Tuesday, June 02, 2009

there is so much we could discuss concerning title insurance

but... ..you have to pick and choose and so this is what I ended up submitting as testimony for the PA public hearing:

Testimony before the
Pennsylvania Insurance Department
Title Insurance Issues
Presented by:
Diane Cipa, Title Insurance Agent
General Manager, The Closing Specialists
204 West Main Street, Ligonier, PA 15658
724-238-7783
dcipa@tcsclosing.com

Good afternoon. My name is Diane Cipa. I am a licensed title insurance agent. Thank you for
arranging this public hearing and for the opportunity to talk with you today about title insurance.
Title insurance is not a casualty product. The premium is meant to pay for quality examination
and a reliable vetting for insurability prior to the issuance of a policy. The insurance was always
meant to act as a back up safety net not to replace the competent examination. Claims should be
rare.

The title insurance business moves in tandem with mortgage banking. It’s like a parallel universe. The subprime, crappy standards culture of the mortgage business manifested itself in title insurance and so what we have created over these last 10 or 15 years is a business populated with people who don’t know what they don’t know or don’t care what they don’t know. What we need is a restoration of competence and quality, which will provide stability to title insurance and give the consumer value for their premium dollar.

Since we’re primarily talking about money, let’s talk about core services, the value brought to the transaction by the traditional title agent.

• SEARCH/ABSTRACT
• EXAMINATION
• TITLE INSURANCE COMMITMENT
• RESOLUTION OF TITLE ISSUES
• CLOSING COORDINATION
• CLOSING
• ESCROW FUNDING AND DISBURSEMENT
• RECORDATION
• POST CLOSING DOCUMENT STACKING/COPYING FOR LENDER
• TITLE POLICY

Without considering optional fees for extra services or work, all of these core services would be
covered by the all inclusive rate. In my current agency contract, I retain 85% of the premium.
My staff and I perform all of these core services except the search/abstract and recordation. We
pay independent qualified abstractors to handle those services. We do not charge the consumer.
The fees are absorbed and paid from the all-inclusive rate. Only members of my staff conduct
closings. We do not use independent closers aka signing agents.

The Department allows us to charge optional fees for extra services. The most typical are:
• OUT OF OFFICE CLOSING $150.00
• COURIER $10.00
• MORTGAGE LENDER EDOC PRINTING $50.00

We do closings 8 to 8 Monday thru Friday and 10 to 5 on Saturdays and do not charge extra for
these odd hours. In addition, we give consumers a chance to avoid optional fees by opting into
our CHOOSE AND SAVE PROGRAM. In exchange for giving us a $300 deposit to cover the abstract and lien letters, we waive optional fees. The consumer gets the deposit back if they close within 90 days and for our remote consumers – we serve 34 counties – the typical savings is $210.00.

Visit www.chooseandsave.com for more information.

My average title policy is somewhere around $125,000. If you look at reissue rate $817.88 plus
typical endorsements $150.00 and take 85% of that, our share would be $822.70 minus say $150 for abstract services and the $150 I pay my closers, that leaves $522.70. We may or may not get additional revenue from optional fees. Just for comparison sake, let’s say the consumer opted into Choose and Save and we earn no extra fees. That remaining $522.70 pays for me and my staff and our office overhead including whatever it takes to perform those core services as outlined above.

Well, what do the NON-TRADITIONAL agents do? Less……and for the same consumer dime.

Let’s look at some typical NON-TRADITIONAL agents:

• INDEPENDENT CLOSER aka SIGNING AGENT ONLY: In this scenario, the consumer is working with a title agency who has no employee closers. Rarely does the title agency absorb the cost of the independent closer as part of the all-inclusive rate. In fact, most often the consumer is
paying a marked up fee to a third party “signing service” who acts as a vendor manager for
signing agents.

These types of title agencies may or may not be affiliated businesses but they are usually tied
to some party in the transaction, the lender or the seller in a foreclosed REO closing.
I have two objections to this type of agency. Consumers aren’t given the option of going to
the title agency’s office and having an employee conduct the closing. Their only option is to
pay for a signing/settlement service. Consumers expect that the party who conducts their
closing, the person who comes to the closing table is qualified and under some umbrella of
licensure. In the case of a signing agent, the process of hiring the closer is much like an
auction. The title agent or signing service calls around looking for notaries and asks them to
basically bid for the deal. The cheapest, most available notary/signing agent gets the order.
The consumer’s mortgage document package is then e-mailed to the signing agent who makes
copies and goes to the consumer to conduct the closing. You may not know it but these
document packages contain sensitive private information including a full mortgage application.
That might not be of interest to the insurance department but it should be of interest to
someone. Should non-employees be conducting closings in a title insurance transaction? If
yes, should there be a sub-license of some kind?

This title agency does not provide the core service of conducting the closing. They do not hire
or train a closing staff. They do not have the overhead for a closing staff. Also, they do not
print or copy the lender documents. Should the consumer have to pay extra to cover a signing
service? Should the consumer even pay the same all-inclusive rate?

• UNDERWRITER/TITLE COMPANY DOES THE WORK: I call this kind of title agent a FAUX agent. Most often I see it in the affiliated business arrangements but not always. It’s usually a person or entity who has a good source of referrals but either doesn’t know much about title
examination and/or doesn’t want to know much about title examination, they just want to set
up a title agency.

