Sunday, June 10, 2007

query: what is lender pay title insurance

The most likely form of lender pay title insurance is lien protection only - with or without an underlying title search. It offers no protection for the consumer.

It's a very dangerous prospect for the real property business and the idea can only thrive in the absence of true recognition of what title insurers really do.

The traditional, honest, respectable, quality driven title insurer performs a thorough search of title, examines the data and makes corrections to the underlying issues BEFORE issuing a title policy. Traditional, honest, respectable, quality driven title insurers operate independently of Realtor and mortgage lender ownership or oversight and thus do not suffer from conflicts of interest.

Traditional title insurers guard the quality of land records, thus maintaining a stable, marketable inventory of real property for mortgage or sale. It's this function of title insurance which has become thoroughly misunderstood and forgotten and will no longer exist IF ignorance reigns supreme and so called lender pay title insurance is adopted as the new norm.

The title industry lost it's way after RESPA was altered to allow affiliated business relationships. This form of legalized kickbacks through profit sharing laid fertile ground and cover to those who bastardized the intentions of the new RESPA rules while at the same time encouraged a whole host of disreputable business practices wherein title charges to consumers continued to increase to cover gifts and kickbacks and sham profit sharing programs.

Consumers lost not only a competitive marketplace for fees and service, they lost the independent oversight of a quality title insurer motivated to protect the underlying transaction.

We have made much progress in these last few months shining the light of truth on the bad practices. Regulators and lawmakers are doing good work.

I am very concerned that the prospect of lender pay title insurance has been raised in the agenda and hope that regulators and lawmakers will understand that the concept is not grounded in principles which will protect the consumer. Rather, the products like Radian and TitleSmart, are children of the bastardization process that followed the RESPA reform of the 80s.

Remember, lenders will never absorb additional costs. It's economic law. The consumer will pay for whatever product comes with the mortgage, one way or another.

Lenders will be motivated to protect their interests only, not the consumers, so look for only a minimal lien protection, just enough to make the loans meet FNMA/FHLMC saleability standards. Those FNMA/FHLMC standards are likely to be ignorant of the underlying risk of losing the corrective forces in the title examination phase in which traditional, quality title insurers find and fix problems and so you must also expect over time, accumulation of title clouds and problems which WILL surface eventually and affect marketability of the underlying real estate.

Consumers, as layman, can't be expected to fully understand the issue and therefore depend on regulators and lawmakers to guard their interests at this time. Mortgage lenders, Realtors, and the title insurance industry at large have shown themselves collectively to be unable or unwilling to police themselves and work for the benefit of the consumer. Until we have order restored in the real property business and replace bad actors with responsible leadership, we must rely on lawmakers and regulators to make careful, thoughtful decisions with regard to systemic change.

Please, please, lay aside plans and considerations for a lender pay title insurance product which in the long run will cause much harm. Traditional title insurance as a product is not broken. It's the delivery system that needs fixing. The most favored course of correction will be found in competition - free from conflicts of interest that naturally form in affliliated business and bundled services.

Independent providers not beholden to a single or few sources of referrals are your best chance of fair pricing with qualitiy of service. Release traditional title insurers from the legalized yoke and expection of affiliations and you will free a resource to the consumer. You will do more to restore order by clearly outlawing revenue sharing of any kind. Independent providers will then focus their attention on the true decisionmaker, the consumer, and fight for their business. Technology, product and pricing will naturally benefit the decisionmaker. YOU can decide who the ultimate decisionmaker will be - Realtors, lenders or consumers. I for one believe we are safer having the consumer in the decisionmaking role. Afterall, it's the consumer's home and money at risk. Let's give them back their power and stop this revenue sharing melee once and for all.

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