Greetings form the choir, to whom you preach.  Looks like the scheme works a little bit differently here in Illinois.  Here, a lender or mortgage broker may set up a separate business entity to act as a title agent (which is defined in the Illinois Title Insurance Act).

There are requirements designed to ensure that the "agency" is not a sham business, existing only to facilitate kickbacks to the broker.  The agent must be located in a separate office with separate phone and fax numbers.  It must have at least one employee who is not aslo an employee of the broker.

This, of course, is all nonsense and window dressing.  In my opinion, it only serves to further deceive the borrower.  It is standard practice here for brokers to order title on a refinance transaction.  While they are not allowed to keep "preferred lists", you can bet they are simply placing the order with their own company, probably located in their closet.

The "agent" sets and receives the premium (minus a percentage to be remitted to the underwriter) and receives the endorsement fees.  The underwriter, or affiliated entity, gets to sell a title search and provide closing and escrow services.  Essentially, it means more work and less margin for the underwriter.  The loss of margin is presumably made up for in volume.

There has been some handwringing by the Illinois Department of Financial and Professional Regulation, Division of Financial Institutions / Title Insurance Section (IDFPR) (quite a mouthful, eh?) about whether these affiliated "agents" are actually performing a "core title service" (determination of insurability of title) as required by the Title Insurance Act.  A flurry of audits around this time last year determined that "some" (all, perhaps?) of the so-called "agents" were simply receiving a title commitment labled "Title Search" to sign and return to the underwriter.  The signature being the "core title service" that merited 80% of the premium and all endorsement fees.

The IDFPR came down hard on these practices.  It issued a memo or two(which no longer appear to be posted on the IDFPR website).  I am not aware of any actual disciplinary action taken.

These sham arrangements have been marketed here for years.  I believe that they violate, at the very least, the spirit of RESPA, if not the letter of the law.  I don't think that cautionary memos suffice as enforcement. 

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