Excerpts from http://www.forbes.com/forbes/2006/1113/148.html


Title insurance firms rake in $18 billion a year for a product that is
outdated, largely unneeded - and protected by law.

First American and its two main rivals - number two Fidelity National
and third-ranked LandAmerica - are fat and thriving in an
$18-billion-a-year business that has quadrupled in ten years.

First American has doubled its prices in a decade, to an average
charge of $1,472 per home for a title search and insurance. Meanwhile,
thanks to computerized record-keeping, the cost of searching for a
home's ownership records online has fallen to as low as $25.
Technology also has helped make mistakes rarer - now only $74 of each
policy goes to pay claims. That leaves $1,373 for overhead and profit.
A racetrack that kept 93% of your money and returned only 5% in
winning tickets wouldn't last long, unless it could somehow rig the
rules to forbid price competition and make the purchase of race bets
mandatory. That's more or less what the title insurance industry has
done to American homeowners.

The title industry's halcyon days owe much to antiquated state laws
that thwart new competition, allow prices to soar despite declining
costs, and force almost every home buyer to pay for insurance that
most of them will never need. In all but a handful of states, laws bar
insurance giants in other fields from offering title insurance and
undercutting incumbents' prices. It also is illegal for anyone to
offer guarantees that provide the same protection as title insurance.
Home buyers can't get mortgages without buying title insurance, nor
can banks themselves legally offer it as part of a loan (otherwise,
the banks could demand high-volume discounts.) A handful of states set
prices title firms may charge. Others regulate prices and rubber-stamp
the prices title firms request.

The industry has boomed on such you-gotta-have-it conditions,
especially in the refinancing craze of recent years. A homeowner
refinancing a mortgage pays for new title insurance, despite the utter
absence of any new risk in the deed.

The title industry's perennial protectionism has had a predictable
side effect - corruption. Shielded by law from having to compete on
price, insurers resort to bribes and gifts to real estate agents and
mortgage brokers for steering business their way, deceptive front
companies, phony reinsurance deals, and other creative chicanery.

Now some forces are working to rein in this rapacious industry.
Officials in dozens of counties are working to standardize
homeownership for digital access by the public. The Department of
Housing & Urban Development is mulling ways to force more competition
on the industry, though previous efforts have failed utterly. Some
politicians who have been stalwart allies of the business now are
reversing course. In California, the chief regulator has just called
for a 23% price cut. This summer New York mandated a 15% cut in rates.
Yet regulators in most states have blithely acquiesced as consumers'
bills have risen.

It wasn't until after the Great Depression that big insurers started
eyeing title industry profits, and the title firms found a clever way
to fight back - not by lowering prices but with state laws that walled
off the industry from outside competition.

They invoked consumer protection. In the Depression, many insurers had
gone bust, including a few that also offered title insurance. The
title industry, and many regulators, argued that insurers that also
sold life or car insurance were more likely to go broke and stick
their customers with unpaid title claims.

Most states responded by passing laws dictating that only dedicated
title insurers could sell home buyers title policies. Decades later,
many of the banned multi-line insurers are far more financially secure
than most title insurers in the eyes of credit-rating agencies, but
the states haven't done much to raze the barriers.

Private insurers have become so overpriced that Iowa, the one state
government to not only maintain property records but guarantee their
accuracy, can offer a vastly better deal. The typical Iowan pays the
state $110 for title insurance when buying a home, 92% less than the
average First American customer's bill.

Having insulated themselves from outside rivals, the title companies
then won state support to limit competition among themselves. A small
number of states passed laws fixing prices of title insurance. Other
states enacted a pastiche of rate regulations that let insurers set
their own rates, routinely granting them increases.

Spared from having to compete on price, title firms large and small
vied for customer referrals from real estate agents, mortgage brokers,
and builders by bribing them, in violation of federal law. The
insurance agents who woo the customers are also compensated
handsomely. Of the cash First American collects for title searches and
accompanying insurance, it hands 80% to its own agents and to
independents.

In 2004, the title industry stared down another threat, this one in
Washington. HUD had pushed for rules that would allow lenders to
package title insurance with a mortgage, something federal law
currently forbids. The title industry, fearing the power of banks to
negotiate lower title insurance rates, was violently opposed to the
rules and found a key ally in Senator Richard Shelby, the Alabama
Republican who is chairman of the Senate Banking, Housing & Urban
Affairs Committee - and who owns the Tuscaloosa Title Company.

Yet another movement for change comes from efforts by the nation's
county recorders to agree on a uniform way to store property records
online, which could severely curtail the need for title insurers. But
even if they succeed, most state legislatures would have to lift a
thicket of creaky old laws that have enriched the title industry for
decades, and bilked home buyers out of billions of dollars.





--

She plunged into a sea of platitudes,
and with the powerful stroke of a channel swimmer,
made her confident way toward the white cliffs of the obvious.

