76 FRB 1058 (Dec, 1990)

Norwest Corporation
Minneapolis, Minnesota

Order Approving the Acquisition of a Title Insurance Agency

Norwest Corporation, Minneapolis, Minnesota ("Norwest"), a bank holding company within the meaning of the Bank Holding Company Act ("BHC Act"), has applied under section 4(c)(8) of the BHC Act (12 U.S.C. § 1843(e)(8)) and section 225.23(a) of the Board's Regulation Y (12 C.F.R. 225.23(a)) for the Board's approval to acquire all the outstanding shares of American Land Title Co., Inc., Omaha, Nebraska ("American Land Title"), and through American Land Title, engage in title insurance agency and real estate settlement activities in Nebraska./1/

Notice of the application, affording interested persons an opportunity to submit comments, has been duly published (55 Federal Register 35,184 (1990)). The time for filing comments has expired, and the Board has considered the application and all comments received in light of the public interest factors set forth in section 4(c)(8) of the BHC Act.

Norwest, with total consolidated assets of $26.8 billion, is the second largest banking organization in Minnesota./2/ Applicant controls 34 banking subsidiaries in ten states in the Midwest and owns a number of subsidiaries engaged in nonbanking activities.

The Board has previously determined that title insurance agency activities are permissible under section 4(c)(8)(G) of the BHC Act ("exemption G"), which authorizes bank holding companies that engaged in insurance agency activities, with Board approval, prior to 1971, to engage, or control a company engaged, in general insurance agency activities./3/ Norwest qualifies for exemption G rights./4/

American Land Title also provides the following real estate settlement services:

(1) reviewing the status of the title in the title commitment, resolving any exceptions to the title, and reviewing the purchase agreement to identify any requirements in it in order to ensure compliance with them;
 
(2) verifying payoffs on existing loans secured by the real estate and verifying the amount of and then calculating the prorating of special assessments and taxes on the property;
 
(3) obtaining an updated title insurance commitment to the date of closing, preparing the required checks, deeds, affidavits, and obtaining any authorization letters needed;
 
(4) establishing a time and place for the closing, conducting the closing, and ensuring that all parties properly execute all appropriate documents and meet all commitments;
 
(5) collecting and disbursing funds for the parties, holding funds in escrow pending satisfaction of certain commitments, preparing the HUD settlement statement, the deed of trust, mortgage notes, the Truth-in-Lending statement, and purchaser's affidavits; and
 
(6) recording all these documents as required under law.

In order to approve an application submitted under section 4(c)(8) of the BHC Act, the Board is required to determine that the proposed activity is "so closely related to banking as to be a proper incident thereto." 12 U.S.C. § 1843(c)(8). In considering whether a proposed activity would be a proper incident to banking, the Board is required to determine that the performance of the proposed activity can reasonably be expected to produce benefits to the public that outweigh possible adverse effects. Id.

Based on guidelines established in the National Courier case, a particular activity may be found to be "closely related to banking" for purposes of section 4(c)(8) of the BHC Act if:

(i) banks generally do in fact conduct the proposed activity;
 
(ii) banks generally provide services that are operationally or functionally so similar to the proposed activity as to equip them particularly well to provide the proposed activity; or
 
(iii) banks generally provide services that are so integrally related to the proposed service as to require their provision in a specialized form./5/

In this regard, real estate settlement services are, in fact, provided by Norwest's bank subsidiaries in connection with their origination of mortgage loans, and banks in Nebraska are generally permitted to conduct real estate settlement activities./6/ Moreover, bank holding companies and banks have been authorized to provide real estate services that are operationally or functionally so similar to the proposed services as to equip them particularly well to provide real estate settlement services. The Board has approved the provision of escrow and distribution services by bank holding companies under land installment sales contracts./7/ In addition, banks routinely prepare collateral security agreements and other documentation required to close loans in accordance with federal and state lending requirements as part of the general lending activities authorized under the Board's Regulation Y.

The Board also believes that aspects of the proposed real estate settlement activities are directly linked to permissible title insurance agency activities by bank holding companies./8/ These activities can directly affect the risks insured against under a title insurance policy, and title insurance agents have special experience in assessing potential title defects that may arise at a real estate settlement. Accordingly, title insurance agents have the expertise to generally engage in real estate settlements.

