Refinancers should seek lower rate on title insurance

Nation's Housing

April 13, 2003|By KENNETH HARNEY

A SERIES OF class action suits against major title insurance companies is focusing new attention on a question that home mortgage refinancers across the country need to ask: Am I getting the lowest-cost title coverage available - in the form of a discounted "reissue" rate, a "refinance rate" or a substitution rate?

The answer to that question can mean hundreds of dollars - 50 percent to 60 percent or more off title charges at your closing. On a nationwide basis, the money involved in the current refi boom is enormous - as much as $3 billion a year, according to one mortgage insurance industry estimate.

Yet consumer advocates and class action lawyers say that homeowners seeking to refinance to lower interest rates continue to be kept in the dark about the potentially big discounts available to them on title premiums.

In New York, trial lawyers have filed eight class action suits against large title insurance companies, alleging they intentionally overcharged homeowners refinancing their loans. Instead of providing borrowers with "reissue" rate policies at substantial discounts off regular rates, according to the complaints, the insurers charged the full rates applicable to new home loan title policies.

Even the title industry's national trade group, the American Land Title Association, has urged its members to offer refinancers the lowest-possible reissue rates as standard operating procedure.

"We know it's a problem," said James Maher, the association's executive vice president. "We know not everyone is familiar" with refinance or reissue-rate discounts.

In the New York litigation, consumers alleged that, instead of receiving the discounted rates that state law requires for certain refinancings, they were "deceived" by their title insurers and paid the full regular rates.

According to the complaint, James and Susan Smith of Larchmont, N.Y., refinanced a $387,000 loan with Washington Mutual Bank last year, approximately five years after their last closing. Under New York insurance rules, they claim, they were eligible for a 30 percent discount off their premium, but they were charged the full standard rate by Fidelity National Title Insurance Co. of New York.

In a response filed in the state Supreme Court, Fidelity denied the charges by the Smiths and other plaintiffs. The case is pending with seven others filed by New York trial attorneys Lester L. Levy and Michael Gilmore. The class covered by the suits, according to Levy, encompasses all New York refinancers during the past 10 years who were eligible for - but did not receive - discounted title rates. He estimates the number of borrowers to be in the "tens of thousands."

What are reissue or refinance rates on title policies? And why are the discounts apparently unknown to many consumers? Refinance-related title discounts generally are only available when the loan being refinanced is less than 10 years old.

State laws on eligibility vary widely, but the theory behind the discounts is the same. When there's been no change in the ownership of a property whose title was searched comprehensively and insured just a few years back, the need for an extensive new search is sharply reduced.

The cost of the new title insurance should be lower, yet large numbers of recent refinancers continue to be charged higher rates than they might. A survey by Consumers Union in California released earlier this month reported that the average rate quote on a $250,000 refinancing made by six of the largest title companies was $750 - well above the $275 lowest refi prices available in the market. It's also more than double the $325 flat-fee price that was charged by mortgage insurer Radian Guaranty Inc. for its now-suspended "lien protection" coverage.

One reason why refinancers may not learn about the lowest-rate title coverage available to them: The title agent or settlement attorney providing the title services may have an economic incentive to keep them in the dark. In many states, the title agency or settlement lawyer receives 70 percent to 85 percent of your title premium - known as the "split" - from the title insurance company.

If the agent or lawyer is not required by state law to provide you a refinance or reissue discount on your new title policy, he or she may not tell you about the lower-cost alternative. If the agent or lawyer can take an $800 split out of a $1,000 title package on your refi, where's the incentive to inform you about the $450 discount-refi package available, which would yield a split of just $360?

Not all title agents or attorneys fail to disclose, of course. But if you truly want to save money on your refi, you need to ask: Am I eligible for a reissue rate? If you are refinancing after just a few years, the answer often should be yes.

Ken Harney's e-mail address is

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