Hardly a week goes by without a news article on the evils of title insurance. They usually allude to the fact that title insurance is over-priced. Some call the fees "mysterious," others cite to the lack of "transparency," and Scott Woolley at Forbes calls title insurance premiums "dubious charges." Lately, they point out that title insurance is a $10 billion dollar industry.  Despite ALTA's CEO Kurt Pfotenhauer's statement that "nobody's getting rich" selling title insurance, the media, and the public, aren't buying it.

There is talk about federal regulation and many states have begun taking a hard look at addressing the issue before it comes to that. Maybe something does need to be done, but what is clear is that nobody seems to understand the nature of title insurance or the problems with the current regulations.

The title industry is rapidly changing and there are two distinct movements afoot: one dominated by the underwriters and the other is attorney controlled.  There is no shortage of critics on either side of the battle, however, most seem to prefer neither.  That is not realistic - one side will win in the end and the many small independent agents and abstractors are going to get squeezed out of the industry.  It may be time to step up and realize that changes are coming and get behind one or the other... so choose your poison carefully.

Small title agents should be paying attention to the abstractors' experiences with volume discounts... because HUD is about to throw them under the same bus that ran over the abstractors.  To briefly summarize the impact of volume discounts on abstractors - many large companies set up vendor management companies (VMC) to work with their abstractors.  As these large companies grew and began to control more work, they demanded that abstractors give them a volume discount.  But, when things slowed down and the volume wasn't there anymore, do you suppose the abstractors were able to get their previous fees reinstated? No - the VMCs notified their abstractors that because work had slowed down and they needed to reduce costs, the abstractors would have to take further fee reductions!  (see The Evolution Of The VMC).

RESPA has always protected title agents from similar pressures from their clients by prohibiting "a person from giving or accepting any thing of value for referrals of settlement service business." It has always been interpreted that "discounts" are "things of value" for purposes of Section 8 of RESPA.  But, the newly proposed rules seek to change that by changing the definition of "thing of value" to clarify that "it is permissible for settlement service providers to negotiate discounts in the prices for settlement services, so long as the borrower is not charged more than the discounted price."

Thus.... here comes the bus.

Officials said they existed primarily to steer lucrative title insurance business to First American, which split consumers' insurance premiums with participating partners.

In effect, according to the investigators, home builders, lenders and real estate firms could pocket part of buyers' closing costs without customers' knowledge. On paper, the partnership affiliates appeared to be ordinary title agencies, carrying names such as Security First Title, USA Title Partners, Discount Title Services and the like.

But investigators from the federal Department of Housing and Urban Development (HUD) and Florida insurance regulatory agencies found "all regular title services required to effect title insurance were performed by First American, not the limited partnership agency," which was essentially a shell entity constructed "to compensate (participants) for the referral of the business."

Results
Location: Monterey County
Transaction: Purchase
You Are: Buyer
Value: $450,000
Loan: $400,000
Type: Residential, Single Family

$531 to $604 based on the title company issuing both the Homeowner's Policy as well as the Lender's Policy.

The problem with that arrangement is that when their "volume" drops off, like has happened to many companies recently, they don't want to pay you more. It is hard to raise prices again - since there is NO loyalty in this business anymore they will just drop you for someone else who is willing to pick up a few more orders at the discounted price. When things slow down, someone always needs the work.

Besides, do you think they offer their consumers a discount when they are busy? I don't think so.