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Everyone Else Is Doing It...
by Robert Franco | 2009/05/12 |

Remember the days when Realtors sold homes, banks lent money, and builders built homes?  Those were the good old days when title agents did honest-to-God title searches and issued real title insurance.  Does anyone miss those times?  Now, everyone issues title insurance and nobody really cares about good title searches.  And, now, there is a new player interested in getting into the title insurance business... the government.  Why not?  Everyone else is doing it.

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Wayne County Register of Deeds Bernard Youngblood proposed to the Wayne County (MI) County Commission's Government Operations Committee that the county create its own government-run title insurance firm.  I must admit that it is an interesting concept, but the details are sketchy.  I can't imagine exactly how that would work, but the idea has a solid foundation.  The State of Iowa has a government-run title guaranty program that replaced title insurance in the state a long time ago.

The Iowa Title Guaranty Program is successful because it still values traditional title searches.  First an abstract must be prepared and certified by a participating abstractor, then an attorney reviews it and issues a title opinion.  Finally, the state issues title coverage on standard ALTA forms at rates much lower than traditional title insurance premiums.

For a residential transaction, coverage up to $500,000 is just $110 and an additional $1 per thousand over $500,000. Most common endorsements are offered at no charge. For a non-purchase residential transaction such as a refinance or second mortgage, the premium is just $90 for coverage up to $500,000.

How does this work?  Well, the thorough process involved minimizes claims, just as the traditional title industry did before the search standards were reduced and online searching became so prevalent.  In addition, the majority of the premiums paid for traditional title insurance goes into marketing.  Because there is no competition in Iowa, all of that marketing expense can be eliminated. 

The Iowa program has been criticized as slow and cumbersome.  There have also been some claims that the savings may be illusory, to some degree, because the cost of the abstract and attorney's opinion may eat up some of the difference.

But, could this work on a county level?  To get an idea of the plan Youngblood envisions, I spoke to him via telephone.  Youngblood's plan is a sort of hybrid between the Iowa system and a traditional title agency. 

He would hire in-house abstractors and thorough searches would be completed using the county's tract index.  County employees would review the searches to make underwriting determinations and issue policies.  The county-run title company would be regulated by the state Department of Insurance and they would be required to maintain reserves like any other underwriter, according to Youngblood.  

But, Youngblood believes that title insurance is over-priced.  He believes that if the county created its own title insurance business, it could provide significant savings for consumers.

Youngblood said that on a home selling for $146,000 in Wayne County, title insurance fees, which include a closing fee and title policies for both the new owner and the mortgage lender, could run $1,400.  The government-run firm would charge $600 for the same coverage, he said.

The savings would come from the fact that it would not incur the substantial marketing expenses that many title operations have.  The county would not have all of the costs involved in bundled services or affiliated business arrangements.  It is hard to argue with that kind of logic.

If you think about how premium dollars get divided, a relatively small percentage gets spent on claims - between 5 and 10 percent.  Over that, a government-run title company would only need to cover its operating costs.  This eliminates the need for all of the additional premiums that go to agents, marketing costs, and profits. Profits that must be large enough that many traditional title companies can afford to give as much as 49% to referrers involved in affiliated business arrangements.

It seems that what Youngblood proposes is a title company... and, just a title company.  The kind we had before the traditional title insurance industry decided to get involved with affiliated business arrangements and other ancillary businesses, such as thin title plants, REO services, mortgage servicing, private mortgage insurance, settlement software, etc.  Heck... they are even in the business of selling pies now.

You obviously know that you can get title insurance from Fidelity National Financial Inc. But did you also know you can order pies from an affiliate of the Jacksonville-based company?

FNF, along with investment firm Newport Global Advisors, formed a joint venture called American Blue Ribbon Holdings LLC that bought the Village Inn and Bakers Square restaurant chains. The parent company of those chains had been operating under Chapter 11 bankruptcy.

Though the concept cannot be easily dismissed as unfeasible, it does still give me some reason for pause.  I'm not crazy about the idea of government competing with private enterprise.  Small agents should be particularly concerned; its tough enough to compete with affiliated business arrangements, competing with a government-run title operation delivering services for less than half the price seem daunting.  There does seem to be something wrong with the entity that controls access to the public records competing with its customers.

