses, political contributions, and charitable customary" donations by title insurance companies and agents be "reasonable and and not excessive," "lavish or but these are vague and ambiguous terms. The Department has gone far beyond its jurisdiction in restricting activities such as political and charitable donations in this way. Put simply, even if companies make a good faith effort to collect and maintain data in the categories set out in the regulation (and even if they had attempted to collect that data in the past), they have no way of knowing what the Department will consider to be "reasonable and customary" excessive" and not "lavish or marketing and other expenses, making it impossible for them to structure their conduct to comply with the restrictions. Nonetheless, the regulation requires individual officers to certify annually, under penalty of a false filing to the State, that their companies have not made any such expenditures. Furthermore, the regulation requires individual officers to certify that their companies have not made any such expenditures during the previous six years, or suffer a 5% reduction in premiums. Because the limitations are vague and ambiguous, it is entirely possible that the State will seek to impose criminal penalties for what it later determines are expenses or certifications that do not comply with the regulation, even if the industry does its very best to comply. Due process does not permit the State to place an entire industry under the cloud of criminal suspicion based on vague standards of conduct, or to put it to the impossible choice between risking criminal sanction for violating ambiguous regulations or accepting a significant monetary penalty. For all of the reasons discussed, we ask that the Department of Financial Services expand the stay of implementation to cover Regulation 208 in its entirety, and to extend it through June

6 Page 5 30, 2018, as requested by a number of state legislators. Expanding and extending the stay in this way will give the Department the opportunity to revisit and fix certain legally deficient portions of Insurance Regulation 208, for the benefit of the industry and consumers. In the alternative, we request that the Department correct the deficiencies in the regulations immediately. I also want to express the Association's support for A8467 sponsored by Chairman Cahill. Enactment of this bill into law would address many of our concerns with Regulation 208. Thank you.