....W. Somerset Maugham

Steve: Thank you for raising some important issues and providing a venue for clearing up some misconceptions.

First and foremost, the Forbes article did a wonderful job of pointing out corruption in the real estate industry. Notice I did not just say title insurance industry because the sham companies, gift and referral networks involve unscrupulous or ignorant hands at every step - real estate sales, mortgage lending, and title insurance. Honest people in the industry have been begging regulators and trade associations to do something about the lawlessness for years. Finally, thank you Forbes, we have a lot of eyes on the problem so maybe we can get something done. [Watch out for that new super sham arising - "joint ventures". Let's stop that one before it, too, is out of control.]

We have a problem to fix but title insurance itself is not broken. It's a misunderstood product and until now most people haven't taken the trouble to really think about what it is or why they need it.

There are two different kinds of policies, a loan policy and an owner policy. The loan policy - which is the one lender's require - only protects the lender in case they have to foreclose and run into a title problem. A loan policy dies when the loan is paid off. That's why a borrower has to pay for a new loan policy each time they refinance. Most states recognize that the underlying work is less if the refinance takes place within a few years of the prior mortgage. Borrowers should shop around for substitution or reissue rates. Talk with a few different title insurers until you are sure you are getting the best discount available in your market, and then place the order for title insurance. If you allow your mortgage lender to place the order on your behalf without shopping yourself, then shame on you if you pay too much.

The 2004 threat you refer to is the Radian product. Setting aside for the moment, the details of that fight, it's really important that consumers know the product offered NO PROTECTION for the consumer. It was entirely based on lowering cost to cover the risk to the lender. Most lenders don't understand owner title insurance - they don't have to. It's not on their radar. Often loan officers on their Good Faith Estimates will only quote loan policy coverage because that's all they require. It's up to the consumers to think for themselves and remember that unless they pay for an owner title insurance policy, they have no protection.

So, we have three problems to work on - educate consumers so they understand the risk and know they can shop, educate real estate agents, mortgage lenders, and title insurance professionals so they clearly understand what is legal and what is not, then whoever is left in the industry that just doesn't get it should be identified as incorrigible bad guys and thrown out.

I enjoyed your W. Somerset Maugham quote.

Homebuilders have also been involved in these kickback and shell
company scams. Insurance commissioner of CO went after title co's and
others over the last couple of yrs and there were quite a few builders
in OK who set up shell co's to get kickbacks thru, too. Paying fines
seems to be something these crooks just consider a cost of doing
business. Punishment needs to be more severe. Too much of our whole
economy is built on this kind of crap, and as a result, when it comes
crashing down it will be much worse than it would have been otherwise.


Diane Cipa wrote:
Steve Wrote:
Excerpts from http://www.forbes.com/forbes/2006/1113/148.html


Title insurance firms rake in $18 billion a year for a product that is
outdated, largely unneeded - and protected by law.

First American and its two main rivals - number two Fidelity National
and third-ranked LandAmerica - are fat and thriving in an
$18-billion-a-year business that has quadrupled in ten years.

First American has doubled its prices in a decade, to an average
charge of $1,472 per home for a title search and insurance. Meanwhile,
thanks to computerized record-keeping, the cost of searching for a
home's ownership records online has fallen to as low as $25.
Technology also has helped make mistakes rarer - now only $74 of each
policy goes to pay claims. That leaves $1,373 for overhead and profit.
A racetrack that kept 93% of your money and returned only 5% in
winning tickets wouldn't last long, unless it could somehow rig the
rules to forbid price competition and make the purchase of race bets
mandatory. That's more or less what the title insurance industry has
done to American homeowners.

The title industry's halcyon days owe much to antiquated state laws
that thwart new competition, allow prices to soar despite declining
costs, and force almost every home buyer to pay for insurance that
most of them will never need. In all but a handful of states, laws bar
insurance giants in other fields from offering title insurance and
undercutting incumbents' prices. It also is illegal for anyone to
offer guarantees that provide the same protection as title insurance.
Home buyers can't get mortgages without buying title insurance, nor
can banks themselves legally offer it as part of a loan (otherwise,
the banks could demand high-volume discounts.) A handful of states set
prices title firms may charge. Others regulate prices and rubber-stamp
the prices title firms request.

The industry has boomed on such you-gotta-have-it conditions,
especially in the refinancing craze of recent years. A homeowner
refinancing a mortgage pays for new title insurance, despite the utter
absence of any new risk in the deed.

The title industry's perennial protectionism has had a predictable
side effect - corruption. Shielded by law from having to compete on
price, insurers resort to bribes and gifts to real estate agents and
mortgage brokers for steering business their way, deceptive front
companies, phony reinsurance deals, and other creative chicanery.

