(This is Part 3 of a three-part series. See Part 1 and Part 2.) In previous articles, I pointed out that competition for title business is directed not at borrowers but at Realtors, lenders and builders who have referral power. Competition thus often results in kickbacks to referrers rather than lower prices to borrowers. Recent years have seen a proliferation of legalized kickbacks through "affiliated business arrangements" (ABAs), which are costly to develop, as well as sham ABAs that pretend to be legal but aren't. The fundamental reason for the dysfunctional market is that borrowers must pay for title insurance that protects the lender, which is a historical anomaly that never made any sense. If lenders had to pay for their own protection, kickbacks would disappear overnight. To accomp...
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