Tag Archives: Impact

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Mortgage lenders prepare for impact of Dodd-Frank Act

Stan Feffer is president and chief operating officer of Grand Canyon Title Agency, Inc. – a Phoenix-based firm with 18 offices located throughout Maricopa County. When Feffer is not leading Grand Canyon’s 120 employees, he prefers to navigate the cool waters off the coast of San Diego on his surf board. Patiently waiting for the right set of waves and watching the horizon closely helps him choose the right wave to commit his efforts. Diligence in picking the right waves makes for a good day surfing.

While at work, Feffer is focused on the pending impact of the Dodd-Frank Act on the mortgage lending community and in particular the title industry. Prepared with more than 30 years’ experience in the real estate and title and escrow industry working both for a large, public firm and a local title agency, Feffer has charted a course for Grand Canyon to successfully navigate these uncertain waters and in doing so, established the organization as a leader nationally with its underwriters. By embracing industry reform, Grand Canyon is better prepared to deal with lenders’ compliance needs and to protect consumers’ privacy needs.

In 2010, the Dodd–Frank Wall Street Reform and Consumer Protection Act created the Consumer Financial Protection Bureau (CFPB) and provided authority for the CFPB to supervise financial institutions for compliance with federal consumer financial laws. Providing real estate settlement services to one of these regulated financial institutions (like your bank or mortgage lender) is deemed to be providing financial products or services under the act. As a result, the CFPB can bring enforcement actions directly against a real estate settlement services provider (such as your title insurance agent) for a violation of a consumer financial protection law or against the financial institution making the loan.

With the increased risk, banks are giving a hard look at all of their service providers. Complicating the matter, the CFPB has been faulted for its lack of transparency and guidance leaving many uncertain as to how to comply with the new requirements.

As a result, the Wall Street Journal reports that the CFPB’s actions are stirring concerns about large scale consolidation of closing services providers by the banks and the potential that some title companies – especially smaller firms that serve isolated and rural communities – will be forced out of business.

“When the Bureau (CFPB) operates in a transparent … and open … manner, the results are generally positive … However, when the bureau makes unilateral decisions, rolls out initiatives, rules or processes in a more closed deliberation, the results are far more likely to be problematic,” American Land Title Association (ALTA) President Rob Chapman said in testimony on May 21 before the Financial Institutions and Consumer Credit subcommittee of the House Committee on Financial Services.

To strategically position itself and avoid this existential threat, Grand Canyon Title’s Feffer aggressively moved to establish the agency as a leader in “compliance” with the emerging rules to present an easy choice for lenders to work with. In late 2012, Feffer began steering the organization to adopt a series of industry “best practices” put forth by the ALTA intended to put settlement service providers (title agencies and escrow firms) in compliance with the CFPB regulations.

On July 19, 2013, when ALTA published its version 2.0 of “Title Insurance and Settlement Company Best Practices,” setting forth industry guidelines for business procedures and service levels, Feffer engaged WGM Associates LLC, a Scottsdale-based information technology and security consultancy with extensive banking and real estate experience to lead the effort. The ALTA best practices address seven main areas ranging from internal controls regarding trust accounts to protecting customers’ personal information and responding to complaints. Best Practice No. 3 deals specifically with protecting consumers Non-Public Personal Information or NPI. Best Practice No. 3 includes requirements and procedures for physical security of computers, “clean desk” policies, risk management, disaster recovery, information security practices and methods for the encryption of private data.

For instance, loan and closing documents emailed to you containing NPI must be encrypted. Collectively, these practices are a means for settlement service providers to address the need for increased lender oversight and to ensure necessary safeguards to protect consumers. According to Feffer, WGM’s direct industry knowledge and extensive information security experience made the process clear and kept the mission on track.

The implementation of the Best Practices is voluntary, but an important means to ensure reduction of risk in the overall financial system and to protect against identity fraud. Many settlement service providers have adopted a ‘wait-and ’see’ attitude. However, large banks such as Wells Fargo have embraced the ALTA Best Practices Program validating Feffer’s strategy. In their newsletter to Settlement Agents dated March 6, 2014, Wells Fargo says that ALTA’s Best Practices “… are designed to help illustrate to consumers and clients the industry’s professionalism and best practices to help ensure a positive and compliant real estate settlement experience. Wells Fargo supports ALTA’s Best Practices, and considers them to be guidelines for sound business practices that should ideally already be in place for businesses providing title and closing services for our customers.”

