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Source of Title Blog : Competition

It's Time For Honest Competition
by Robert Franco | 2009/08/19

Hardly a week goes by without a news article on the evils of title insurance. They usually allude to the fact that title insurance is over-priced. Some call the fees "mysterious," others cite to the lack of "transparency," and Scott Woolley at Forbes calls title insurance premiums "dubious charges." Lately, they point out that title insurance is a $10 billion dollar industry.  Despite ALTA's CEO Kurt Pfotenhauer's statement that "nobody's getting rich" selling title insurance, the media, and the public, aren't buying it.

There is talk about federal regulation and many states have begun taking a hard look at addressing the issue before it comes to that. Maybe something does need to be done, but what is clear is that nobody seems to understand the nature of title insurance or the problems with the current regulations.

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Categories: Competition, RESPA, Small Agents, Title Industry, Title Standards

Source of Title Blog :: 3 comments ::

Choose Your Poison Carefully
by Robert Franco | 2008/07/02

The title industry is rapidly changing and there are two distinct movements afoot: one dominated by the underwriters and the other is attorney controlled.  There is no shortage of critics on either side of the battle, however, most seem to prefer neither.  That is not realistic - one side will win in the end and the many small independent agents and abstractors are going to get squeezed out of the industry.  It may be time to step up and realize that changes are coming and get behind one or the other... so choose your poison carefully.

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Categories: Abstractors, Attorneys, Competition, Escrow/Funding, Notaries Public, Small Agents, Title Industry, Title Standards

Source of Title Blog :: 8 comments ::

Here Comes The Bus
by Robert Franco | 2008/04/24

Small title agents should be paying attention to the abstractors' experiences with volume discounts... because HUD is about to throw them under the same bus that ran over the abstractors.  To briefly summarize the impact of volume discounts on abstractors - many large companies set up vendor management companies (VMC) to work with their abstractors.  As these large companies grew and began to control more work, they demanded that abstractors give them a volume discount.  But, when things slowed down and the volume wasn't there anymore, do you suppose the abstractors were able to get their previous fees reinstated? No - the VMCs notified their abstractors that because work had slowed down and they needed to reduce costs, the abstractors would have to take further fee reductions!  (see The Evolution Of The VMC).

RESPA has always protected title agents from similar pressures from their clients by prohibiting "a person from giving or accepting any thing of value for referrals of settlement service business." It has always been interpreted that "discounts" are "things of value" for purposes of Section 8 of RESPA.  But, the newly proposed rules seek to change that by changing the definition of "thing of value" to clarify that "it is permissible for settlement service providers to negotiate discounts in the prices for settlement services, so long as the borrower is not charged more than the discounted price."

Thus.... here comes the bus.

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Categories: Competition, RESPA, Small Agents

Source of Title Blog :: 5 comments ::

The $6.4 Million Dollar Question
by Robert Franco | 2007/11/30

The Department of Housing and Urban Development (HUD) has reached an agreement with six home builders and First American under which the companies agreed to pay $6.4 million but deny that they committed any illegal acts. Typical HUD settlement. First American also agreed to shut down 84 "affiliated partnerships" formed in Florida with real estate brokers, mortgage brokers, banks and home builders.

According to an article on MercuryNews.com:

Officials said they existed primarily to steer lucrative title insurance business to First American, which split consumers' insurance premiums with participating partners.

In effect, according to the investigators, home builders, lenders and real estate firms could pocket part of buyers' closing costs without customers' knowledge. On paper, the partnership affiliates appeared to be ordinary title agencies, carrying names such as Security First Title, USA Title Partners, Discount Title Services and the like.

But investigators from the federal Department of Housing and Urban Development (HUD) and Florida insurance regulatory agencies found "all regular title services required to effect title insurance were performed by First American, not the limited partnership agency," which was essentially a shell entity constructed "to compensate (participants) for the referral of the business."

These types of settlements are usually covered in the press from the homeowner's perspective. They explain how consumers may be paying more for their settlement services because the party they trust to direct the settlement services is actually getting paid by the underwriter. Consumers, though receiving disclosures, do not understand the full implications of the "affiliated arrangement" so they tend not to shop around for a better deal.

But, why don't we look at it from another perspective - the local independent title agent's point of view. Thus, the $6.4 million dollar question is - How do these "affiliated partnerships" affect the local independent title agent?

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Categories: Competition, Ethics, RESPA, Small Agents

Source of Title Blog :: 5 comments ::

by Robert Franco | 2007/10/11

California Insurance Commissioner Steve Poizner joined the California Land Title Association (CLTA) to announce TitleWizard on October 9, 2007. TitleWizard allows consumers to enter some basic information regarding their closing, such as location, purchase price, and loan amount, and provides them with a list of title insurance companies and their rates.

"CLTA has answered the call to develop a high-tech solution in a first step to infuse competition into the Title insurance industry," said Commissioner Poizner. "Too often, consumers have to rely on a middle man to select their Title insurance. Now, consumers will be empowered to compare prices and services online with the touch of a button."

I tried the Website and found it very user friendly. I entered Monterey County as the location. I spent some time in Monterey in 1990-91 and absolutely loved it! So, if I am going to price title insurance in California, that is as good a place as any. Next I selected the purchase option, a $450,000 sales price, with a $400,000 loan amount, and indicated that I would be the purchaser. Lastly, I told the wizard that it was residential property, a single-family resident.

Here is what TitleWizard quoted me for a rate:

Location: Monterey County
Transaction: Purchase
You Are: Buyer
Value: $450,000
Loan: $400,000
Type: Residential, Single Family

$531 to $604 based on the title company issuing both the Homeowner's Policy as well as the Lender's Policy.