But, if not the government, who could compete with traditional title insurance industry today?  One company now controls 46% of the nation's title insurance market - Fidelity.  And, practically all of the remainder is divided among only three other competitors - First American, Stewart, and Old Republic.  It shouldn't be any surprise that I am a critic of the direction this industry is headed.  The "Big-4" have forsaken thorough title searches for current owners, online searches, and automated title production technology.  They have acquiesced to, if not encouraged, affiliated business arrangements.  And, they have both been aggressively selling ancillary services to their agents and competing with them.

So... I'm conflicted over Youngblood's plan.  I am excited to see someone getting back to the core of the title insurance business, and nothing else.  I also believe that it would be good for consumers, if such savings can be realized.  However, I don't like the idea of small agents being forced to compete with the government.  Sadly, between the national underwriters and new competition from the government, the small agents may just get squeezed out of the picture.


Categories: Small Agents, Title Industry

1610 words | 4048 views | 8 comments | log in or register to post a comment

Interesting Concept, but No.

If the register has enough employees to be able to run a title company on top of the duties of running the registers office, he has too many employees and should consider downsizing.  Chances, are, if he wants to make a go of it, Youngblood would need to bring in some new people to make the underwriting decisions and get the deals closed.  He's at least going to need to charge enough to carry the cost of new employees.  Those costs are often significantly higher in the public sector, with generous benefits paid by the tax payers.

And what about the reserves?  The money the office would need to set aside has to come from somewhere.  If the money is there, they are probably charging too much for the services the office already provides.

And, who says they would not have to spend any money on advertising?  What if they should realize a loss in the venture?  Who pays for that? 

I can just imagine being a representative of a party in a real estate transaction calling to schedule a closing.  "Thank you for calling the Wayne County Register of Deeds Bernard Youngblood's recording office, Car Rentals and Title Company.  Your call may be recorded for training or campaign purposes.  If you are calling for our hours of operation, press 1.  If you are calling for our locations, press 2.  If you are calling for......"

Fast forward 23 minutes.  "Our offices are now closed.  Please press 1 for our hours of operation and call back during our hours of operation."

Cook County, Illinois, used to insure title using the Torrens system.  It eventually got to the point where the system was so slow and cumbersome that everybody used privately issued title insurance anyway.  The system was eventually phased out.

Government offices should just stick to their government functions.

by Patrick Scott | 2009/05/12 | log in or register to post a reply

Some good points...

I thought about the costs involved with government employees, but then you have to consider that there won't be any highly paid executives (I assume) and million dollar bonuses.  And, they presumably won't be in this for profits, so that may leave some wiggle room in employee costs.  Surely their operating costs would be greater than most small independent agents, but far less than those of a traditional underwriter.

I do tend to agree that "government offices should just stick to their government functions," but I would say the same for the Realtors, lenders, and builders sticking to their traditional roles. Obviously our inudstry has moved beyond traditional norms - unfortunately. 

As for the reserves, we can only speculate at this point how much they would be required to hold and where those funds would come from.  But, it does seem problematic to do this on a county level.  Obviously it can be done on the state level, like Iowa has done.  I could see this as a pilot program, if it does become a reality, in Wayne county, then expanded statewide.

I'm also not sure about the legality of this kind of program.  It might require new legislation at the state level to create a new quasi-governmental entity to handle these functions. 

It's all to early to tell... but it is an interesting concept.

by Robert Franco | 2009/05/13 | log in or register to post a reply

Not sure government intervention would be good.

The above link is a letter from the State Bar of Michigan Real Property Section to a committee reviewing proposed Michigan House Bills 4515-4519(2007). From what I recall when we were doing business in Michigan, Wayne County was behind on their filings.  It was a mess. The letter indicates that there were pending legal actions against the recorder at the time. Are they proposing issuing insurance to avoid potential lawsuits? If they can't even keep their filing system current how are they going to effectively issue title insurance?

 Perhaps they have adopted the "Don't clean it up, just insure through it" ideology that is becoming pervasive in the industry these days.

by J. H. | 2009/05/13 | log in or register to post a reply

And Wayne County has been SO good at doing everything else.....

This is the same county that just a year ago was SIX MONTHS behind in recording documents.  Yes, you dropped off a mortgage and when they got around to recording it, they would.  So how much mortgage fraud went on in THAT County? 

