Relating to evidence of title by state banks and credit unions for certain loans

Description

Senate File 527 provides that State banks and credit unions may evidence title with a written legal opinion from an attorney admitted to practice law in the state where the property is located, a title guaranty certificate issued by the Title Guaranty Division of the Iowa Finance Authority (IFA), or a commercial title insurance policy insuring title to the property and the validity of the new instrument as a lien on the property.

Background

• While a borrower or lender is not prohibited from purchasing title insurance outside the State of Iowa for property located within Iowa, Iowa Code section 535.8 does not allow a bank or credit union to charge a borrower for the costs of such a policy. Furthermore, the sale of commercial title insurance by insurance agencies in Iowa is prohibited by Iowa Code section 515.48.
• The Iowa Title Guaranty program provides lender certificates to 62.0% of mortgages filed in Iowa.
• The Iowa Title Guaranty program provides lender certificates to 16.5% of mortgages filed in Pottawattamie County.

Assumptions

• The below-average occurrence of lender certificates in Pottawattamie County is due to the close proximity of competing title insurance systems in Omaha, Nebraska.
• The introduction of title insurance in Iowa will decrease the gross revenue of the Iowa Title Guaranty program by at least 10.0% per year for the first five years. This assumption is derived from the comparison of the Iowa Title Guaranty program’s market share in Pottawattamie County to its market share statewide.
• Operating expenses will decrease in proportion to gross revenue.
• Full-time equivalent (FTE) positions will decrease in proportion to gross revenue.
• Contributions of surplus revenue to the housing assistance programs administered by the IFA will decrease in proportion to gross revenue.

Fiscal Impact

It is anticipated that SF 527 will result in a decrease in revenue for the Title Guaranty Division of the IFA of 10.0% each year for the next five years. The impact on IFA revenues, expenditures, and FTE positions is shown in greater detail in the table below.

TABLE 1 — SF 527 Projected IFA Expenditure and Revenue Impact of Senate File 527

Estimated

FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 Employee Expenses 2,350,459$ 2,115,413$ 1,903,872$ 1,713,485$ 1,542,136$ 1,387,923$ Incentive Fees 3,194,670$ 2,875,203$ 2,587,683$ 2,328,914$ 2,096,023$ 1,886,421$ Other Operating Expenses 1,069,342$ 962,408$ 866,167$ 779,550$ 701,595$ 631,436$ Contributions to IHAP* 1,000,000$ 900,000$ 810,000$ 729,000$ 656,100$ 590,490$ Total Expenses and Contributions 7,614,471$ 6,853,024$ 6,167,722$ 5,550,949$ 4,995,855$ 4,496,269$ Total Operating Revenues 7,680,304$ 6,912,274$ 6,221,046$ 5,598,942$ 5,039,047$ 4,535,143$ Retained Earnings and Reserves 65,833$ 59,250$ 53,325$ 47,992$ 43,193$ 38,874$ FTE Positions 17.0 15.3 13.8 12.4 11.2 10.0 *IHAP=Iowa Habitat and Access Program

Sources

• Iowa Finance Authority
• Iowa Department of Commerce, Insurance Division