Letter To Insurance CA Commissioner John Garamendi To Lower The Cost Of Buying And Refinancing A Home By Increasing Competition In The Title Insurance Industry

March 26, 2003

John Garamendi
Insurance Commissioner
California Department of Insurance
300 Capitol Mall, 17th Floor
Sacramento, CA 95814 Via Facsimile & U.S. Mail

Dear Commissioner Garamendi:

On behalf of millions of homeowners in California, we are writing to urge that you use the power of your office to lower the cost of buying and refinancing a home by increasing competition in the title insurance industry.

With record low interest rates, thousands of California consumers 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.

Refinancing can be especially important for low and moderate income homeowners. Saving a hundred or two hundred dollars a month is a huge help especially in these tough economic times. Also, refinancing is an important way for many homeowners to raise the capital needed to modernize older homes, thereby lowering their utility and maintenance costs, improving their safety and comfort and preserving their asset.

One of the obstacles to refinancing is high closing costs, the most significant of which is the cost of title insurance.

Currently before you is a dispute between the title insurance industry and Radian Guaranty, Inc. Until ordered to stop by the Department of Insurance, Radian sold a title insurance alternative product which met the needs of lenders and cost refinancing 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."

We are not presently taking a position on whether Radian Lien Protection or products like it are title insurance or mortgage guaranty insurance and do not endorse any particular insurance provider or product. However, the Radian debate raises a larger issue that we urge you to address: Californians are paying too much for title insurance and that the title insurance industry, intentionally or otherwise, is playing a major role in this marketplace dynamic.

On March 25, 2003 Consumers Union completed a survey of title and escrow fees quoted by 5 major title insurance companies in California. The companies chosen for the survey represent those companies which account for 84% of all title insurance premiums written in California in 2001: 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.

According to our telephone survey, the major title insurance companies are quoting rates of an average of approximately $750 for a $250,000 refinancing. Last month, the title insurance industry represented that lower cost title insurance policies are available for refinancing. (Mc Swain's notebook-Here's a shocker: falling insurance rates, North County Times, February 6, 2003.) The news story, which is included as an attachment, indicated that "an industry group rolled out rates as low as $275 for title insurance on mortgage refinancing and $85 for consumers who open a line of credit backed by the equity in their home." In the same news story, it was also reported that these figures represented a "big change" from a 2000 survey of rates completed by the California Department of Insurance which showed that companies charged between $807 and $1248 for title insurance on a $300,000 loan refinance amount.

The Consumers Union telephone inquires show that title insurance companies are not offering to consumer callers discounted rates consistent with the industry assertions recently made in the press. Thus, the data we have collected shows that rates for title insurance have not fallen since the 2000 California Department of Insurance survey, and that title insurance companies are not making available to consumers lower cost policies for loan refinancing.

We believe that the high cost for a refinance title insurance policy would be substantially reduced if there were more competition in the title insurance industry. (According to the latest industry data, five large title insurance companies control about 90 percent of the business in California. The three largest firms control over 70 percent.)

Where new products meet the needs of lenders and can save consumers money, they should be allowed regardless of whether they are offered by a traditional title insurer or an alternative provider. Of course, all providers should be required to market their products fairly and have the financial resources to pay claims without delay when they arise.

To this end, we request that you look closely into the Radian matter pending before you as an example of how title insurers are trying to narrowly construe the law to limit competition and keep closing costs high to consumers. For the reasons stated above, California consumers would obviously benefit from more competition in the title insurance industry. However, if, after reviewing this matter, you conclude that existing laws or regulations constrain you to affirm the Adminstrative Law Judge's decision, we ask that you seek changes to any laws or regulations which may impede the Department's ability to allow for a competitive title insurance or alternative title insurance product marketplace.

We also request that you investigate whether the rates charged by the major title companies on refinancings are excessive. If any rates charged over the last two years are found to be excessive, the companies should be ordered to make refunds to consumers.

Finally, we urge you to remind the NAIC not to forget the importance of consumer protection when considering the issue of title insurance. We believe it is imperative that the NAIC clarify or fix its position on title insurance which seems to indicate that consumer interests will be left out of the debate by the NAIC. Specifically, we refer to a recent report in an industry newsletter detailing a December 2002 meeting between title industry representatives and the National Association of Insurance Commissioners' Title Insurance Working Group in San Diego to discuss Radian and other mortgage guaranty and property-casualty insurance companies offering alternative products that compete with traditional title policies. The newsletter reports that "The result of the meeting was a renewed pledge of protection for the title insurance industry." (Insurance Commissioners to Focus on a Host of Alternative Title Products in '03, The Legal Description, January 6, 2003.) We hope that you will work with the NAIC to restore a more consumer-oriented approach to this important issue for homeowners.

While title insurance companies will fight hard to stop competition and keep rates as high as possible for as long as possible, we urge that you stand with California consumers by opening up the market to competition and curbing excessive title insurance rates to consumers.

We look forward to your response. Please feel free to call upon us if we can provide further information.

Sincerely,

Norma P. Garcia
Senior Attorney
Consumers Union West Coast Regional Office

Robert Hunter
Consumer Federation of America
1424 16th Street, NW, Suite 604
Washington, DC 20036
(703) 528-0062

Doug Heller
Foundation for Taxpayer and Consumer Rights
1750 Ocean Park Blvd., Suite 200
Santa Monica, CA 90405
(310) 392-0522, ext. 327

Bill Powers
Congress of California Seniors
1228 N. St., Suite 29
Sacramento, CA 95814
(916) 442-4474, ext. 62

Prof. Robert Fellmeth
University of San Diego School of Law
5998 Alcala Park
San Diego, CA 92110
(619) 260-4806

Amy Bach
United Policyholders
110 Pacific Ave. #262
San Francisco, CA 94111
(415) 381-7626

Attachments:
Consumers Union March 2003 Title Insurance Company Survey
North County Times, February 6, 2003 article
Title Insurance Company Market Share Chart--California 2001

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View Files Sorted By Office: Consumers Union OPI, New York - Washington DC Office
West Coast Regional Office - Southwest Regional Office - Consumer Policy Institute

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