A report on title insurance by a government watchdog agency has been greeted as “validation” by an activist and as “demonstrating a good understanding of the importance of title insurance” by an industry group.
The 24-page report released by the U.S. Government Accountability Office Tuesday examines competitive issues in the industry, including the fact that home buyers seldom shop for title insurance, the regulatory confusion surrounding the issue, charges of illegal kickbacks and sham business arrangements raised in probes nationally, and Housing and Urban Development actions.
Michael Oxley, R-Ohio, chair of the House Financial Services Committee, in January asked that the GAO investigate the title insurance industry. The report, which doesn’t draw any conclusions, but identifies and reports on issues for further study, came in response.
The report was released Monday, two days before a U.S. House Financial Services subcommittee hearing today on competition, pricing and recent probes of illegal activity in the title insurance marketplace.
The title insurance industry came under an intense spotlight last year after Colorado’s Insurance Division in February 2005 investigated nine Colorado title insurers for alleged kickback schemes said to result in overcharges to consumers. The probe sparked dozens of investigations nationwide, in Florida, Washington, Hawaii, California, Oklahoma, Minnesota, Washington and other states.
The GAO report had five primary findings: “First, the extent to which premium rates reflect underlying costs is not always clear,” the report said. “For example, most states do not consider title search and examination costs – insurers’ largest expenses – to be part of the premium, and do not review them.”
The report pointed out that few states regularly collect information on title agents, and the extent to which they are regulated is “unclear.” Another “unclear” area is the amount of competition in the industry. Consumers generally don’t comparison shop for title insurance, relying on industry professionals’ advice, and “the benefit to consumers is not always clear,” the report said.
“Fourth, real estate brokers and lenders are increasingly becoming full or part owners of title agencies, which may benefit consumers by allowing one-stop shopping, but may also create conflicts of interest,” the report noted.
“Finally, multiple regulators oversee the different entities involved in the title insurance industry, but the extent of involvement and coordination among these entities is not clear,” the report said.
Edward Miller, chief counsel and director of government affairs for the American Land Title Association trade group, said the report “demonstrates a good understanding of the importance of title insurance in ensuring safe and secure real estate transactions.
“We have held several meetings with GAO to assist them in furthering their understanding of the title insurance industry. The GAO’s preliminary report appropriately recognizes that there are important and distinct differences between title insurance and other lines of insurance,” Miller also said.
“The GAO has recommended further issues for study, and we will continue to cooperate with them fully, and look forward to the final report.”
Iowa lawyer and lobbyist Jim Carney, an attorney in that state, said of the report, “We are feeling more vindicated every day in our opposition to title insurance.”
Iowa issues a controversial government-operated title insurance program for real estate transactions through a state-operated agency. The unique arrangement came about in 1985 after Carney spearheaded the abolition of private title insurance in the state. Along with consumer groups and the Iowa State Bar, Carney persuaded lawmakers to pass a statute establishing the program.
“I’m feeling vindicated as a result of the government accountability study indicating there should be more investigation of these items,” Carney said.
A title insurance industry consultant said the report “may be a wake-up call” to the industry.
“The GAO article, as a whole, points out how truly misunderstood title insurance is,” said Jeanne Johnson, a consultant and educator in the land title arena.
“Title insurance is primarily a thorough search of public records, with most time and effort spent unearthing and fixing problems that have been identified,” such as unpaid taxes, Johnson said.
“It is very important to the mortgage industry and the consumer that title companies deal with these issues,” the consultant said. “However, the GAO report to Congressman Oxley has a lot of meat.”
Johnson seconded the report’s concern about regulation.
“Regulation varies significantly from state to state. In many cases there is no oversight” and little coordination of effort between the vast array of regulators, including U.S. Housing and Urban Development, Johnson said. “Clear and consistent oversight and rules would be in the best interest of consumers, title insurers and agents.”