For these reasons, the proposed real estate settlement activities conducted through a permissible title insurance agency are closely related to banking for purposes of section 4(c)(8) of the BHC Act.

In order to approve this application, the Board is required to determine that the performance of the proposed activities by Norwest is a proper incident to banking and "can reasonably be expected to produce benefits to the public, such as greater convenience, increased competition, or gains in efficiency, that outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interests, or unsound banking practices." 12 U.S.C. § 1843(c)(8).

Consummation of the proposal can reasonably be expected to result in public benefits that outweigh adverse effects. Norwest's proposal may be expected to result in increased convenience resulting from the offering of additional services to customers./9/ In addition, the activities of American Land Title represent a small share of the total market for these services, and there are numerous competitors in the title insurance agency and real estate settlement markets. Accordingly, the Board believes that the proposed activities are a proper incident to banking.

There is also no evidence in the record to indicate that consummation of this proposal is likely to result in any significant adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interests, or unsound banking practices. Accordingly, the Board has determined that the balance of public interest factors it must consider under section 4(c)(8) of the BHC Act is favorable and consistent with approval.

Based upon the foregoing and all the other facts of record, the Board has determined that the proposed application should be, and hereby is, approved. This determination is subject to all of the conditions set forth in the Board's Regulation Y, including sections 225.4(d) and 225.23, and the Board's authority to require such modification or termination of the activities of a holding company or any of its subsidiaries as the Board finds necessary to assure compliance with, or to prevent evasion of, the provisions and purposes of the BHC Act and the Board's regulations and orders issued thereunder.

The transaction shall be consummated not later than three months after the effective date of this Order, unless such period is extended for good cause by the Board or by the Federal Reserve Bank of Minneapolis, pursuant to delegated authority.

By order of the Board of Governors, effective October 15, 1990.

Voting for this action: Chairman Greenspan and Governors Seger, LaWare, and Mullins. Absent and not voting: Governors Angell and Kelly.

JENNIFER J. JOHNSON
Associate Secretary of the Board

Endnotes:

1. American Land Title also performs tide abstracting activities, including title searches of real estate. The Board believes that title abstracting is incidental to conducting title insurance agency activities, because it provides necessary information needed to authorize the sale of a title insurance policy.

2. Asset data are as of June 30, 1990.

3. See First Wisconsin Corporation, 75 Federal Reserve Bulletin 31 (1989); affirmed in American Land Title Association v. Board of Governors, 892 F.2d 1059 (D.C. Cir. 1989).

4. In 1959, Norwest received Board approval to retain its general insurance agency subsidiaries and, accordingly, is a grandfathered bank holding company for purposes of exemption G. Northwest Bancorporation, 45 Federal Reserve Bulletin 963 (1959); Norwest Corporation, 70 Federal Reserve Bulletin 470 and 235 (1984).

5. National Courier Ass'n v. Board of Governors, 516 F.2d 1229, 1237 (D.C. Cir. 1975). The Board may also consider any other factor that demonstrates a reasonable or close connection or relationship of the activity to banking. 49 Federal Register 794, 806 (1984); Securities Industry Ass'n v. Board of Governors, 104 S. Ct. 3003, 3005-06 n.5 (1984).

6. Bank commissioners in Nebraska, Kansas, Colorado, Iowa, Wyoming, and South Dakota have indicated that banks are generally permitted to conduct real estate settlements.

7. See Wells Fargo & Co. (Grayco Land Escrow, Ltd.), 59 Federal Reserve Bulletin 122 (1973); 59 Federal Register 1236 (1973).

8. For example, the Board has approved the preparation of a title insurance binder in performing title insurance agency activities. See First Wisconsin Corporation, supra.

9. Norwest has committed to advise its customers that they are not required to purchase its real estate settlement services in connection with the purchase of title insurance in a real estate transaction. In addition, section 106 of the Bank Holding Company Act Amendments of 1970 would generally prohibit Norwest from tying extensions of credit to the purchase of services from American Land Title.