Title industry may be winning fight over cost of its services

Nation's housing

July 07, 2002|By KENNETH HARNEY

A FIERCE fight involving potentially billions of dollars in savings to homeowners is under way across the country, with little public notice.

The title insurance industry is seeking to kill a plan that challenges traditional pricing of title services and reduces premium charges by 50 percent or more on most home mortgage refinancings, equity loans and second mortgages.

The title industry appears to be winning. During the past several months, it has persuaded insurance commissioners in six states to ban the discount concept and is working to do the same nationwide. The net effect is to leave consumers paying what critics charge amounts to hundreds of dollars per transaction in excessive title expenses.

Here's what's happening.

In October, a large mortgage insurance company, Radian Guaranty Inc., introduced a novel concept -- an insurance product that cuts title-related fees to the consumer to a flat $325 per mortgage. The flat fee includes $275 for the actual title insurance premium and $50 for a credit and public records search to establish property ownership. Philadelphia-based Radian restricted the concept to just three types of transactions: primary home mortgage refinancings, home equity loans and second mortgages.

Based on a nationwide survey of title costs, Radian calculated that even so-called "reissue" premium rates were excessive relative to the low claims ratios reported by title insurers. But reissue rates frequently are not offered to those refinancing mortgages, as even the industry's national trade association concedes. Owners of expensive homes refinancing large loans often are asked to pay hundreds of dollars too much for title searches and coverage because they have no idea about the existence of reissue rate alternatives.

Radian's discounts, however, are designed to cut premiums another 50 percent below reissue rates -- and that represents a direct threat to title insurers' revenues. Radian argues that its plan is a mere extension of its standard line of business -- mortgage risk insurance for lenders on pools of loans for 3,500 lenders. Licensed to write mortgage insurance in all 50 states and the third-largest firm in its industry, Radian says its discount coverage is not title insurance but mortgage insurance with add-on coverage for "undisclosed liens."

The title insurance industry argues that any coverage whatsoever relating to property liens constitutes title insurance, and that Radian is not licensed to do business in that arena. The American Land Title Association also challenges Radian's coverage on qualitative grounds. James R. Maher, executive vice president of the trade group, says Radian "only insures against loss due to ... undisclosed liens." Traditional title insurance, by contrast, covers lenders against nonownership of the property by borrowers and provides lenders with legal defense support in title challenges, according to Maher.

Radian's response: Let the free market decide.

"If lenders think our product is so inferior," asks general counsel Howard Yaruss, "why do they want to buy it?" More to the point, he says, "If we're no good, why are the title insurers spending so much money and time to defeat us" state by state?

The title insurers' campaign has produced bans in California, Texas, Florida, Connecticut, North Carolina and New Mexico. A court challenge against Radian filed by the title industry is also pending in California. Low-cost coverage is still available from select lenders, says Radian, but the state-to-state battle with the title insurance industry has consumed money and energy.

Radian estimates that homeowners in the United States would have saved about $3 billion on refinances, second mortgages and home equity lines last year had their lenders all used its discount coverage. Those savings have caught the attention of some consumer advocates, who ask: Since lenders are the beneficiaries of most of the title insurance policies paid for by home loan borrowers, why not let lenders make the choice? If they prefer to get their risk coverage against undisclosed liens from a mortgage insurer at a discount cost and pass the savings on to consumers, why not let them?

John Taylor, president and CEO of the National Community Reinvestment Coalition, a network of 800 local community organizations, calls traditional title insurance pricing "exorbitant," and says his group is considering a campaign to push for lower title fees as a way to make homeownership more affordable.

Taylor says Radian's string of losses before state insurance commissioners should not be ascribed to substantive or legal deficiencies in its cut-rate, pro-consumer product. Rather, he says, it's the result of intensive lobbying by title insurance companies "who are scared to death of a lower-cost competitor," and because of "the well-known incestuous relationships" that exist among state insurance regulators and the title insurance companies.

Kenneth R. Harney is a syndicated columnist. Send letters in care of the Washington Post Writers Group, 1150 15th St. N.W., Washington, D.C. 20071. Or e-mail him at kenharney@aol.com.

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