H.R. 1077 and S. 949 will raise the settlement cost of every residential mortgage loan transaction in the United States, thereby harming American mortgage consumers.

    • The Consumer Mortgage Choice Act is designed solely to provide lenders, who would otherwise be prohibited from profiting from higher points and fees, to use their exempt affiliate service providers to do the same act without penalty.
    • It does this by allowing those lenders with affiliated service providers to skirt the CFPB’s qualified mortgage (QM) rule, which places a 3% cap on points and fees paid to affiliates, and allows them to simply collect additional and potentially unlimited consumer charges from their affiliates back to the lenders in the form of shared profits.
    • Consumers rarely participate in the selection of their service provider prior to closing because title insurance is marketed in a reverse competition environment meaning that the lender, real estate agent, mortgage broker and homebuilder actually select the title service provider for the consumer.[1]
    • Because consumers do not participate in the selection of their title service provider, affiliates are uniquely situated to take advantage of the lender referral and block out all meaningful price competition, even with RESPA disclosure rules and anti-kickback policies.
    • Without meaningful competition between affiliates and independent providers, prices for title insurance and related services rise.[2]
    • Since affiliated providers first appeared in the title insurance industry in the last thirty years, the price of title insurance has steadily increased[3] even though the claims-loss ratio for the industry remained relatively stable at 3% to 5%.[4]
    • The resulting rise in prices will harm consumers.
    • H.R. 1077 and S. 949 would sanction already occurring anti-competitive market conduct in the title insurance industry.
    • The title insurance market is not competitive.[5]
    • The growth of affiliate service providers has contributed to the lack of competition in the title insurance industry.
    • Four companies (Stewart Title, Fidelity National Financial, Old Republic, and First American) control 85% of the national title insurance market and in some states over 95% of the business conducted therein.
    • Each of the largest four title insurers have close business relationships with the largest lending institutions through joint ventures and direct operations.
    • Title insurance is mostly regulated by state departments of insurance that generally lack any meaningful oversight over the providers and who inconsistently apply patchwork enforcement provisions.  They cannot monitor the growing number of affiliate relationships.
    • Higher title insurance rates have helped to monetize the anti-competitive market conduct.
    • In those states where rates and forms are “file and use,” there is no meaningful oversight to challenge the increase in consumer costs caused, in part, by affiliate relationships because rates and forms are simply filed with the department of insurance and put into commerce immediately.
    • In those states where rating bureaus set rates and approve forms for use, the four national insurers control the rate and form process with limited interactions involving state departments of insurance.
    • Because the largest four insurers set pricing for title insurance, then create and sanction the affiliate relationships, the cost structure of the title insurance product offered by the insurer helps to fuel anti-competitive practices.  In an affiliate relationship, title providers give up to half of their profits to secure referrals from lenders, realtors, mortgage brokers and homebuilders, nearly always without input from the consumer.
    • The higher the cost of title insurance, as perpetuated by the anti-competitive conduct within the industry, the higher the amount is available to share with the referral source.  The only price curve for title insurance is one that continues to rise, not fall.

 

About NAILTA

The National Association of Independent Land Title Agents (NAILTA) is a non-profit trade association that represents the interests of independent title insurance agents and independent real estate settlement professionals from across the United States. It was created by independent real estate settlement professionals to further the agenda of small business owners from within the title insurance, abstracting, surveying, and real estate community who lack representation at local, state and national levels.

 

To contact NAILTA, please visit our website at www.nailta.org

[1] Title Insurance Cost and Competition:  Before the House Committee on Financial Services Subcommittee on Housing and Community Opportunity, 109th Cong., (2006) (testimony of J. Robert Hunter, Director of Insurance, Consumer Federation of America) see also, Jack Guttentag, “Real Estate Settlement Services Take Bite Out of Borrowers,” Inman News, September 6, 2005; see also, The Pricing and Marketing of Insurance: A Report of the Department of Justice to the Task Group on Antitrust Immunities, January 1977, Pages 250-274; “Chapter XII The Title Assurance and Conveyance Industries” of Real Estate Closing Costs, RESPA, Section 14a, Volume II Settlement Performance Evaluation prepared by Peat, Marwick, Mitchell and Co. for the Department of Housing and Urban Development, October 1980; State of California Department of Insurance Bulletin 80-12, December 24, 1980, Subject: Insurance Code Section 12404 – Unlawful Rebates; Title Insurance Advisory Committee Final Report to the State Board of Insurance, September 1986; Nelson Lipshutz, The Regulatory Economics of Title Insurance, Praeger Press, Westport, CT, 1994, page 5; Birnbaum, Birny, Report to the California Insurance Commissioner, “An Analysis of Competition in the California Title Insurance and Escrow Industry,” December 2005, at 57.

[3] http://www.realsellen.com/uncategorized/pa-title-insurance-rates-increased-in-july/ Pennsylvania rates increased in 2013) (visited June 7, 2013); http://www.tdi.texas.gov/title/ (Texas rates increased in 2013) (visited June 7, 2013); http://mortgagedocs.com/alta-reports-21-nationwide-in-title-insurance-premiums-by-volume/ (ALTA reports premium increases across the board in 2012) (visited June 7, 2013); http://www.stewart.com/press-release/new-mexico-superintendent-of-insurance-rules-new-mexico-title-insurance-rates-to-increase-10.7-percent-effective-august-1-2009 (New Mexico rates increased 10% in 2009) (visited June 7, 2013) http://www.floir.com/siteDocuments/FLTitleInsMkt.pdf  (visited June 7, 2013). (Florida consumers pay more for title insurance than other states.); Ohio rates were raised in 2005.

[5] Id. supra at 3.