How to reduce the high cost of title insurance

Consider adding a website showing comparative insurance prices. California leaders also should end price controls and copy Iowa’s state-run model.

By Jeff Lazerson | jlazerson@mortgagegrader.com | MortgageGrader.com | February 07, 2021

You have all the power in the world to pick your real estate professional and negotiate the commission for selling your palace.

Pick any mortgage professional your heart desires for your purchase or refinance financing needs. Negotiate the loan program, interest rate, points and fees for sure.

What about the same empowerment for title insurance?

Forget it. Someone else picks. And you get to pay the tab.

Your realty agent or mortgage professional almost always picks the title insurance company for your sale or refinance.

Title insurance is designed to allow for the clear transfer of property title from the seller to the buyer. It is supposed to protect the buyer from financial loss and legal expense from matters such as unknown defects in the public record, forgeries, missing heirs, unknown liens and the like.

This is also known as CLTA policy. Typically, the seller pays for this policy in Southern California.

There is also an ALTA policy that the buyer or refinancer pays providing similar protections to the lender. In an all-cash sale, there is no ALTA policy because there is no lender.

Just 13 California title insurance underwriting groups wrote more than $1.8 billion in business in 2019, according to the California Department of Insurance. Less than 6% of that was paid for legal fees and claim losses.

Can you say cash cow?

What about price competition? Not so much.

Title insurers set their prices. They must provide their pricing with the insurance department before offering it to the public. Haggling over title insurance prices is not an option. California law protects the insurers from one-off price discounts. The insurance department cites pricing discrimination as the underlying rationale.

Yes, really.

Fidelity National Title and First American Title control about 80% of the current California market, according to the insurance department.

Assuming a $750,000 sales price, First American would charge a Southern California home seller $2,070 for a sellers’ CLTA policy, website calculators show. Fidelity would charge $2,067.

A whole $3 difference from the biggest gorillas in the room.

What about substantial discounts? I found just one.

WFG National Title offers that same $750,000 sellers’ policy for $1,980. But, WFG has a coupon on its website for 40% off ($792 cheaper), landing your seller policy at $1,188. WFG offers a separate 25% first-time buyer discount.

Fidelity, First American, WFG National Title and the California Land Title Association declined to comment.

The primary pathway or opportunity to knock down the cost is open competition given the file-and-use status of title insurance, according to the insurance department.

OK, then. Let’s start with California Department of Insurance Commissioner Ricardo Lara.

Create a simple, transparent, online consumer pricing engine for any California home seller, buyer or refinancer to shop and compare including any posted volume discounts like a five-year refinance policy, for example.

Here we are in 2021, can you think of any industry besides title insurance that doesn’t have an easy comparable price shopping process? The insurance department has all of the data.

Second, stop the price controls. Reform the law. Look no further than Amazon or Costco. Allow consumers and consumer groups to haggle price. The title insurer can just say no if it doesn’t want to agree to a given price.

For extra credit, Gov. Gavin Newsom and Commissioner Lara should call Lindsey Guerrero, director of Iowa Title Guaranty, or ITG — which has successfully operated since 1985.Iowa is the only state agency in the union that offers residential title insurance. ITG is self-sustaining, not taxpayer funded. Excess profits are invested in local Iowa housing programs.

So far, $60 million has been given back, according to Guerrero.

For that same $750,000 sales price example, Iowa Guarantee would charge a mere $175.

Freddie Mac rate news: The 30-year fixed-rate averaged 2.73%, unchanged from last week. The 15-year fixed-rate averaged 2.21%, up 1 basis point from last week.

The Mortgage Bankers Association reported an 8.1% mortgage increase in mortgage application volume from the previous week.

Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $548,250 loan, last year’s payment was $215 more than this week’s payment of $2,232.

What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages with 1-point cost: A 30-year FHA at 2.125%, a 15-year conventional at 1.875%, a 30-year conventional at 2.375%, a 15-year conventional high-balance ($548,251 to $822,375) at 2%, a 30-year conventional high-balance at 2.5% and a jumbo 30-year fixed at 3.125%.

Eye catcher loan of the week: A 30-year fixed-rate at 2.875% without costs.

Jeff Lazerson is a mortgage broker. He can be reached at 949-334-2424 or jlazerson@mortgagegrader.com. His website is www.mortgagegrader.com.