The U.S. House Financial Services subcommittee held a hearing Wednesday to air mounting concerns about the title insurance industry, which came under an intense spotlight after a February 2005 investigation of nine Colorado title insurers for alleged kickback schemes.
Participants suggested amending existing regulations, educating consumers and, in one case, scrapping the present approach altogether and adopting a state-run system similar to the one currently used in Iowa.
The eight panelists included Erin Toll, the Colorado regulator who set off the furor with her 2005 probe, Thomas M. Stevens, president of the National Association of Realtors, and Douglas Miller, CEO of a 55-agent Minneapolis title insurance agency he claimed is having a hard time competing because he refuses to engage in unethical practices.
The original Colorado probe sparked dozens of investigations nationwide, in Florida, Washington, Hawaii, California, Oklahoma, Minnesota, Washington and other states. In January, Michael Oxley, R-Ohio, chair of the House Financial Services Committee, asked that watchdog agency the Government Accountability Office investigate the title insurance industry.
The three panelists who got the most grilling were Toll, Gary Cunningham of the U.S. Department of Housing and Urban Development and Orice Williams of the Government Accountability Office. The agency on Monday released its report on the industry.
Questioned by Rep. Robert W. Ney, R-Ohio, chair of the subcommittee, both Toll and Cunningham advocated for the strengthening of the Real Estate Settlement Procedures Act, known as RESPA, which regulates affiliated business arrangements between real estate professionals.
Michael Oxley, R-Ohio, chair of the House Financial Services Committee, told Toll, “I did my share of title searches. It was painful and boring.”
Toll responded, “I want you to know I too searched titles in a dusty courtroom, so I feel your pain.”
One of the criticisms raised in the GAO report and by Toll is the lack of competition in the title insurance industry. Williams of the GAO was asked what prevents consumers from choosing their own title insurance products.
“Lack of understanding,” Williams said. “The entire home purchasing process is overwhelming. It moves quickly and consumers are uninformed.” She said part of the solution is more financial literacy.
As members of the committee asked questions, Williams and Toll often struggled to explain the Byzantine complexities of title insurance practices and pricing.
“All of us across the states are looking for more rate transparency,” said Toll, who appeared at the hearing on behalf of the National Association of Insurance Commissioners. Commissioners across the country have probed title insurance practices in their states.
Two Congressmembers mentioned their own longtime careers in real estate, with one commenting that no one had ever offered him a kickback.
In a similar vein, Thomas M. Stevens, president of the National Association of Realtors, said the majority of industry professionals are honest and are anxious to have measures taken so that the “bad apples” in the profession will be taken to task.
Testifying on behalf of the Real Estate Services Providers Council, an industry group, Arthur Sterbcow, who is also president of Latter and Blum Realtors in New Orleans, said his group “has been long concerned about these violations of current law because they make it more difficult for legitimate affiliated businesses to compete.”
Douglas Miller, CEO of Title One in Minneapolis, said his company is having trouble competing because “in Minnesota, the playing field is not level, as the title insurance industry and the real estate industry have locked up almost the entire marketplace through controlled business schemes.”
J. Robert Hunter, insurance director for the Consumer Federation of America, had a bold proposal for fixing title insurance: replace title insurance with a “Torrens” system like the one used in Iowa. “Torrens Title” is another method for protecting a buyer when a property is transferred. The state of Iowa uses a form of Torrens title system.
Iowa’s controversial government-operated title insurance program for real estate transactions operates through a state-operated agency. The unique arrangement came about in 1985 after private title insurance was abolished in the state and Iowa lawyer and lobbyist Jim Carney, consumer groups and the State Bar persuaded lawmakers to pass a statute establishing the program.
The Consumer Federation also said another alternative was making lenders pay for title insurance, saying this would “help to limit or eliminate the current lack of incentive to hold down the cost of title insurance premium, since there no longer would be an ability to indirectly pass the cost through to the home buyer.”
Rande K. Yeager, president of the American Land Title Association, an industry organization, said RESPA’s Section 8, which deals with kickbacks, should be amended to allow competitor companies to bring Section 8 complaints. Yeager also suggested that the states adopt referral fee prohibitions and that a greater emphasis be placed on consumer education.
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