Florida House Insurance Subcommittee Passes Three Insurance-Related Bills; Reviews Florida Foreclosure-Related Issues

 

The Florida House of Representatives’ Insurance and Banking Subcommittee (“Subcommittee”) meeting opened today, February 24, 2011, with the passage of two “repealer” bills, HB 4099 and HB 4129, which repeal various obsolete insurance provisions. 

The Subcommittee also passed HB 4115 by State Representative Scott Plakon, which would repeal a statutory requirement that the Office of the Florida Insurance Consumer Advocate (“ICA”) issue annual report cards for residential property insurers.

According to Representative Plakon, who responded to a question from State Representative Evan Jenne, since the ICA has never before issued report cards, the bill would not lead to uninformed consumers.  It was explained that the insurer report cards have not heretofore been issued, partially because of the vagueness in the law, as well as because of their projected production expense.

Concern had also been expressed in relation to having an individual government employee “grade” a private enterprise.  State Representative Mack Bernard asked Interim Florida Insurance Consumer Advocate Terry Butler whether the lack of an insurer report card would injure the ICA’s ability to represent consumers, to which Mr. Butler indicated that the passage of HB 4115 into law would have no negative impact on the consumer protection ability of his Office. 

Florida Justice Association representative Reggie Garcia said that, while dropping the idea of giving a letter grade to insurers is not problematic, consumers would be losing access to information necessary to make informed decisions. Mr. Garcia conceded that most of the information to which he was referring is also collected by the Florida Office of Insurance Regulation.

A representative for the Florida Chamber of Commerce opined that an insurer report card was unnecessary, and that Florida’s insurance industry is already too heavily regulated. He suggested that State funds spent on insurance regulation may be better spent in other areas of the government.

Another speaker, Brian Pitts from Justice for Jesus, expressed outrage that consumers will lose access to information.  

Tom Cardwell, Florida’s Commissioner of the Office of Financial Regulation (“OFR”), provided the Subcommittee with an overview of the status of Florida’s banking industry.

Mr. Cardwell indicated that the number of State-chartered financial institutions in Florida has decreased to 297 since a high of 361 in 2006. Assets of those institutions have decreased by $15 billion from the 2006 high of $110 billion, to the present amount of $95 billion. 

There were no applications for new State-charted institutions in 2010 and only two in 2009. Both of these were granted.

The percentage of State-chartered banks considered unprofitable is down to 60.96 percent from 73.87 percent in 2009. Mr. Cardwell noted that the percentage of unprofitable State-charted banks is slightly below the percentage for all banks in Florida.

Slightly less than 6.5 percent of loans at Florida-chartered banks are considered delinquent, which is slightly less than the average for all banks in Florida. Commissioner Cardwell explained that, as of December 2010, 47.3 percent of State-chartered institutions were under heightened supervision by the OFR.

The Commissioner stated that Florida’s banking system is not at risk, and the peak of problem banks has passed. However, a long time period during which problems will be worked out is expected to last three or four years.

State Representative Bill Hager asked Commissioner Cardwell how the OFR determined when it was necessary to place an institution under heightened supervision. The Commissioner indicated that the decision was “more art than science,” inasmuch as the OFR must rely on the judgment of its professional staff to determine the ability of a bank to survive.

State Representative Jim Boyd asked Commissioner Cardwell if he anticipated any new applications for charters in the coming year, to which the Commissioner affirmed his anticipation of increased charter applications, but said that the present decrease in charters is likely due to the inability of new banks to obtain FDIC insurance (which is mandatory for all banks). 

John Sebree, representing the Florida Realtors, made a presentation on problems with foreclosures, short sales and related solutions. Nationally, he said, about one in 500 houses have received foreclosure notices, whereas one in 400 Florida houses have received the same.  This clearly indicates that the rest of the country is catching up to Florida’s foreclosure rate, he said.

Joel Searby of Strategic Guidance Systems provided a report in which the average person being foreclosed upon was profiled. Data indicates that foreclosures are impacting all demographics, regardless of wealth, education, age, race or any other factor. To characterize the cause of the current crisis as a lending issue, or an issue of consumers over-extending themselves, he said, is too simplistic and inaccurate.

Job loss, in addition to one other major personal financial event, is seen as the most prevalent cause of foreclosure. In 2009, the difference between the average sales price and the average foreclosure sales price in Florida was over $53,000.

According to Mr. Searby, data projects that foreclosures are declining and prices are increasing.  He also presented data that demonstrated a direct correlation between low unemployment in Florida and steady real estate sales. Among the solutions to the current foreclosure crisis he proposed was that lenders should determine the net present value of a property and pre-approve prices in order to swiftly transact short sales. He also suggested the following additional foreclosure crisis solutions:

• Grow jobs
• Establish a 45-day reply deadline for short sales
• Streamline the short sale process
• Require bank departments to communicate with each other relating to short sales
• Prohibit strategic default
• Allow refinances at current interest rates and principle reductions
• Non-judicial foreclosure
• Mandate special bank departments for cash sales
• Allow or encourage assumable mortgages
• Doc stamp relief for buying foreclosures

Addressing Mr. Sebree, State Representative Ritch Workman cautioned the Realtors about proposing mandates on banks and representing that short sales are “a right.” He asked the Realtors to remember that, every time a short sale takes place, a contract is broken and taxpayers pick up the bill.

Mr. Sebree retorted that foreclosure is far more costly to society than short sales. He also indicated that the value currently provided by Florida real estate is beginning to stimulate sales to out-of-state investors, including those from foreign countries.

Lisa Goodner, Administrator of State Courts, briefed the Subcommittee on the foreclosure crisis impact on the State’s court system. From 2009 to 2010, there were over 330,000 foreclosures filled in Florida, which does not include a backlog of over 400,000 previously filed foreclosure actions as of June 30, 2010. The backlog has been reduced to a little over 350,000 after the second quarter of fiscal year 2010-2011. In response, the courts have amended procedural rules, implemented foreclosure and economic recovery incentives, and implemented a managed mediation program for homestead properties in foreclosure. Currently, 94 senior judges are assigned to foreclosure dockets, 68 case managers have been hired and several special magistrates have also been hired.

Scott Palmer of the Florida Attorney General’s (“AG’s”) Mortgage Fraud Taskforce presented on the AG’s efforts to combat mortgage fraud. He related that the AG has encouraged lenders to assist homeowners in avoiding foreclosure and has worked with a 50-state task force to restore integrity in the chain of title. The AG also actively investigates irregularities in foreclosures, including robosigning, false affidavits, forged documents and improper notarization.

Mr. Palmer also noted that the profile of people making complaints about the foreclosure process are now stretching across all demographics. Meanwhile, the Office of the AG has stated that foreclosure process is in total disarray, and that fraudulent or inappropriate documentation has become all too common.

A representative from the Bankers Association wrapped up the meeting by cautioning the Subcommittee about the impending commercial real estate foreclosure crisis. The Bankers Association has indicated that a spike in commercial foreclosures could have more grave consequences than the residential foreclosure crisis.

To view the meeting packet, click here.

 

Should you have any questions or comments, please contact Colodny Fass.