If many home buyers have never shopped for their own title insurance, will they use a Web site that not only helps them do that, but also select their own appraiser, home inspector, surveyor, or termite company?
Jeff Lazerson thinks they will, and armed with a $100,000 Ford Foundation grant, he’s building Fairclosingcosts.com, a Web site that he says will allow not only consumers but real estate and mortgage professionals to shop for settlement services.
Lazerson, a veteran mortgage broker, thinks state and federal laws are driving the industry to increased transparency, and that the timing is right to launch Fairclosingcosts.com.
"What Zillow has done for appraisals, we’ll do for closing services," Lazerson claims.
Lazerson says that when it comes to providing settlement services, the real estate and mortgage lending industry has been on a "gravy train" since 1974, when the Real Estate Settlement Procedures Act, or RESPA was put into place. He calls RESPA, and an amendment to the act that allowed mortgage lenders, real estate brokers and settlement services providers to share profits through affiliated business arrangements, or AfBAs, a "very poorly written regulation."
Most consumers "don’t even understand how the system works, that they have to pay for what somebody else is picking," Lazerson said. Fairclosingcosts.com "is really going to do what’s right for the people that have to pay for it."
The Ford Foundation provided money through the non-profit Alliance for Affordable Homeownership, Education & Development (All Ahead) and the Fair Mortgage Collaborative.
Since receiving the grant to build the site last summer, Laguna Niguel, Calif.-based Mortgage Grader has moved Fairclosingcosts.com into the internal testing phase and the site is expected to go live in May, Lazerson said.
Fairclosingcosts.com will offer consumers and real estate professionals an easy way to hunt for nine settlement services, he said — title insurance, appraisals, home owner insurance, home inspections, home warranties, notaries, land surveyors, settlement agents, and termite companies.
Users will remain anonymous, picking a ZIP code, city or state. After providing information on their loan — such as whether it is a purchase or refinance transaction — they are asked for the sales price or property value to obtain results, which cascade from lowest to highest cost. The site will not generate leads, and it will be up to the user to contact the settlement service provider for more details on their offer.
Lazerson, who runs another Web site with backing from the Ford Foundation that’s designed to help borrowers shop for loans, MortgageGrader.com, said it can be hard to nail down the actual costs of some settlement services, and that the level of service will vary depending on the provider.
Lazerson envisions Fairclosingcosts.com as a sort of online Rolodex, and concedes the "granular details of a few of these services" are beyond its scope.
An appraiser, for example, might provide a low quote that does not include other legitimate charges such as a trip fee, Lazerson said. A property that has not been surveyed in 20 years may require more time and expense than one that’s been surveyed more recently. The cost of fire insurance is complicated by the different options for deductibles.
The least expensive provider might not be able to get things done on the borrower’s timeline, he acknowledged.
"This will give you your own desktop directory of settlement providers," Lazerson said. "The limitation, at least for now, is we’re not yet able to grade service levels of the providers. That’s why it’s up to the consumer to contact the provider directly."
Fairclosingcosts.com gives the consumer an opportunity to interview a settlement service provider, who can answer any questions "and make sure everyone is on the same page," he said.
Lazerson said that settlement services providers will be able to participate in the site for a "very affordable price" that will be "in the craigslist range of not quite free."
The goal is to have coverage for every ZIP code in the country.
"We think that because of the really low price point, the vendors are going to say it’s easier to do this than not to do this. In most cases one deal is going to cover their expense for one year," Lazerson said. "We believe that because the price point is so low, and because it’s so timely with these new regulations, that being first to market with this type of a model will be a pretty big advantage for us to populate around the country and get off and running."
Lazerson estimates that there are 100,000 appraisers, 436,000 homeowners insurance agents, 1,700 home inspectors, 25 home warranty companies, 4.8 million notary publics, 35,000 land surveyors, 15,000 settlement agents, 11,000 title insurance companies, and 5,000 termite companies in the U.S.
He cites HUD’s proposed changes to RESPA (see Inman News story) and New York Attorney General Andrew Cuomo’s agreement with Fannie Mae and Freddie Mac to strengthen the independence of the appraisal process (see story) as examples of regulatory changes that will encourage consumers — and real estate and mortgage professionals — to shop around for settlement services.
"For the real estate or mortgage professional, they can say ‘I really am looking out for you, and finding the lowest cost services,’ " Lazerson said." They may resent that they lose control, but they might use the site themselves to find the service providers with the best price."
Consumers may simply generate a list of settlement services providers, Lazerson said, and hand the list to their loan originator or real estate agent, instructing them, "Here’s who I want to use — call and order it for them."
If real estate and mortgage professionals have preferred settlement service providers, they may respond by asking the consumer if they will use that provider if the vendor will match the price quoted on Fairclosingcosts.com.
While HUD’s proposed changes to RESPA are intended to help consumers shop for the best deal on a mortgage and settlement services, some skeptics say many borrowers simply can’t be bothered to comparison shop.
But Shane Kane, author of the blog TitleSuccess and director of business development for Plainville, Mass.-based Kane Title Services, says more consumers are already shopping for title insurance.
"We’ve seen a big surge in the last six to nine months of consumers contacting us directly," Kane said. "They are definitely shopping around."
While the title insurance industry has traditionally been a business-to-business environment, "most title companies will not survive moving forward because they do not know how to deal (directly) with consumers," Kane said.
"Most title companies are not even set up to handle a call from a consumer," Kane said. "They are hanging on to a dying business model, just like record companies trying to sue consumers downloading. At the end of the day, they would be better off going where the consumer wants — providing good content, transparency, turnaround time, and service."
Since Kane Title Services began marketing to consumers on the Internet four years ago, it has grown the portion of its business that comes directly from consumers to 25 percent, and expects that share to hit 50 percent within two years, Kane said.
Kane said there’s nothing magic about his company’s Internet marketing — it also mails flyers to past clients — but that he probably wouldn’t be interested in advertising on a third-party site because of the potential harm to his company’s reputation.
"Some of the worst (lenders) I’ve dealt with have come from middle men" Web sites, Kane said, without commenting on any site in particular. "To be associated with something like that is a little bit of a risk to me. A lot of title companies are going to be very resistant to something like that — they are very fearful."
Greg Schmidt, president of Hillside, N.J.-based title services company myClosingSPACE.com, shares Kane’s enthusiasm for marketing title insurance directly to consumers.
He said the site provides about 2,000 title insurance quotes a month, and about 275 to 325 closings a month.
While more than half of the quotes the site provides are to consumers, he said about 75 percent of orders in the pipeline are from mortgage and real estate professionals, not consumers. Schmidt said some consumers may be intimidated by real estate professionals when they bring them a quote, or that the quote may lead them to negotiate a lower fee.
"We found that in some states, the consumer is going back to the professional with comparative quote, saying ‘Can you beat this?’ And they would either lower their fees, or they convinced them (there was something wrong with the offer)," Schmidt said. "So there is still a huge barrier for a consumer."
In California, a site that helps consumers shop for title insurance, TitleWizard.com, has been touted by Insurance Commissioner Steve Poizner as a way to increase competition in the industry. The California Department of Insurance, which has delayed a plan to impose rate caps on title insurers, even provides a link to the site from its home page (see story).
The company behind TitleWizard, ClosingCorp Inc. of La Jolla, Calif., is planning to launch a new site, Closing.com, that will also offer closing services.
Although company co-founder and Chief Executive Officer Tony Farwell said he was not ready to disclose any details, a notice on the site says it “will help consumers and real estate professionals find and compare real estate and closing services in their geographic area” and is coming this summer.
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