The Racket That Technology Can't Kill (yet)
I thought title insurance would go the way of the Dodo bird. Technology should have wiped out this racket years ago. To understand the difference between title insurance and hazard insurance. Hazard insurance is easy to understand. It (supposedly) protects you against hazards (fires and such) from the day you take the title forward. Title insurance is murkier. It (supposedly) protects you against adverse claims made against your property before you took title. Most typical claims are exceptions to the policies. So, good luck tendering a claim.
Lenders require title insurance so everyone has to buy it each and every time they buy and then refinance their home at a cost of $500 to $1,500 each time according to the WSJ. Now, finally, Fannie Mae “late last month formally requested bids from companies to join with it on a pilot program that will waive the need for title insurance on certain mortgage-refinancing transactions seen as low-risk,” reports the Wall Street Journal.
Andrew Ackerman writes, “Critics say title insurance is little used and overpriced, with the bulk of the premiums consumers pay going to title agents in the form of a commission.” In my experience it is the escrow officers and sales reps whose commissions take a sizable chunk from policy premiums.
Fannie’s program would use Doma, which operates an instant, algorithmic title-insurance business that it says is both cheaper and less risky. According to Doma, losses from its instant business are about half as much as some traditionally underwritten policies.
Two companies are the primary beneficiaries of the title insurance racket, First American Financial and Fidelity National Financial. Of course, FATCO and Fidelity pushed back against the program when the Biden administration first announced the program. Company spokesmen spout nonsense like homeowners will be put a greater risk and “Any assertion regarding the cost of title claims that cherry-picks only the lowest risk refinance transactions while omitting that it takes at least six years to fully realize the possibility of claims is clearly designed to mislead consumers,” said Marcus Reese, the chief communications officer at First American.
Fidelity chairman Bill Foley has rolled his title company profits into ownership of the Vegas Golden Knights, the Premier League club AFC Bournemouth, A-League club Auckland FC, and a stake in French Ligue 1 club FC Lorient.
Four generations of Kennedys (not the political family) run FATCO and collect $5.8 billion a year (2006 number) in what Forbes magazine called “America’s Richest Insurance Racket.”
Way back in ‘06 Forbes reported “All that cash--for an outdated product that should have been all but wiped out by digital technology.”
Having insulated themselves from outside rivals, the title companies then won state support to limit competition among themselves. A small number of states passed laws fixing prices of title insurance. Other states enacted a pastiche of rate regulations that let insurers set their own rates, routinely granting them increases.
Spared from having to compete on price, title firms large and small vied for customer referrals from real estate agents, mortgage brokers and builders by bribing them, in violation of federal law. The insurance agents who woo the customers are also compensated handsomely. Of the cash First American collects for title searches and accompanying insurance, it hands 80% to its own agents and to independents.
It’s 2024 and politics still stands in the way of technology.
