American Land Title Association President Testifies Before Congress on Impact of First-Time Buyer’s Credit and Creation of CFPA

WASHINGTON--(BUSINESS WIRE)--The extension and expansion of the $8,000 first-time homebuyer tax credit would greatly stimulate the housing market and propel the country onto further recovery, while the creation of a Consumer Finance Protection Agency (CFPA) would impose many unintended consequences on small businesses including title agencies and escrow operations, American Land Title Association President Mike Pryor told members of Congress today.

“Incentives like low interest rates and a limited, first-time homebuyer tax credit ensure that revenue and employment losses are not as bad as they could be. Congress should take simple, common sense steps to remove barriers to growth in the title industry and prevent additional barriers from being created.”

ALTA is in support of making the current tax credit, which expires after Nov. 30, available to all homebuyers, without restrictions on income or their status as a first-time homebuyer because it will continue to bring consumers back to the market, reduce inventories of unsold homes and stabilize home prices.

“Last year, Congress provided much needed assistance to the real estate economy with the passage of the First Time Homebuyer Tax Credit,” Pryor said during a hearing for the House Small Business Committee. “I would be reluctant to declare its effect a boom, but I can tell you that without that action, many in our industry would have closed their doors. Unfortunately, the threat of closure still exists. Unless Congress acts quickly, it will be a very long winter for many of us.”

Without the tax credit stimulus, the summer season, which is typically the real estate’s strongest period, would have been dismal. “The lack of summer reserves, coupled with exhausted or unavailable credit has left too many of our members struggling for their economic lives,” Pryor said.

Pryor also warned of the unintended consequences the CFPA would have on all small businesses. The CFPA would impose a third layer of regulation and an additional federal bureaucracy onto the title insurance and settlement services industry, according to Pryor. Unlike many other small businesses, title insurance agencies cannot easily pass additional costs onto customers because rates and charges for title related services are regulated by state insurance departments. In addition to state regulation, the title industry is also regulated by the federal government through the Real Estate Settlement Procedures Act (RESPA).

Like many other small businesses that have been exempted from the bill, extending CFPA regulatory authority to the title industry has no measurable benefit in achieving the bill’s purposes, but would add to it essentially needless regulation at a cost to small business owners.

“America’s small business owners do not have human resource and IT departments,” Pryor said. “They do not have in-house general counsel or government compliance divisions. Those hats are all worn by the same small business owner/manager who is struggling to comply with existing regulations in a difficult economic time.”

New RESPA rules, which come into effect on January 1, 2010, as well as revisions to the Truth In Lending Act (TILA), increase costs for title agencies even further and place additional stress on these small businesses’ already strained resources.

“The CFPA is simply ill-timed and ill-conceived,” Pryor said. “I know that hope and optimism are required traits for small business survival, and I can say that, right now, neither is in great supply for America’s small businesses. We must not extinguish this remaining spirit of small business. Nowhere is it more tenuous than in our real estate sector.”

Beyond extending and expanding the tax credit, Pryor asked Congress to raise the Fannie Mae and Freddie Mac conventional loan limits from the current $417,000 level to $625,000. This would provide needed credit to the “move up” buyers, “thereby creating a velocity throughout the real estate column,” Pryor said. In an effort to provide better consumer awareness, he also urged Congress to enact a borrower’s right of inspection period prior to settlement, so homeowners can review their completed closing statement.

“A fragile stability exists within the housing industry, but this stability is even weaker within the title industry, especially on small businesses,” Pryor testified. “Incentives like low interest rates and a limited, first-time homebuyer tax credit ensure that revenue and employment losses are not as bad as they could be. Congress should take simple, common sense steps to remove barriers to growth in the title industry and prevent additional barriers from being created.”

About ALTA

The American Land Title Association, founded in 1907, is a national trade association representing more than 3,000 title insurance companies, title agents, independent abstracters, title searchers, and attorneys. With more than 8,000 offices throughout the United States, ALTA members conduct title searches, examinations, closings, and issue title insurance that protects real property owners and mortgage lenders against losses from defects in titles. ALTA member companies employ well over 100,000 individuals and operate in every county in the U.S., and several countries around the world.