California Title Insurance Rates Remain High (May 2003).

Lack of Competition in Title Industry Cited in Consumers Union Survey

With record low interest rates, thousands of Californians are refinancing their home mortgages. By refinancing, many homeowners are saving hundreds of dollars in monthly mortgage payments. Others are tapping the equity in their homes to make needed repairs, help pay for children's education and pay off more expensive debt. But for many low and moderate income consumers, one of the obstacles to refinancing is high closing costs, the most significant of which is the price of title insurance.

According to a Consumers Union survey released in April, the cost of title insurance remains high despite recent claims by industry representatives that lower cost policies are widely available to consumers. In a letter sent last week, consumer groups urged Insurance Commissioner John Garamendi to lower the cost of buying and refinancing a home by increasing competition in the title insurance industry.

"Californians are paying too much for title insurance," said Norma Garcia, senior attorney for Consumers Union's West Coast Regional Office. "We believe that the high cost of a refinance title insurance policy would be substantially lower if there were more competition in the industry."

On March 25, 2003, Consumers Union completed a survey of title and escrow fees quoted by six major title insurance companies in California, which together represent 84 percent of all title insurance premiums written in the state in 2001. According to the survey, the major title insurance companies are quoting rates averaging approximately $750 for a $250,000 refinancing. In an article published in the North County Times, a title insurance industry representative claimed that lower cost title insurance policies are available for refinancing, citing rates as low as $275 for title insurance on mortgage refinancing and $85 for consumers who opened a line of credit backed by the equity in their home.

Insurance Commissioner Garamendi is currently considering a dispute between the title industry and Radian Guaranty, Inc that highlights the debate over high insurance rates. Until ordered to stop by the Department of Insurance, Radian sold a title insurance alternative product which met the needs of lenders and cost consumers hundreds of dollars less than a traditional title policy. The title industry maintains that the product (Radian Lien Protection) is "title insurance" and, therefore, can only be sold by title insurance companies. Radian says that it should be allowed to sell the product because it also meets the definition of "mortgage guaranty insurance." Consumers Union does not endorse any particular title insurance or mortgage guaranty insurance product.

"The Radian controversy highlights how limiting competition in the title industry keeps closing costs high to consumers," said Garcia. "We urge the Insurance Commissioner to investigate whether insurers are charging excessive rates and to help consumers save money by fostering greater competition in the marketplace. And if the Commissioner determines that companies have been charging excessive rates, he should order them to make refunds to consumers."

The companies included in the Consumers Union survey were Chicago Title Insurance Company; Fidelity National Title Insurance Company; First American Title Insurance Company; Commonwealth Land Title Insurance Company; Stewart Title Guaranty Company; and Old Republic National Title Insurance Company. Five metropolitan areas in California were selected for the telephone survey: San Diego; Los Angeles; Fresno; San Francisco; and Sacramento.

A complete copy of the Consumers Union survey along with the consumer group letter to Insurance Commissioner John Garamendi is available upon request by contacting Michael McCauley at 415-431-6747.