“I agree with the NY Times Editorial Board…I have always thought the cost of title insurance was outrageously high, relative to the risk. The reason is simple. There isn’t enough free market competition. Consumer Financial Protection Bureau where are you on this simple, but costly (to American homeowners) issue?”, Mike Perry, former Chairman and CEO, IndyMac Bank
The Title Insurance Scam
Credit Nick Ut/Associated Press
When you buy or refinance a home, you have to get title insurance, which protects both you and the lender if ownership of the property is ever challenged. Shopping around for title insurance is rare; if you are like most people, you buy the insurance from a title agent referred to you by the loan officer or someone else involved in the transaction. All of which makes buyers of title insurance sitting ducks for abuse. Congress is aware of the situation — and is determined to keep things just as they are.
It is no secret, for instance, that many borrowers are overcharged for title insurance. In 2007, the Government Accountability Office warned that the price of title policies was inflated by lack of competition in the title-insurance market, as well as apparently illegal kickbacks paid by title agents to realtors, mortgage brokers, loan officers and others who sent business their way.
The 2010 Dodd-Frank law called for cleaning up title insurance, and, in 2014, regulators from the Consumer Financial Protection Bureau issued a rule to carry out the law. Basically, the rule created a safe harbor from liability for regulatory violations, but only for loans with closing costs of less than 3 percent of the total loan, including fees to title companies affiliated with lenders. In effect, the rule uses market incentives to limit title costs by offering lighter regulation in exchange for keeping costs down.
Congress is resisting. A bipartisan majority in the House recently passed a Republican bill to exclude title fees from the calculation that determines the level of regulatory scrutiny. The White House has threatened a veto. But, in the Senate, Republicans could add the bill to other legislation that Democrats may want.
The bill ignores evidence of kickbacks unearthed by the consumer bureau and by New York’s Department of Financial Services. The public corruption case against Dean Skelos, who stepped down Monday as majority leader of the New York State Senate, and his son Adam, involves title insurance. The elder Mr. Skelos is alleged to have pressed a real estate executive to send title-related business to his son, who had worked in insurance. The executive had a title company pay the son a “commission” of $20,000 for no work — which is another way of inflating the price paid by consumers for title insurance.
A version of this editorial appears in print on May 12, 2015, on page A22 of the New York edition with the headline: The Title Insurance Scam .