Now some forces are working to rein in this rapacious industry.
Officials in dozens of counties are working to standardize
homeownership for digital access by the public. The Department of
Housing & Urban Development is mulling ways to force more competition
on the industry, though previous efforts have failed utterly. Some
politicians who have been stalwart allies of the business now are
reversing course. In California, the chief regulator has just called
for a 23% price cut. This summer New York mandated a 15% cut in rates.
Yet regulators in most states have blithely acquiesced as consumers'
bills have risen.

It wasn't until after the Great Depression that big insurers started
eyeing title industry profits, and the title firms found a clever way
to fight back - not by lowering prices but with state laws that walled
off the industry from outside competition.

They invoked consumer protection. In the Depression, many insurers had
gone bust, including a few that also offered title insurance. The
title industry, and many regulators, argued that insurers that also
sold life or car insurance were more likely to go broke and stick
their customers with unpaid title claims.

Most states responded by passing laws dictating that only dedicated
title insurers could sell home buyers title policies. Decades later,
many of the banned multi-line insurers are far more financially secure
than most title insurers in the eyes of credit-rating agencies, but
the states haven't done much to raze the barriers.

Private insurers have become so overpriced that Iowa, the one state
government to not only maintain property records but guarantee their
accuracy, can offer a vastly better deal. The typical Iowan pays the
state $110 for title insurance when buying a home, 92% less than the
average First American customer's bill.

Having insulated themselves from outside rivals, the title companies
then won state support to limit competition among themselves. A small
number of states passed laws fixing prices of title insurance. Other
states enacted a pastiche of rate regulations that let insurers set
their own rates, routinely granting them increases.

Spared from having to compete on price, title firms large and small
vied for customer referrals from real estate agents, mortgage brokers,
and builders by bribing them, in violation of federal law. The
insurance agents who woo the customers are also compensated
handsomely. Of the cash First American collects for title searches and
accompanying insurance, it hands 80% to its own agents and to
independents.

In 2004, the title industry stared down another threat, this one in
Washington. HUD had pushed for rules that would allow lenders to
package title insurance with a mortgage, something federal law
currently forbids. The title industry, fearing the power of banks to
negotiate lower title insurance rates, was violently opposed to the
rules and found a key ally in Senator Richard Shelby, the Alabama
Republican who is chairman of the Senate Banking, Housing & Urban
Affairs Committee - and who owns the Tuscaloosa Title Company.

Yet another movement for change comes from efforts by the nation's
county recorders to agree on a uniform way to store property records
online, which could severely curtail the need for title insurers. But
even if they succeed, most state legislatures would have to lift a
thicket of creaky old laws that have enriched the title industry for
decades, and bilked home buyers out of billions of dollars.





She plunged into a sea of platitudes,
and with the powerful stroke of a channel swimmer,
made her confident way toward the white cliffs of the obvious.

....W. Somerset Maugham

Steve: Thank you for raising some important issues and providing a
venue for clearing up some misconceptions.

First and foremost, the Forbes article did a wonderful job of pointing
out corruption in the real estate industry. Notice I did not just say
title insurance industry because the sham companies, gift and referral
networks involve unscrupulous or ignorant hands at every step - real
estate sales, mortgage lending, and title insurance. Honest people in
the industry have been begging regulators and trade associations to do
something about the lawlessness for years. Finally, thank you Forbes,
we have a lot of eyes on the problem so maybe we can get something
done. [Watch out for that new super sham arising - "joint ventures".
Let's stop that one before it, too, is out of control.]

We have a problem to fix but title insurance itself is not broken.
It's a misunderstood product and until now most people haven't taken
the trouble to really think about what it is or why they need it.

There are two different kinds of policies, a loan policy and an owner
policy. The loan policy - which is the one lender's require - only
protects the lender in case they have to foreclose and run into a title
problem. A loan policy dies when the loan is paid off. That's why a
borrower has to pay for a new loan policy each time they refinance.
Most states recognize that the underlying work is less if the refinance
takes place within a few years of the prior mortgage. Borrowers should
shop around for substitution or reissue rates. Talk with a few
different title insurers until you are sure you are getting the best
discount available in your market, and then place the order for title
insurance. If you allow your mortgage lender to place the order on
your behalf without shopping yourself, then shame on you if you pay too
much.

The 2004 threat you refer to is the Radian product. Setting aside for
the moment, the details of that fight, it's really important that
consumers know the product offered NO PROTECTION for the consumer. It
was entirely based on lowering cost to cover the risk to the lender.
Most lenders don't understand owner title insurance - they don't have
to. It's not on their radar. Often loan officers on their Good Faith
Estimates will only quote loan policy coverage because that's all they
require. It's up to the consumers to think for themselves and remember
that unless they pay for an owner title insurance policy, they have no
protection.

So, we have three problems to work on - educate consumers so they
understand the risk and know they can shop, educate real estate agents,
mortgage lenders, and title insurance professionals so they clearly
understand what is legal and what is not, then whoever is left in the
industry that just doesn't get it should be identified as incorrigible
bad guys and thrown out.

I enjoyed your W. Somerset Maugham quote.




--
Diane Cipa