Jeremy Yohe of The American Land Title Association, the industry’s mouthpiece, has written a lengthy response to my earlier post about title insurance being a scam.
In his comments, Jeremy has addressed some of the concerns I raised in my piece, but did not address the well-established inefficiencies and structural flaws in the multi-billion title insurance industry.
Jeremy wrote, “A homeowner’s title insurance protects the owner for as long as they or their heirs on the property. And only need to be paid for once.”
- Why then was my $625 title insurance fee necessary on my refinance? Chain-of-title, the major service provided by title insurance, was previously established in my case. A Lexis search would have turned up a lien or a judgment. Interestingly, though, according to CTLA’s Title Wizard, I would have paid LESS in title insurance if I had purchased my home instead of refinancing it.
- How does ALTA explain the findings of “reverse competition” in the mortgage industry that date back to the 1980 Peat Marwick study for HUD? (Also see Consumer Federation of America, 2006 testimony before Congress; California insurance commission study on title insurance)
- If title insurance is performing a valuable service and the “preventive measures” are keeping the title insurance industry’s loss ratio low as Jeremy suggests, why weren’t these savings passed along to me and others in the form of lower fees? Are title insurers colluding to keep prices high?
- How is it that only one company, Entitle Direct, markets title insurance directly to consumers and, as a result, is able to offer me and many other the same service for 35 percent less? Why does Entitle Direct have such a small share of the industry? Am I a customer or merely a fee payer?
- Why shouldn’t California copy Iowa and just put an end to the title insurance racket?
Curious to hear the answers.
“Ever feel like you’ve been cheated?” singer Johnny Rotten famously asked at the end of the Sex Pistols tour of America.
I sure did when I refinanced my home last year and I had to fork out $625 to Chicago Title for title insurance.
Title insurance for a refinanced home loan? This makes no sense.
I paid title insurance to ensure there were no issues when I first bought my home in 2002, so why was I paying for it again?
The answer is simple: Title insurance is a swindle. A scam. A shakedown, a hustle.
When Title Companies Compete, You Lose
Title insurance is less than 1 percent of the price of the home, so we tend to overlook it.
In economics, this is “inelastic” demand, meaning it is not sensitive to price.
Title insurers can virtually charge whatever they wants — even, as in my case, for doing nothing at all.
The result is an industry devoid of competition.
A 2005 report to California Insurance Commissioner John Garamendi found that competition for title insurance and escrow services in California “does not exist.”
A total of four companies control virtually the entire market for title insurance. Chicago Title is owned by Fidelity National Financial Inc., which is the nation’s biggest title company with more than 45 percent of the market.
In California — the big money maker for the industry — title insurance is marked by “reverse competition.” The title insurers don’t compete for business from homebuyers like me, the ones who actually pay for the service. Instead they pay illegal rebates and kickbacks to a real estate agent, a lender or homebuilder in exchange for business referrals.
The California Land Title Assocation’s Title Wizard service lets you compare prices for title insurers. Here is what the big four would have charged for my home refinance:
This is a pretty clear cut picture of what collusion looks like.
A toll on the road to home ownership
Title insurers would do quite well in Afghanistan and Iraq or any place where nothing gets done unless certain people are paid.
You don’t get a mortgage without title insurance. It’s that simple. My title insurance “expired” when my first mortgage was paid off. If I wanted to refinance, I had to have title insurance.
Title insurers have managed to set up a toll booth at the entrance to the U.S. housing market, which at its peak was worth more than $20 trillion.
All those tolls add up: During the housing bubble, operating income for title insurers grew 270 percent, soaring $4.8 billion in 1995 to $17.8 billion in 2005.
The money pours in, but it doesn’t come back out. Do you know anyone who actually filed a title insurance claim?
Chicago Title paid out a meager 5 percent on nearly $4 billion worth of title premiums, according to the company’s SEC filing.
In the insurance world, this percentage is known as the “loss ratio.” The loss ratio for title insurance is among the very lowest in the insurance industry. Auto and home insurers pay 80 percent of premiums.
What is Chicago Title doing with my money? The biggest expense on Chicago Title’s 2009 income statement isn’t personnel costs. It’s the whopping $1.9 billion in commissions paid to agents who drum up business.
What you can do.
Title insurance is not required by law in California. However, it’s standard operating procedures as most lenders won’t fund a mortgage without it. But you can shop around.
One alternative is Entitle Direct, which sells title insurance direct to the consumer. Entitle Direct doesn’t pay agents so it is able to charge a third less than most of the big title firms.
I could have saved $268 if I had gone with Entitle Direct. If you don’t feel that it’s worth the trouble, well, I guess then Johnny Rotten had it right.