I also have to wonder if this is an "in your face" gesture because several Wayne County title companies are/have sued Wayne County.


by Alix Ott | 2009/05/18 | log in or register to post a reply

A little investigation reveals a lot

For those who believe government should compete with private industry, perhaps you will like this concept.  However, it would not appreciably change things for the better, nor has it done so elsewhere.  As noted by another commenter, Torrens in Cook County, Illinois was a disaster.  As for Iowa, the cost of a policy may be low, but that's because Iowa Title advocates never bring up the cost of an abstract of title AND the attorney's opinion, both of which are required.  Iowa land Title likes to say it pays no claims.  That reportedly happens because closing is delayed until all title matters are resolved.  Longer mortgage rate locks are supposed to result in higher interest rates for borrowers, increasing the cost of a loan over its 30 year term.  In addition, if a title problem does arise, the abstractor or Attorney who gave the opinion are the ones who typically resolve the issue - not Iowa Guaranty.  I'm not sure how this works if there is litigation.  With an ALTA policy, the title insurer will cover the cost of the insured's defense on a covered matter.  Does an abstractor or attorney do the same?  What about the losses the county could face, especially if they fall way behind in recording documents again?  Imagine all the fraud and intervening interests that can occur during recording delays.  Will voters want to incur those costs themselves?

Finally, let's not lump the underwriters all together, because they do not have the same business focus or practices.  Old Republic, for instance, has not been fined for setting up sham affiliated businesses.  Nor did Old Repubilc conduct any transactions involving captive reinsurance.  The two underwriters fined in New York for using blended rates did NOT include Old Republic.  Our company is very agent centric and is a huge supporter of the independent agent.  Our underwriting is also known to be more conservative, generally, than our competitors.  This has resulted in our company having unsurpassed ratings since 1992.

I believe the title industry performs a wonderful, needed service for consumers and the economy and we should not tinker with the success and cost savings it brings to American families needing security for themselves and their lenders.

by Ron Blitenthal | 2009/05/18 | log in or register to post a reply

I do like Old Republic...

I write for Old Republic and they are great.  I have written for First American, Stewart and Commonwealth in the past.  I liked Commonwealth at the time, too, but that was before they merged into LandAmerica.

Old Republic is very agent-centric and I really don't understand why they don't have more marketshare.  With all the complaints many agents have about their underwriters, I find it hard to believe that more don't make a change.

I am a very small agent, and have gotten smaller since I have been in law school (and of course, the market has slowed significantly) and they have been very understanding.  Old Republic definitely treats their agents very well. 

by Robert Franco | 2009/05/18 | log in or register to post a reply

Bad Faith Claims? Ultimate Solvency?

All states have some concept of sovereign immunity.  If an insured owner is unhappy with the result of the state's decision not to defend their title (e.g. extinguishing competing title interests), do they have any recourse under any bad faith laws?  What motivation does the state run system have to keep losses to a minimum?

In theory private companies have their profit and solvency motive to negotiate claims to minimize losses.  Most government enterprises, no matter how well run in the initial stages, always seem to succumb eventually to massive losses and perpetual taxpayer subsidies.  Poorly run private underwriters will eventually go out of business.  Poorly run government enterprises rarely do.

In a lot of developed countries, title insurance is usually done by the government in some form, but I've never read anything that gives a full analysis of the pros and cons of these systems.  I would say that from watching how quickly a Recorder of Deeds office can go from good to bad and bad to good depending solely on the personality of the person in charge, I would be nervous about any governmental title insuring system run at the county level.

by David Jenkins | 2009/05/18 | log in or register to post a reply

Sovereign Immunity


In Ohio, sovereign immunity generally only protects municipalities when they are performing "governmental functions" (O.R.C. 2744.01) If a municipality enters into the marketplace to compete in industry not deemed a "governmental function", then the protection will likely not apply (in Ohio, that is.) Not sure if Michigan has similar provisions, but I think Wayne County would be wise to research this and to look at the claims loss and related expense portion of the balance sheets of any of the major underwriters lately before they embark on this type of endeavor. 

I understand Robert's viewpoint about lowering costs to the consumer and competing with the big underwriters who have monopolized the industry, but I don't think this is the best way to accomplish those goals. I am in favor of enforcement-enforcement-enforcement.  The government should do a better job of enforcing the laws, extinguishing sham afbas, eliminating kickbacks and policing the industry as a whole.

by J. H. | 2009/05/18 | log in or register to post a reply
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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