Here’s how it works. The underwriter/title company gives the title agent access to their
computer system. The title agent inputs a title insurance order. The underwriter/title
company hires an abstractor, gets the search product using some automation, some human
work at the courthouse and some offshore outsourcing. I tried this type of product with First
American when I had an agency relationship with them. At that time, the legal descriptions
were being typed in the Philippines. Anyway, the underwriter performs an examination and
delivers back to the title agent a title insurance commitment. These title commitments do not
include a chain of title and the exceptions to coverage are rarely detailed in any way that
might be useful to a consumer. Using this system the underwriter also relieves the title agent
of liability for abstract error. The agent does pay the underwriter for the search. It’s about
the same fee I pay for a full abstract but remember I do my own examination and prepare the
commitment and the policy.

So, the title agent has less risk and performs less work. The consumer gets less information.
Should the consumer pay the same all-inclusive rate to this agent?


• SHORT SEARCH AGENT: This title agent never gets a full search. Always orders the current
owner or property report even though it’s a violation of published underwriting standards and
gets away with it. Does the consumer know their policy carries with it a higher risk of
producing a claim? No. Maybe there is a market for an econo-policy? Maybe the consumer
should be able to choose a crappy policy with a higher risk for a lower price.



There’s a ton of stuff we could talk about but I don’t want to close without suggesting in the most
strong terms I can that we need oversight of escrow accounts. Please think about how many
millions of dollars flow through the hands of title agents. Consumers think someone is watching
their money. They assume it is safe. This is one area where I think title companies can use the
regulatory help. Help them help themselves. Require that agencies pay for independent audits by a CPA annually. This is one type of claim that is self-created. Why should consumers have to pay to cover losses for mismanagement of funds? Set audit standards and force licensees to comply.

Thank you and good day.


EXTENDED COMMENTARY SUBMITTED VIA E-MAIL JUNE 2, 2009

The numbers presented by the Office of the Attorney General on page 9 of the statement by
Messrs. Crocker and Kleit were most interesting to me. I am not a statistician, however, I am a
witness at street level of the dynamics of the real estate/mortgage/title insurance industry over
more than 3 decades. Their chart on page 9, Title Agent and Agency Numbers in Pennsylvania,
2000-2009, is key to understanding where we are, how we got here and how we can fix what’s
wrong.

I’d like to take it further and see the title agency numbers going back to 1983, for that’s when the first real estate brokerage affiliated title agencies were formed. At that time I was in mortgage banking with a large savings institution. I managed a high volume mortgage department. We purchased mortgages from mortgage brokers. In that capacity I had to work with many title agencies, including those affiliated with mortgage brokerages owned by real estate companies. There weren’t many because at that time, by my observation, only the very large real estate companies entered the mortgage and title insurance business.

It didn’t take too long for the wider real estate sales community to see mortgage brokerage and
title insurance as potential profit centers and once they fully recognized their “point of purchase”
power, being the first consumer contact in a typical real estate transaction, a new cottage industry was born. Trade associations, law firms, consultants, and title companies clamored to build relationships and create new entities by providing literature, seminars and road maps for
affiliation.

Once our PA title insurance law was amended to officially permit banks and other mortgage
lenders to act as title agents, I think in 1999 though I can’t find my copy of the amendment to
confirm that date, the weaving of the referral net was complete.

I agree with the Office of the Attorney General that our problem is reverse competition. We need to find a way to empower consumers and safely change the delivery system of title insurance and its related settlement services without divorcing the product from prudence.

TECHNOLOGY: Real competition will drive technological productivity. We need a free competitive market where pricing and delivery of products and services are improved without sacrificing security, fidelity, and the underlying integrity of land records. We are not ready for full search and examination automation. Anybody who tells you we are is lying or ignorant. Automating title search and examination once the land records system has fully integrated technology and the system has matured to a point where reliability is tested and proven by impartial experts is a reasonable long term goal but it’s not something we can reasonably count on for help right now.

DISCLOSURE given at the point of sale is a powerful consumer tool. Compelling disclosure by
those holding a professional license – real estate or mortgage - in the Commonwealth who are in a position to make title insurance referrals – affiliated or not - might work. I strongly suggest that consumers be encouraged to contact the title agents directly to get a written quote before the order is placed by them or on their behalf. We often see circumstances in which the real estate agent or mortgage lender places the title order without the knowledge of the consumer making it uncomfortable for the consumer to change providers. Unless the premium itself is deregulated, consumers must be informed that shopping must include a clear quote of ancillary charges. As an aside, I have over the past three years had ongoing problems with a large state bank who owns a title insurance agency. They don’t like our Choose and Save program because it makes their own pricing look bad so they tell consumers they cannot use our company. I have evidence that they are happy to use our company if we place the title insurance with their agency, so it is not a question of competence. It’s a question of hiding from the consumer pricing options which will save them some cash.

I am attaching copies of a Power Point presentation on management of title agency escrow
accounts. It’s the best presentation I have seen on the subject and since I do hope you’ll consider
setting audit standards, it may be useful.

Bottom line – consumers deserve a better deal.

Thank you.

3 comments:

Anonymous said...

Well done! You did a great job with this explanation, I hope that it helps you in PA
Kathy Glor

Diane Cipa said...

Thanks, Kathy. ;)

Diane Cipa said...

PS The goofy formatting in some paragraphs is a Blogger issue. I can't seem to fix the way it looks here.;)