Cut in Title Costs Sought
California Insurance Commissioner John Garamendi is expected to announce today that he is taking steps to force title insurers to cut the rates paid by California homeowners and restore competition in a market dominated by a few players.
Garamendi also is slated to release a 111-page study that concludes that three insurers control 75% of the state’s title insurance market.
“The report confirms that California homeowners and home buyers are being systematically overcharged because title insurers refused to compete with one another on the basis of low prices,” Garamendi said in a statement released Wednesday.
“These overcharges operate like a tax on home purchases and refinancing, pricing people out of the market and acting as a drag on the economy.”
Garamendi’s report, prepared by Texas insurance economist Birny Birnbaum, found little variation among the top six companies’ prices. In comparing premiums for a $500,000 owner’s policy, for example, the range was $1,572 to $1,726 per policy.
Garamendi said he planned to hold hearings to examine title insurance premiums. Based on the Birnbaum study, Garamendi said he expected “in the coming months to issue orders directing rates to be lowered to the levels at which they would be were this a competitive market.”
Title insurers probably will contest any claim by the commissioner that they overcharge customers, said John Norwood, a lobbyist for First American Corp., a Santa Ana-based title insurance company. The process could take much of 2006 -- Garamendi’s last year in office. He plans to run in the Democratic primary election for lieutenant governor next year.
A spokeswoman for the California Land Title Assn., a Sacramento-based trade group, declined to comment on the report, saying officials hadn’t yet seen it.
Tim Kemp, regulatory counsel for First American, said competition exists in his industry.
“It’s always been the title insurance companies’ view that there is competition both in terms of pricing and [policy] terms,” he said.
Garamendi has been scrutinizing practices in the title insurance industry for some time, and in July his office reached settlements with the three biggest insurers in California after alleging they paid kickbacks to lenders, real estate brokers and builders through an elaborate reinsurance scheme that he asserted drove up customers’ costs.
The big three -- Fidelity National Financial Corp., First American and LandAmerica Financial Group Inc. -- agreed to pay about $38 million in fines and refunds.
Among Garamendi’s complaints is that too much market share is concentrated in their hands, largely because companies have been aggressively snapping up smaller players. Indeed, on Monday the consolidation continued as Santa Ana-based First American said it would buy Florida-based TransContinental Title Co.
Title insurance is required by lenders to guarantee that there are no other ownership claims on a property they are financing. The burden is usually on the property seller to purchase title insurance before escrow can close. The rate is generally a proportion of the property sales price.
Title and escrow services are two of the biggest charges for those who are selling or refinancing a property.
