In the midst of the worst financial crisis since the 1930s, one that originated in and owes its severity to developments in the home mortgage market, it is nice to be able to report some good news about this market. The newly chartered EnTitle Insurance Co. is now offering title insurance directly to borrowers through its Web site, www.entitledirect.com. The premiums charged by EDI undercut those of existing insurers by about 35 percent.

In addition, EDI offers borrowers, as a free service, a method of avoiding what to many borrowers is the worst part of the mortgage experience — "pile of paper shock," or POPS. POPS results from borrowers being presented with a pile of documents at closing, most of which they have not seen before, and which they are expected to sign while the other participants tap their fingers impatiently. EDI provides a tool called "Control Panel" that allows borrowers to control the flow of documents and information from start to closing.

I was a paid consultant to EDI during 2007 but not since, and I have no financial interest in the company.

Title insurance premiums have always been substantially higher than those that would exist in a well-functioning competitive market, largely because it was marketed to referral agents rather than to the borrowers who paid the premiums. The cost of marketing to referral agents is very high.

On purchase transactions, the Realtor is usually the referral agent, while on refinances it is usually the lender. Referral agents usually are more interested in using their referral power to feather their own nests than to negotiate lower prices for consumers. While direct payment of referral fees is illegal, there are many indirect ways to do it that are legal, including making the referral agent a part owner of the title agency. EDI will also have marketing costs, but it is betting that in the Internet age its costs will be substantially lower.

Cutting the price of title insurance can be a hassle. Title insurance is regulated by the states, and all but a few require that premium charges be posted with the state. In some states, individual insurers post their premiums, while in others it may be done either by an individual company or by a group of cooperating insurers. In Texas, New Mexico and Florida, premiums are set for all companies by the state itself.

The writer is professor of finance emeritus at the Wharton School of the University of Pennsylvania. Comments and questions can be left at www.mtgprofessor.com.

***

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