Out of State Title Agents – Bad for the Consumer

Great example yesterday of why “going national” is bad for the consumer:

I received a call from a lender in Florida, closing a deal in Philadelphia and using a title agent based in Maryland.  He suspected that his client was being overcharged for title insurance and asked if, as a favor, would I provide a rate quote.  Always curious to see what’s going on in the market, I agreed.

The Maryland agent had prepared a HUD-1. He read the line items and amounts to me. After a few moments it was clear that the title agent had entirely misapplied the title insurance rates.  It looked like they were using a MD fee structure and a PA title rate.  In PA the rate is all-inclusive – search, binder, document preparation and abstract are all included in the filed rate.  The agent had not only charged separately for the items that should be included, but their charges were astronomical.  Charging $495 for a title search – on what planet?   Maybe it was embossed in gold.

The misapplication of the rate structure resulted in an overcharge to the consumer of over $1,500.   If it weren’t for a diligent lender, the consumer would have been none the wiser and $1,500 poorer.

I asked for the name of the agent (just curious).   Some quick research showed them to be what I refer to as a “title chop shop.”  They are set up to maximize production, licensed in multiple states, and use signing agents to close the deals.  

It is easy to obtain a title insurance license (honestly the bar isn’t that high) and most software “supports” the rate tables in any state.  That should not mean you are qualified to business in that state.  There’s just too much local variation.

These chop-shop agent setups are just plain bad for the consumer – consumers expect to get a quality product and fair treatment from an entity that is licensed to do business in their state.  In fact, there is no benefit to the consumer in this arrangement.   The transactions I’ve seen (and I’ve seen a few) all have higher charges, lower service, and unconscionable error rates. 

Licensing isn’t the problem, it’s the signing services. If it weren’t for the availability of signing services, the above situation couldn’t happen.  Title agents who wished to expand  to a new area would have to open a branch to service that area.   Branch personnel would be familiar with the local market. Consumers would get fair pricing and quality service. Eliminating signing services eliminates the problem.

Credit Bureaus are Part of the Problem

We have long heard this complaint from our customers:  “the minute that I made application with XYZ, I started receiving telephone calls from many different lenders, at all times of the day and night.  How do they know we are refinancing?”

Well, thank you to the Washington Post for solving the mystery.   It seems that the credit bureaus are selling “trigger” lists to third parties NOT involved in the transaction.  When a credit bureau gets a request from a lender, it triggers a report to outside parties interested in a transaction.

Though this is not a title problem, it is part of the general morass that the entire industry finds itself.  Trigger lists aren’t for reputable players, they are for the predators.  The concept of targeting people who have just started the lending process and trying to steal the deal from a competitor is just business one might say.    But when the originating mortgage lender is paying for an inquiry and credit report and then the credit bureau turns around and sells the “inquiry” to the paying lender’s competitor – that is distasteful.

The ability to further screen the data by geography and credit score is even more troubling.  The buyers of trigger lists are predators, and wolves don’t go for the strongest members of the herd, they go for the weakest.  The trigger lists arm them with all the information they need to find their next victims: doubly distasteful.

The Washington Post reports that trigger lists are an industry norm and the FTC is not inclined to stop the practice.

While the powers that be muddle through the mess, there is something you can do.  Opt out. Here’s the link.  Tell your clients to do the same.

Francine contributed to writing this article.

A View from the Trenches

I’d like to welcome my wife, Francine, as a contributor to Clearing Title.   She’s been providing me with editorial support since I started blogging (she’s much better than the built-in spell and grammar checkers).  Now she’s been bit by the blogging bug too.

Francine spends much of her time at the settlement table and clearing up “nasty” title issues.  This gives her a unique perspective not only on issues impacting the industry, but impacting individuals at the settlement table, as well.

Look forward to some interesting posts from the trenches.

Disruption on the Technology Side

IBM has announced that they are entering the market for mortgage processing automation.  Having worked for large system integrators in the past, it tells me several things:

1. IBM has determined that there is a sizeable and mature market to support their entry
2. They feel current vendors are under serving the market
3. They have analyzed the market and decided that it has consolidated or will consolidate into enough large players to support IBM’s sales and marketing model

If IBM is successful and stays in the market it stands to reason they will eventually expand horizontally into all aspects of the RE process, from listings to closings. 

This a traditional disruption of the market, where a large entrant displaces a number of smaller or less efficient competitors.   The title companies have placed considerable emphasis on the automation market for their continued profitability.  This should definitely give them cause for alarm.