Under the ALTA Best Practice Program, settlement service providers perform a detailed review and assessment of their operations – typically using an experienced third-party expert like WGM. The resulting Best Practice Certification Package is then used to certify to consumers, mortgage originators and mortgage servicers that the assessment found the firm to be in compliance with the ALTA Best Practices in all material respects and represent the firm will remain in material compliance for the next two years.

In January of 2014, Grand Canyon successfully completed its first compliance review. Feffer proudly presented the document to his business partners as evidence of their continued leadership in the Phoenix marketplace. Recognizing the effort is a continuing commitment and ongoing journey, Feffer conducts regular training and educational seminars for Grand Canyon employees with WGM’s help. Now Feffer confidently presents copies of the Certification Package to lenders when they meet, assuring them of their continued compliance effort. Feffer’s hope is that mortgage lenders and their peers will recognize Grand Canyon’s efforts and see the company as a logical choice to provide closing services and to help mitigate risk in this changing environment.

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Steptoe hosts Construction Industry Tax Seminar

Contractors, developers, construction managers, and homebuilders are invited to attend Steptoe & Johnson’s 10th Annual Construction Industry Tax Seminar co-sponsored by the AzBusiness Magazine. Steptoe’s tax lawyers will bring participants an annual update on the latest developments in Arizona’s sales and property taxation.

The seminar will take place September 27, 2013 and the Arizona Biltmore Resort.
The program will focus on new legislation, which if passed and signed by the Governor, will turn the sales taxation of contracting upside down–from taxing the prime contractor to taxing the sale of building materials, except for road and bridge construction where the prime contractor will still be taxed (H.B. 2111). In addition, seminar leaders will bring you up to date on legislation (already signed by the Governor) that does away with the “permanent attachment” test under the exemption for installing exempt machinery and equipment (H.B. 2535).

Speakers include Pat Derdenger, Dawn Gabel, Frank Crociata and Ben Gardner, all members of Steptoe’s Tax Group in Phoenix. Steptoe’s tax lawyers bring to clients decades of consulting, transactional, and advocacy experience in all substantive areas of federal and state taxation.

The luncheon speaker will be Hon. John Shadegg, partner in Steptoe’s Phoenix office and former US Congressman. He will give his perspective on the Affordable Care Act and how it will impact Arizona businesses.

For more information, call 602-257-7708. Register online at www.steptoe.com.

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How will airline merger impact Arizona?

The potential merger of US Airways and American Airways raised fears in Arizona that the combined airline would ditch its major hub in Phoenix, costing thousands of jobs in a region just now recovering from the housing collapse and recession that crippled the economy for years.

But when the merger was announced Thursday, city and airline officials both said those worries were overblown.

US Airways CEO Doug Parker said Sky Harbor International Airport and the vast majority of the employees based there aren’t going anywhere when the two companies merge. Instead, he said not only Sky Harbor, but the combined airlines’ seven other major hubs will stay.

That brought elation from officials in Phoenix, where 300 US Airways flights a day use 50 gates at the airport’s largest terminal. US Airways has about 9,000 employees in Arizona, most at Sky Harbor. Between 600-750 work at the company’s headquarters in nearby Tempe, and some of those are expected to go to Texas once the merger is complete, including Parker.

But John McDonald, the company’s vice president for corporate communications, said US Airways just signed a new five-year lease with a five-year option on its headquarters building and expects to keep hundreds of people working there.

American has a tiny presence by comparison, with just 20 departures a day using three gates in the smaller Terminal 3. Those operations will most likely move to the US Airways area of Terminal 4 when the merger is complete, airport spokeswoman Deborah Ostreicher said.

Still, the loss of the headquarters is a blow, Phoenix Mayor Greg Stanton said, even though the city will see more international destinations added with the merger.

