04.27.07
The new Gov’t Accounting Office Report on Title Ins.
New From the Government Accounting Office (GAO)
A brief recap by Jeanine Johnson
See GAO for full Report http://www.gao.gov/new.items/d07401.pdf
“TITLE INSURANCE Actions Needed to Improve Oversight of the Title Industry and Better Protect Consumers”
Overview
The U.S. title insurance market is highly concentrated at the insurer level, but market characteristics varied across states. In 2005, for example, five insurers accounted for 92 percent of the national market, with most states dominated by two or three large insurers. Variations across states included the way title agents conducted their searches as well as the number of affiliated business arrangements (ABA) in which real estate agents, brokers, and others have a stake in a title agency. Finally, premiums varied across states due to cost and market variations that can also make understanding and overseeing title insurance markets a challenge on the national level.
Mix of Affiliated and Independent Agents Differs by State
• Use of Affiliated Business Arrangements Appears to Be Increasing
• Title Agents’ Responsibilities Also Differ across States
• Premiums Are Difficult to Compare across Markets
• Multiple Factors Raise Questions about the Extent of Competition and the Reasonableness of Prices in the Title Insurance Industry
• Consumers find it difficult to shop for title insurance, therefore, they put little pressure on insurers and agents to compete based on price
Potential for Problems:
• title agents do not market to consumers, who pay for title insurance, but to
those in the position to refer consumers to particular title agents, thus
creating potential conflicts of interest;
• a number of recent investigations by HUD and state regulatory officials
have identified instances of alleged illegal activities within the title
industry that appear to reduce price competition and could indicate
excessive prices;
• as property values or loan amounts increase, prices paid for title insurance
by consumers appear to increase faster than insurers’ and agents’ costs;
• in states where agents’ search and examination services are not included
in the premium paid by consumers, it is not clear that additional amounts
paid to title agents are fully supported by underlying costs
Alleged Illegal Activities Appear to Reduce Competition and Could Indicate Excessive Prices Paid by Consumers
Examples of Allegedly Illegal Referral Fees Described in Investigations by HUD and State Insurance Regulators
• A title agent paid real estate agents’ business training and printing expenses.
• A title agent provided trips, entertainment, and catering for entities involved in real estate transactions.
• A title agent contributed to a pool of funds that was given away in a drawing among real estate agents.
• A title agent paid an excessive rate to rent a conference room from a real estate company.
• Title agents provided free or below-cost marketing services to real estate agents.
Allegedly Illegal Captive Reinsurance Arrangements Could Indicate Consumers Were Paying Excessive Prices
• A Number of Investigations Found ABAs Allegedly Being Used to Pay Referral Fees, Raising Questions about the Cost and Benefits of ABAs to Consumers.
• As Coverage Amounts Increase, Premiums Paid by Consumers Appear to Increase Faster Than Insurer and Agent Costs
• States’ Enforcement of Antikickback and Referral Fee Provisions Was Uneven
• HUD Officials Expressed Concern over Lack of Enforcement Authority for Violations of Section 8 RESPA
• HUD, State Regulators, and Industry Stakeholders Have Developed Proposals for Improving the Regulation and Sale of Title Insurance
Recommendations for Executive Action
1. expanding the sections of the home-buyer information booklet on title agents, ABAs and available title insurance discounts;
2. evaluating the costs and benefits to consumers of title agents’ operating as ABAs;
3. clarifying regulations concerning referral fees and ABAs; and
4. developing a more formalized coordination plan with state insurance, real
estate, and mortgage banking regulators on RESPA enforcement efforts. strengthening the regulation of title agents through means such as establishing meaningful requirements for capitalization, licensing, and continuing education;
5. improving the oversight of title agents, including those operating as ABAs, through means such as more detailed audits and the collection of data that would allow in-depth analyses of agents’ costs and revenues;
6. increasing the transparency of title insurance prices to consumers, which could include evaluating the competitive benefits of using state or industry Web sites to publicize complete title insurance price information, including amounts charged by title agents;
7. identifying approaches to increase cooperation among state insurance, real estate, and other regulators in the oversight of title insurance sales and marketing practices.