What!? Could that be right!? Most of what I hear from the Department of Insurance in California is how consumers are paying too much for title insurance. Steve Poizner wants to see more direct marketing to consumers so they can better shop for title insurance. With these rates, should that really be a primary concern?

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Categories: Competition, Consumer Advocacy

Source of Title Blog :: 3 comments ::

Should We Allow Consumer Incentives on Title Insurance?
by Robert Franco | 2007/08/07

I have always thought of the filed insurance rates as a consumer protection device to keep title insurance companies from over-charging customers who normally do not select their title company. But... what if the title company wants to charge their customer LESS than the filed rate? Wouldn't that be good for consumers?

New Jersey Senate Commerce Committee is currently reviewing S-2229, which would allow title insurers and their agents to offer rebates, discounts, and other incentives to their consumers notwithstanding the filed rates. Currently, they may not "pay... as an inducement to insure, or after insurance has been affected, any rebate, discount, abatement, credit or reduction of premium or special favor, advantage, or other benefit.. or valuable consideration or inducement... not specified or provided for in the policy, except to the extent provided for in [the filed rates]."

S-2229 would add another exception for offers to a person purchasing title insurance, who is not required to use the offering title insurance provider, and it prohibits the savings from being added to any of the person's other costs.

According to an article on NJBIZ.COM the New Jersey Land Title Association opposes the bill, along with some area agents.

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Categories: Competition, New Jersey Legislation, RESPA, Small Agents

Source of Title Blog :: 6 comments ::

The Post Refi-boom Cliff
by Robert Franco | 2007/04/10

When the refi-boom was in full swing many clients began asking for lower prices in return for the volume of work they were sending their abstractors. It was easy to accommodate that kind of request when work was plentiful. And, as many found out, if someone refused to lower their price, there were many others out there willing to work for less to "expand" their business.

Now that the volume has declined, how many of those clients have called you to ask you to raise your prices? Obviously, that is a rhetorical question; we all know the answer is zero.

A smaller profit per order may have worked out well when you had enough work to make it up, but now that things are slower, the smaller profit margin is not feasible. Still, how many abstractors are willing to raise their prices and risk losing what precious little work remains? Another rhetorical question.

I warned about this in a post on the Source of Title forums on May 31, 2006:
The problem with that arrangement is that when their "volume" drops off, like has happened to many companies recently, they don't want to pay you more. It is hard to raise prices again - since there is NO loyalty in this business anymore they will just drop you for someone else who is willing to pick up a few more orders at the discounted price. When things slow down, someone always needs the work.

Besides, do you think they offer their consumers a discount when they are busy? I don't think so.

Hypothetically speaking, if you need to make $200 a day, just to pay your bills, you can do that with four current owner searches at $50 each. If you can get ten current owners a day at $35 it may make sense to lower your fees. Thus, when a company offers more volume for the lower fee, many may jump at the chance.

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Categories: Abstractors, Billing Issues, Competition

Source of Title Blog :: 7 comments ::

Who Is Your Competition?
by Robert Franco | 2007/01/18

It used to be easy to spot your competition... they had a sign our front just like yours. But now it is getting tougher to figure out. We have had underwriters with direct operations competing with their agents for some time now. One of the biggest "hooks" of some of the smaller, regional underwriters is that they don't have any direct operations - "they don't compete with their agents." The underwriters used to refer orders to their local agents, now they send those orders to the nearest corporate office.

Next were the Affiliated Business Arrangements (AfBA) and Joint Ventures (JV). These allowed lenders, realtors, and anyone else with a few orders to refer to get into the business. Now small agents are competing with their clients as well as their underwriters. You have to ask... is that really "competition?"

I have even seen a local title agent underbid the local independent abstractors for current owner searches for a large vender management company. Why would a title agency want to travel 50 miles to do current owner searches for $32.00? I would have to imagine that the squeeze from competition with their underwriter and clients forced that decision.

Now, the underwriters are developing automated searching databases and the small agents and abstractors are forced to compete with technology that promises a complete title search in less than 1 minute! TitleSmart, by First American, claims to offer advantages of "instant title." For a great blog-post on the topic of TitleSmart, please see Diane Cipa's post on Radical Title Talk.

What will be next? Borrowers getting their loan and a title policy at the ATM machine? Will we have title insurance kiosks at Home Depot for the builders? Will we have drive through loan closing windows?

Those of us in the industry know that there is more to title insurance than a quick search and a generic title policy with several blanket exceptions. The real value in our services is work we do to make sure that the title is clear. That takes time and expertise to review the title and ensure that any potential problems are rectified before the closing. What value is there in an instant product?

With competition from all sides, what will happen when the title professional is forced out of the market? Title insurance will become nothing more than another line of casualty insurance and the consumers will be left with the headaches of hiring attorneys to clear their titles or filing claims under their title policy.

With so many outsiders attacking the title industry for practices such as fee splitting, re-insurance, over-charging, etc, why isn't someone thinking of a way to restore the integrity of the industry? The focus of the title industry seems to be on taking a buck out of someone else's pocket rather than on improving the value of their services.

Robert A. Franco

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Categories: Competition

Source of Title Blog :: 3 comments ::

Source of Title Blog

Robert A. FrancoThe focus of this blog will be on sharing my thoughts and concerns related to the small title agents and abstractors. The industry has changed dramatically over the past ten years and I believe that we are just seeing the beginning. As the evolution continues, what will become of the many small independent title professionals who have long been the cornerstone of the industry?

Robert A. Franco



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