Affilated Business Blog - Welcome
Welcome to the Affiliated Business Blog.Affiliated Business Arrangements (AfBA's sometimes called ABAs) and "One Stop Shopping" are the hottest trends in the real estate business.
What are AfBA's? (per RESPRO):
Congress recognized the potential consumer benefits of one-stop shopping in 1983 by amending RESPA to allow for the creation of affiliated business arrangements (AfBAs) to exempt from RESPA returns on an ownership interest in a settlement service provider (e.g., dividends, profits) as long as:
- The financial interest is disclosed to the consumer (the "affiliated business arrangement" or "AfBA" disclosure);
- The consumer is not required to use the affiliated settlement service; and
- No other payments prohibited under RESPA are made.
This forum is geared toward Texas AfBA's but will have relavance in other markets. AfBA's are not as common in the Lone Star State as in other parts of the country but they are not new. In fact, most large builders own their own mortgage and title operations; Pulte Homes - PHT Home Title, DH Horton - DHI Title, Lennar Homes - North American Title, etc.
Many smaller builders, mortgage companies, developers, banks, credit unions and real estate agencies realize they can now enjoy another revenue stream from the sale of title insurance.
In Texas, real estate agents and home builders have already embraced the idea of providing mortgages but the title business has been more elusive. There's a reason for this.
Think of the title industry as the man behind the curtain in the Wizard of Oz. He is pulling levers, shooting fire and blowing smoke to make it appear that only the "Great Title OZ" could possibly make money in the title business. To put it nicely, that is horsefeathers!
Title companies have done a good job of keeping "people like you" out of the business. They have arbitrarily kept the cost of title plants high (you must have a title plant to be a licensed agent) and have disseminated erroneous information such as "you have to be an attorney to be in the title business."
Having said this, the title business is not an easy business. In Texas, the title industry is highly regulated and you MUST employ or partner with experienced title professionals if you expect to be underwritten, to be licenced and to be successful.
Before investing in a title agency you should answer certain questions:
- Who will manage and operate the Title Agency?
- How will the service compare to what I am currently receiving?
- What are benefits and risks of owning an interest in a Title Agency?
- How do I partner with title professionals?
- What are the RESPA rules for Affiliated Businesses?
- How much business can I reasonably expect to generate?
- How do I find an Underwriter to sponsor my Agency?
- What are the costs of capitalization?
Answers to these questions will help you make an intelligent decision about whether or not you have the volume, expertise and other resources required for a successful AfBA.
Perhaps, you can direct a large amount of business but not enough to justify your own title agency. In that case, you may want to network with other like-minded individuals to determine if together you have the volume and chemistry for success.
The Real Estate Services Providers Council (RESPRO) is an organization which represents the interests of AfBA owners and managers.
From the RESPRO homepage:
The Real Estate Services Providers Council (RESPRO®) is a national non-profit trade association that unites providers from across the home buying and financing industry towards one common goal: a business and regulatory environment that better enables all of our members to efficiently offer affiliated services through subsidiaries, joint ventures, and strategy partnerships.
Our members are cutting edge real estate broker-owners, real estate franchisers, mortgage lenders/brokers, title insurers/agents, home builders, home warranty companies, and other settlement service providers throughout North America.
We represent their affiliated businesses before federal and state policymakers, help them manage their confusing and changing regulatory environment, and enable them to share ideas and develop successful affiliated businesses and strategic alliances in compliance with federal and state laws.
What's changed?
Why does forming an AfBA's make more sense now than it did before? What's changed? In Texas, the high cost of title plant access has been greatly reduced since Integrity Title entered the market.
In 2002, if you wanted to be a Title Agent in Harris County, Texas there was only one title plant provider, a "Joint Plant" (owned by the major underwriters and a couple of large independents) and the access fee was approximately $18,000 per month plus other fees. At this cost, you could only be a very large agent to afford plant access. In 2003, a new Title Plant entered the Harris County market and within 30 days the Joint Plant lowered its monthly fee to under $8,000. See Houston Business Journal Article dated September 26, 2003 and follow up story dated October 4, 2003. Integrity Title has built title plants in the Dallas market and the joint plants there have also followed suit. In Dallas County, the up front cost to buy into the plant was over $2 Million and the monthly fee was $25,000 per month.
Anyone remotely connected with the real estate industry is familiar with the Texas Department of Insurance Procedural Rule - 53 against illegal rebates. The reason this rule was enacted is because Title Agents were buying business by paying for printing, luxury boxes at sports stadiums, sending real estate agents on exotic trips. The cost of these and similar activities were being fed into the insurance rates and finally the Commissioner had enough and enacted this rule as an attempt to reform the industry.
From an AfBA owner's perspective, who needs incentives like these when you can legally own an interest in your own title agency and pay for your own trips and buy your own sky boxes? Why should the title industry subsidize real estate agents when they can pay for these luxuries themselves legally from the profits of an AfBA?
Writing on the Wall
Recently, ReMax of Texas started a statewide title agency with Chicago Title. One of the largest ReMax brokers and his associates, on the west side of Houston, have operated a successful title business for over 2 years. Over the last few years several mortgage companies have started their own title agencies with success.
The writing is on the wall. When the largest real estate company in world, Cendant (Coldwell Banker, Century 21, Prudential, etc.) buys the largest independent title Agency in Texas, Texas American Title Company, [Article] it's just a matter of time before every real estate company will, at the very least, investigate the possibility of generating revenue from the title business.
There is a sea-change occuring in the real estate, mortgage and title business in Texas. This bodes well for those willing to accept the challenge and take advantage of the new market conditions.
Our objectives are to:
- Give Producers (i. e. Real Estate Agents, Mortgage Companies, Builders, etc.), the information they need to determine if starting an AfBA makes sense
- Discuss - RESPA complicance and State of Texas Regulatory Issues
- Discuss why some AfBA's work and why others do not
- Explore how AfBA owners can work together in this new business environment
- Host educational seminars to network and discuss issues with other AfBA's owners and prospects
- Stay abreast of regulatory issues involving the title industry and AfBA's
posted by Paul Cones @ 2:34 AM
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