05.13.07
Challenges in the Title Industry in 2007
I was recently asked to give my opinion on regulatory or market challenges I expect to face in 2007 . It really set my mind to thinking…
The first thought, of course, was the Crackdown by HUD and so many States on unearned fees, sham title operations, and violations of RESPA. How could anyone in the industry NOT think about these violations, with the forced closing of hundreds of title companies across the US this past year.
My second thought was the focus on affliated business practices in the recent Government Accountability Office (GAO)report. It certainly had a lot of valid points about being a legitimate producer of title products, and the potential pitfalls for consumers, who ultimately might be paying way too much.
Third, I thought of my own situation. I will have many fewer customers because of a poor sale market and because so many people are getting out of the real estate, mortgage banking and title businesses. Being in the industry for so many years, though, I know this is a normal cycle, and in the long run we will weed out the weak and somehow be better for it.
But, I an disappointed, because fewer customers are willing to spend $ on education. Many companies are willing to “cut corners” to save money, rather than doing things the right way - e.g. they are not doing a full title search, but just looking at the last deed and mortgage. Or, they do a “No Document” loan and don’t really see if a buyer can afford the mortgage. To me, this is scary, and it is definately NOT in the best interests of the buyers, who, I believe not only deserves, but NEEDS TO KNOW the status of title. Where are the easements? What restrictions are there on the property, etc. And NEED to know they will not be foreclosed upon, because they were put in a loan way over their head.
The industries are changing from risk prevention and disclosure to just plain underwriting the risk, in hopes problem titles will not be uncovered. Right now 1 in 3 titles have title problems, because of the poor quality of work being done, according to the American Land Title Association. But with less work being done to uncover title problems, more affiliated businesses seem to be flooding into industry…? And title premiums are going more and more to the affiliated businesses, presumably because they do the bulk of the work. But premiums aren’t going down. Does that mean the underwriter is expecting more claims! If so, why aren’t they cracking down on the quality of their Agent’s work! Something doesn’t seem right.
I hope the industries will start to wake up and voluntarily clean up our acts and take responsibility. Otherwise, although I AM NOT an advocate of bigger Government, I think the Feds will have to step in (again) to save us.
Robert Franco said,
May 14, 2007 at 1:01 pm
Many good points. I’m no fan of RESPA and I think it either needs a major overhaul or it needs to be abolished. The current status of RESPA does more harm than good. Because of the exceptions to Section 8 for AfBAs it is causing more of these creations to pop-up. Because they are in essence buying business by legally paying kickbacks they don’t have to worry about doing things the “right” way.. their referrals will not dry up because they are profitable for the referrer. Meanwhile, RESPA prevents the many small agents who still do things the right way for the consumer from competing. Proponents of RESPA claim that it increases competition and that is good for the industry - that is just a joke. With the large agents and direct operations creating separate AfBAs for all of their clients, it is NOT creating more competition - its just creating more companies that don’t have to compete.