“It’s great news that the world’s largest airline will maintain Sky Harbor and Phoenix, Arizona as a hub. It good news for the business environment in our entire region,” Stanton told reporters at the airport. “But we’re not naive, we’re not naive, we know it’s disappointing to lose a corporate headquarters, particularly one that has the history of US Airways and before that America West. We went through the 90s together, we went through Sept. 11 together. Phoenix was a big part of the recovery of America West after that tragedy.”

America West Airlines, headed by Parker, merged with US Airways in 2005 and kept its corporate headquarters in Tempe. The company has struggled with combining its labor contracts, but McDonald said that’s never been something that affected customer service. That, he said, has become better, with better on-time and lower baggage loss rates.

Some airline analysts questioned Thursday whether the combined company could keep all eight hubs, placing Phoenix on the short list for eventual closure. But McDonald said that’s not the case, American’s Los Angeles hub complements Phoenix, just as several hubs in the eastern U.S. complement each other.

“When you have an airport like Phoenix that can have a massive western region to feed, out of Phoenix, you have an asset to bring to this equation,” McDonald said. “American Airlines has a lot of trans-continental out of Los Angeles, they also operate some Asian Pacific out of Los Angeles, with very little West coast feed into that hub.”

AMR-US Airways

What an American-US Airways merger means to you

While American Airlines and US Airways have started merger discussions, it would be several months — if not years — before passengers see any real impact.

Passengers with existing tickets on American or US Airways — and members of both frequent flier programs — shouldn’t fret. No changes will come anytime soon.

Assuming quick merger negotiations, American’s parent company, AMR Corp., would still have to work its way through the bankruptcy process. Then the Department of Transportation and the Justice Department would have to sign off on it. Finally, once a deal closes, the new company could operate two separate airlines for a number of years.

If the airlines finally merge, here’s what passengers can expect:

AIRFARE

In the past decade, the airline industry has seen the combinations of Delta with Northwest, United with Continental and Southwest Airlines Co. with AirTran. Further consolidation is likely to raise airfares. The price of a domestic round-trip flight has climbed nearly 20 percent, when adjusted for inflation, over the last 10 years, according to the Bureau of Transportation Statistics.

The merger would give a combined American and US Airways Group Inc. the ability to increase fares. United, Delta and Southwest would be likely to follow.

FREQUENT FLIER MILES

Your miles would be safe. Eventually, the two airlines would merge the miles into one program. Before then, elite status from one airline would likely be honored on the other and passengers would be able to transfer miles from one program to another. That puts the occasional traveler closer to rewards.

The merged carrier would continue American’s participation in the OneWorld alliance, which was founded by American, British Airways, Cathay Pacific and Qantas. Today, it has 12 airlines including Finnair, Mexicana and Japan Airlines. US Airways would leave the Star Alliance, which includes rival United Airlines, Lufthansa, Air Canada and 24 other airlines. Alliances allow passengers to earn and redeem miles on partner airlines.

DESTINATIONS

A key reason for merging is to link both airlines’ networks, creating a system on par with Delta Air Lines and United Airlines, part of United Continental Holdings Inc. American currently serves about 250 cities in more than 40 countries with 3,400 daily flights. US Airways has 200 destinations in 28 countries with 3,200 daily flights. There is some overlap. But by joining forces the combined airline would become more attractive to companies seeking to fly employees around the globe with few connections.

US Airways passengers would gain access to American’s international destinations, particularly London and Latin America. American’s passengers would be able to better connect to smaller U.S. cities that US Airways serves.

The combined carrier would have considerable presence in New York, Philadelphia, Washington, Charlotte, N.C., Miami, Chicago, Dallas, Phoenix and Los Angeles. It is unclear how many of those cities would survive the merger. In past mergers, airlines have promised not to close any hubs but have gone ahead and dramatically reduced service in once-key cities.

PASSENGER CONFUSION

The merger of two airlines often means confusion and hassle for customers. Which terminal or ticket counter do they go to for check in? If there is a problem with a ticket, which company should they call? For a while, United and Continental were issuing two confirmation numbers for each ticket so either airline’s staff could make changes. Problems with the integration of their frequent flier programs angered many loyal road warriors. It could be months, if not years, until all American and US Airways planes get a uniform paint job.

“These things are never as seamless as they seem,” said Thomas Lawton, a professor of business administration at Dartmouth College’s Tuck School of business. “There will probably be some initial teething problems.”