It’s Homeowners Versus Title Insurers
A landmark legal battle is taking shape for homeowners and mortgage refinancers--one that could stand in the way of huge savings for consumers nationwide.
The national lobby representing title insurance companies and agents filed suit just before Thanksgiving to block a lower-cost mortgage market competitor. The American Land Title Assn. asked a court in California to prohibit continuation of an innovative form of private mortgage insurance that provides lenders protection against losses caused by undisclosed liens on homes they finance.
The new mortgage insurance--priced far below traditional title insurance coverage--is part of an effort to cut the expenses and time involved in refinancings and home-equity loan originations. In both types of loans, the statistical risks of lender losses caused by undisclosed title problems are low.
Many homeowners refinancing this year are paying high fees for new title searches and insurance policies, despite the fact that their loans are barely two or three years old and not likely to have title problems. Unless consumers know to specifically request lower-cost “reissue” rates for their title work, they may pay hundreds of dollars for new title policies to cover what is essentially a minimal risk to the lender. Though consumers often don’t know it, the lion’s share of the premiums they pay at settlement usually goes directly to the title agents, escrow companies or lawyers closing the transaction, not to the insurance companies themselves.
Convinced that the title expenses in such situations can be sharply reduced, major mortgage-market players--including mega-investor Freddie Mac--have been actively exploring consumer-friendly alternatives. Though not the only reduced-cost product on the market, the one that has produced the biggest splash this fall is called Radian Lien Protection. It is limited solely to home refinancings and equity loans, involves no new title searches and claims to reduce title-related costs to the consumer by 50% per transaction.
The concept’s developer is Radian Guaranty Inc., a Philadelphia-based private mortgage insurance company. The firm is the fourth-largest-volume mortgage insurer in the country and does business with 3,500 lenders. Radian defines its program as an “enhanced” form of its standard coverage, allowing lenders to charge lower fees to borrowers. Said Radian general counsel Howard S. Yaruss: “Our mandate is to cover a lender’s out-of-pocket losses when a borrower defaults, for whatever reason.”
The Radian coverage available to lenders on pools of mortgages merely expands the specific protection against title-related causes of default losses, according to Yaruss. The per-loan cost of the Radian product is about $275. Standard title insurance costs, by comparison, start from $300 to $400 for reissue rate policies and can go to $600 and higher.
The American Land Title Assn. sees competition like Radian’s as a major threat. In its suit filed in California Superior Court, the association claims that Radian’s plan amounts to an unauthorized form of title insurance. The suit seeks an immediate injunction against Radian, plus monetary damages for unspecified business losses that the title-insurance industry has incurred since the advent of the Radian plan in September.
Radian was unable to provide dollar volume estimates for its program last week, but the concept is increasingly popular and is available through lenders in many states. Yaruss said his company “will fight tooth and nail against every lawsuit they [the title industry] file.”
What’s especially significant about Radian Lien Protection is that it is integrated into a much broader and more ambitious effort to streamline traditional mortgage costs and procedures. Radian Lien Protection coverage is just one element in a multi-service mortgage settlement package known as ExpressClose.
ExpressClose, a wholly owned Radian subsidiary, offers lenders the opportunity to radically cut expenses to consumers by dispensing with traditional appraisals and other settlement-cost items.
On refinancing and home-equity appraisals, ExpressClose lets lenders charge $50, rather than the traditional $300 or more. It also dispenses with other traditional practices, such as the need for borrowers to go to a title, escrow or law office for the settlement. Instead, consumers pick the place and time for their closing--at home, at the office or wherever they want--and a notary public arrives to do all the paperwork.
The day before the scheduled loan closing, borrowers can inspect all their documents and computations on a secure Web site, and request changes or clarifications.
The ExpressClose plan and the streamlined Radian title-risk coverage combine to represent a direct assault on the traditional ways of doing business in home financing.
The industry lawsuit seeking to kill it could provide definitive answers to two key underlying questions:
Will American homeowners get the chance to pay less at the settlement table?
Will needlessly complex and expensive practices be streamlined to the consumer’s advantage with the help of imaginative new technologies?
*
Distributed by the Washington Post Writers Group.
