The American Land Title Association (ALTA) is back on the propaganda trail. Today releasing the following statement from its CEO, Michelle Korsmo:
“While most Americans are awaiting the Supreme Court’s decision on the President’s health care law, the title industry continues to wait for an opinion on a RESPA case with constitutional implications. The question in First American is whether an alleged violation of the federal RESPA statute is sufficient to provide standing in a class action when the plaintiff has not suffered any injury.”
Stop there for a moment. First, a segue. The President of the United States does not make laws. Congress does. That’s an important distinction to make.
Back to the quote:
“As you’ll remember, ALTA got involved in this case because “A buyer who has suffered no increase in the cost of her title insurance policy and no decrease in the quality of service associated with the policy may, according to the decision, bring suit–even a massive class action–for the sole purpose of collecting an unwarranted bounty. If permitted to stand, the decision will pointlessly raise the cost of doing business in the industry, hobbling small businesses and counterproductively raising the price of title insurance services for the everyday consumer the law seeks to protect.”
To be accurate, ALTA got involved in this case, in part, because the four national title underwriters and some of the largest regional underwriters who are owned by homebuilders and other titan offspring have similar arrangements with their referral sources and largest title agents. Edwards is just as much about protecting those members as it is about the triumph of consumerism. ALTA is “all-in” with the referral source lobby on this case and their overall strategy of advocacy. For proof of this fact, one need look no further than ALTA’s silence on recent proposed legislation to give referral source controlled businesses an exception to the Dodd-Frank QM rules or their thirty plus years of advocacy to promote referral source infiltration into the title industry. ALTA says it represents title insurance agents, but it doesn’t get specific as to which ones.
Sooner or later, that type of support is going to result in the end of title insurance as we know it.
As for ALTA’s support of the underwriter in Edwards, no one should be surprised. After all, ALTA is an underwriter organization. That fact is well-established. And on that score, they are right to rush in to defend their members. That is good advocacy. However, the problem with their position comes from their hypocritical statements that they can represent both sides of the argument.
They can’t.
The weakness of ALTA’s “consumer-first” argument is that it just plainly isn’t true and ignores a historical record across the United States that says just the opposite. Much like ALTA’s support of HR 4323, the supposed “Consumer Mortgage Choice Act”, there is nothing but a flimsy veil where strong consumer-first protections should be. The “Consumer Mortgage Choice Act” is more about taking choice away from consumers than giving them one. After all, that bill would prefer controlled businesses and one-stop shops to the exclusion of competitive independent title agents. HR 4323 is really the “Consumer Mortgage Choice Limitation Act” and ALTA is in the wrong corner. Consumers do not prefer controlled businesses. Whether it is a study put out by the National Association of Realtors in 2008 or OAITA’s own Settlement Preference Survey in 2009-2010, consumers do not agree with the proponents of HR 4323, ALTA or the referral source lobby.
As NAILTA pointed out in its Edwards amicus brief, there are wide differences in the underwriting standards of the national title underwriters on a range of important underwriting concepts — many of which the general public has no clue about and do not receive a corresponding discount for. When ALTA says that the plaintiff in Edwards suffered no decrease in the quality of title services, ALTA is trying to deflect attention from that ”old man behind the curtain”.
You remember him, right? Well, pay attention to him. Let me explain why.
Ten to fifteen years ago, someone in the pantheon of the title insurance industry had the bright idea that shorter searches were the wave of the future. It is an educated guess that the same person also realized that it was much cheaper to order a short search, such as a “current owner” search, in place of the standard “full” title search. It is another educated guess that the person who suggested this idea was not a title insurance agent and was most likely a referral source partner trying to figure out how to speed up the closing and lower the overhead of the participants.
If you look at the relative gross revenues from a real estate transaction, it is easy to see why speed and lower overheads are the key for those outside the title insurance industry. Real estate firms generate a gross between 5% and 7% of the purchase price, or $5,000.00 to $7,000.00 on an average $100,000.00 sale. Mortgage brokers generate a gross between 3% and 5% on the same average deal. Lenders generate an income-producing loan that pays an average 5% in interest over 30 years. Title agents? They get an average of 80% of the $400 title insurance premium and recoup their costs for the title search and closing.
That’s $320.00 for a ton of work.
Back to “current owner” searches for a moment. In any other pursuit but title insurance, the idea of short searches is great in theory but terrible in actual practice.
A ”current owner” search is really no search at all. It is merely a search of the record owner of title. Any liens, mortgages, easements, oil and gas leases, restrictions or other encumbrances that are on the record prior to the owner’s term of ownership are left to the imagination. Maybe they were taken care of by a prior title company. Maybe they were not.
A ”current owner” search is like putting in the subfloor of a house without confirming that the support beams are nailed in. Maybe there were taken care of by the prior contractor team. Maybe they were not.
If I were you, I would walk softly and quietly in that house.
For ALTA to say that there is no corresponding difference in service when comparing the short search phenomenon ushered in by the national underwriters and those title underwriters that still adhere to a higher standard is to say that there is no difference between a “current owner search” — practiced by each of the national underwriters on title transactions of all kinds – and a “full title search” — practiced as a norm by most regional title insurance underwriters and their independent title agents on purchase transactions. Again, there is no comparison. A “current owner” search is no search. It is merely a glance into the record. Unfortunately for consumers and ALTA’s argument in Edwards, a “current owner” search is not a quality service. Consumers are completely unaware that they are paying for quality, but receiving something far less without any input to stop the practice.
Second, as underwriting standards have decreased at each of the national title underwriters over the past fifteen years, there has been no corresponding decrease in title premiums for consumers. The title search is the heart of the title insurance policy. Current owner searches and declining standards should result in cheaper prices for consumers. Such is not the case, though. Claims, premium rates and litigation has all increased without Edwards. If title agents are no longer doing the full search, why should they get the full premium? Why do premium rates increase if the cost of doing searches is decreasing with the standards?
To say that consumer prices will increase as a result of Edwards is simply a scare tactic with no merit. ALTA cannot point to any evidence that prices would increase with the SCOTUS upholding the Ninth Circuit in Edwards any more than prices have increased without Edwards.
In other words, nice try.