Get Title Insurance.com - a new title insurance business model
Categories: New Business Models, Realty Realities, Title Insurance, Cool Web Tools
Title insurance and other real estate settlement services have generally been non-transparent to the Consumer; these "closing costs" tend to pop up for perusal by the home buyer/seller or borrower sometimes at the last minute right before document signing! The appearance of junk fees like document preparation (doesn't escrow overhead cover this shuffling of papers?), email docs (does it really cost $50 to hit the return key?), and the all maddening "admin fees" are difficult to swallow. But they only hide the big hits - title insurance and those mortgage closing costs (we're assuming the home seller won't be surprised by the pre-negotiated realtor commission).
The tricks of mortgage closing costs and excessively priced title insurance are detailed in a set of links you can find here and here.
Inman news reports on GetTitleInsurance.com, which just launched July 31.
Their mission is to educate the consumer about title insurance pricing and their right to choose their own title underwriter. Consumers enter their contact data, which are distributed to title insurance providers who have purchased the right to "quote" to the consumer based on their zipcode. The Consumer theoretically receives quotes from a number of vendors, fostering price competition that hadn't existed in the industry.
This is a topic near and dear to my current endeavors. Title insurance seems to be the last bastion of excessive insurance rates. The title insurance industry payout ratio is only 5%. That means for every $1,000 in premiums you pay, the title insurance companies payout $50 in claims. For perspective, the car insurance industry payout is 86%.
Until recently, the major title insurance rate schedules in California had essentially identical rates, and seemed to operate like a cartel. California Insurance Commissioner Garamendi has been vocal for change and rate reduction, and a few title companies are positioning themselves as price leaders, and lowering their rates for others to follow suit.
Another company entering the title insurance fray www.titleinsurance.com has a more typical lead generation model that distributes leads to title insurance companies. SaveonClosingCosts.com's mission is to educate the Consumer about closing costs and to show them there are ways to avoid overcharging and junk fees, and save money.
These websites are among the first to market title insurance directly to the Consumer. Title insurance companies have never really done this, prefering to market directly to the decision maker of the title insurance company - the Realtor... and that really says it all - keeping the Consumer in the shadows is a simple cartel strategy.
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That is a great article. I am in the mortgage business. I used to work for a closing attorney. In SC, an attorney must close the real estate transaction, and they act as the title agent. In addition to the low payout you mentioned, it should be noted that the attorney gets the bulk of that premium (60% at least). They, or whomever in their office that prepares the final policy, must be licensed by the state. But it sre seems like insurance sales. In addition, some attorneys will include the owners policy (without asking) and that increases their premium.
As far as mortgage closing costs (my fees), it has long been my belief that on every loan, no matter who originates it, there is about $1000 to $2000 in fees to be made. It is simply a matter of whether the consumer sees the fees or not. An interesting fact is that banks (Wachovia, Bank of America, etc) do not have to disclose some income, known as Yeild Spread Premium, whereas mortgage brokers DO have to disclose this. So, a loan with the bank that looks like it is costing only $700 is not correct. They are simply not required to disclose the rest of the income that they make.
Great article!
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Thank you for your feedback John. I learned something from you about how attorneys in states like SC act as title reps... that makes a good case for upfront title insurance procurement as offered by sites like GetTitleInsurance.com. I also am surprised to hear that banks don't disclose their YSP. I assumed that lenders worked on a caveat emptor system - they post their rates at what they believe the market will bear and if a borrower signs up for a higher rate loan, the bank just pockets extra profit. Are you saying that retail lender reps actually work for YSP that is not disclosed on the HUD-1?
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Thanks for the reply. YSP is al about the secondary market. You really have two classes of lenders. National lenders that work through wholesale channels, but only lend money and do not have deposits and the traditional banks (ie Wachovia, Bank of America, etc). Even the banks have wholesale channels, but I will leave that alone for right now.
The secondary market is where a loan gets pooled with other, similar loans and sold off as a bond. This is where Fannie Mae and Freddie Mac come in. They are the pooling organizations. THis is why most people get a letter at some point during the life of their loan to mail their payment somewhere else. Some one bought the servcing rights. Bonds are basicly valued at the anticipated value of their future monthly cash flows. Through a method called Discounted Cash Flow, these future payments produce a rate of return. This is overly simplistic, but the difference between the rate it would get on the secondary market and rate it is sold to the customer is the YSP.
At any given time, the banks will know or have a very good idea of that YSP return on a rate that they offer. But under the current laws, they do not have to disclose this number.
Some in the broker business (mortgage brokers and bankers) would say that the YSP is well deserved because the banks are simply passing along a savings (no origination staff) to the broker. I guess there is some truth to this. I can look up a rate with ABN AMRO Mortgage group, throuhg my company and I can see one rate and on their website, the customer would see another, higher rate. So, I could just match the rate on the website and probably get 1.5 points in YSP. I do not operate this way, but many do.
I would love it if YSP was required to be retruned to the consumer, including loans from the traditional banks.
I hope this makes sense.
John
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Another newcomer to the title insurance market is My Closing Space, which offers title insurance direct to the consumer. One of the biggest issues in this industry seems to be a lack of knowledge by the average consumer. Because of this title companies are able to add fees to the closing process and the consumer is none the wiser. They just sign everything that is placed in front of them. By educating themselves consumers can save quite a bit of money on title insurance and closing costs.
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Mark, I applaud your service. I also advocate consumer awareness and self-empowerment on coordinating their real estate transaction. Sometimes, the Realtor's vendor team is employed on the basis of relationship and high service level - and that supports the Realtor's rationale to his/her client that "you get what you pay for"... and that means status quo pricing.
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