Is this a RESPA Issue?

This just in.  The California Bankers Association is offering a discounted/bundled set of closing services through FirstClose.   The highest value/margin product in the offering is Title Insurance.  It only makes sense to discount or offer at cost the other services to attract the title order.

Question:  If discounts are a thing of value, is it a RESPA violation to offer them in conjunction with title insurance?

Thoughts are welcome.

Quality has no value

I’m not sure that quality is a valued or valuable commodity in our business anymore.  In fact, I think doing things correctly is becoming a barrier to success.  

Case in point – last week two different underwriters thanked us for following their guidelines and doing the right thing.  One went so far as to say he would sleep better if all his agents were as diligent. While it feels good to get the pat on the head, it won’t earn us a dime of income.  

But following the guidelines nearly derailed a big deal.  We worried that the loss of the deal would ruin a client relationship and great referral stream. The client has other alternatives – there are too many others who aren’t burdened by a commitment to quality and the law that will step in and take your place.    

More and more getting the deal done is all that matters.  Quality title work and conveyancing have become a problem, not an asset.  It raises issues, delays closings, and kills deals.  

There seems to no longer be a disincentive for title agents who break the rules.  Sure, major fraud lands you sideways with the law, but the minor “oversights” will most likely go undetected.   There is little policing – it’s left to the underwriters.  If you’re caught, the “police” are likely to let you walk away with a warning.   

For the “get the deal done” crowd it makes sense to find someone who is willing to be “flexible” in their approach.  By ‘forgetting” to raise and issue, accepting incomplete or inaccurate information, or simply removing an “old” mortgage or judgment from a title commitment, they win the loyalty of the deal makers.  

Once upon a time it was difficult to find someone with “flexibility.”    Now there are legions standing by with ABAs, and signing agents, and “flexible” practices to help you out.    

Few seem interested in stopping this trend.  Some are even working to institutionalize it. Quality title work is facing extinction.  So are those who believe in it.

Federalization?

Radical Title had an interesting post today – Federalize Title Insurance? 

This reminded me of one of my favorite quotes:

“‘it became necessary to destroy the town to save it”   - made after the battle of Ben Tre by an anonymous American Major to Peter Arnett. (wikipedia)

Federalizing the Title Industry would be bad for everyone, even the consumer. 

Imagine the joy of settlement at the Federal equivalent of the DMV. 

Though it would leave an impressive, smoldering hole where the Title Insurance industry used to be. 

Be careful what you wish for.  I’m not ready to go there yet.

Is the foreclousure boom a bust?

Great article on the InmanWiki on the vocabulary of short sales.  We’ve been seeing a handful of short and distressed property sales for several months in the Philadelphia area. 

The deals we are seeing are from novices, not the “professionals/specialists.”  When amateurs get involved it usually marks the end of a cycle, not the beginning. 

Are the pundits wrong, and the coming foreclosure “boom” already coming to an end, or is this somehow different?

We all own the fraud

Today, the Washington Post reported the vast increase in mortgage fraud.  This isn’t news to anyone who follows the new wires, but it will be news to main street.  According to the FBI:

“Fraud for profit is committed mostly by industry insiders….”

The nature of real estate transactions makes it very difficult to perpetuate fraud by oneself.   Either willing or unwitting accomplices are required.   Real Estate Agents, appraisers and title agents have to cooperate for many of these frauds to occur.  Once upon a time the industry didn’t let bad actors in the door.  Now we just look the other way – its someone else’s problem. 

“The only thing necessary for the triumph of evil is for good men to do nothing. “  – Edmund Burke

With each fraud the reputation of our industries is tarnished.  Its time for all of us to do something.

Canary in a Coal Mine?

I’ve heard from numerous sources that title insuarnce E&O carriers are under pressure from claims.   I know E&O rates in PA shot up over 15% this year.  Word on the street is that two of the major sources of claims are independent contractors (signing agents) and newer ABAs.  No real data to back up the rumors yet.

 

I have also heard (multiple sources) that carriers are modifying their coverage to deal with these issues. 

My recent experience was that our carrier had little interest in covering us for limited use of signing agents (they proposed excluding independent contractors from our E&O coverage).

If there are major problems with claims the first place they will surface is with the E&O providers.  They are the proverbial canary in the coal mine for title issues.

Any additional insight out there?