A special state Senate committee in Missouri is pondering possible regulation for the state’s title industry, and home builders, mortgage brokers and title insurers are clashing over the proposed regulation.
The Missouri Senate’s Interim Committee on Title Insurance met in August and September and has a final meeting Sept. 14 to examine the process of setting title insurance rates for the state, as well as other possible regulation.
Title insurers support the measure, saying price competition between title insurance companies is driving them out of business. But others in the industry, including home builders and mortgage brokers, disagree.
Four Missouri title agencies closed their doors in a six-month period earlier this year. Notably, Capital Title of St. Louis, which had 13 offices in the area and handled about 8 percent of local house closings, shut down in January, and St. Charles, Mo.-based Phoenix Title closed in April with at least $1 million missing.
Title insurers say regulation will help keep companies from lowering their rates until they can’t survive, citing the closings as examples. Home builders and mortgage brokers don’t see it that way.
“(T)here are better ways to approach that issue that have nothing to do with rate setting by the government,” said Patrick Sullivan, executive vice president of the Homebuilders Association of Greater St. Louis. Sullivan said annual audits should be put into practice to safeguard the public, rather than what he called fixing rates.
“They’re (proponents of regulation) linking setting the minimum rate to the fact that a few unscrupulous title insurers have absconded with the money of consumers,” said Sullivan.
“That’s outrageous, and the state should attempt to solve that,” Sullivan said.
James A. Thurman, the owner of Phoenix Title Co. in St. Charles, pleaded guilty in August to defrauding the company of $1.6 million by secretly taking money from customers’ escrow deposits, the St. Louis Dispatch reported.
Referring to the Phoenix Title case, Sullivan said, “We do not believe price fixing by the government is a solution to the problems.”
He said, “We think there are other methods to safeguard peoples’ escrow deposits. An annual audit would go a long way to ensure that companies are operating with safeguards and proper procedures.”
Sullivan added, “We very much see the value of the title insurance industry. It provides a very important service and we want to see a stable and healthy insurance industry. So this is not a battle in which we want to see the title insurers hurt.”
The state has not yet decided how rates would be set and how much they would increase. The title industry has promoted a model law that would allow the Missouri Department of Insurance to calculate a minimum rate that could be changed periodically.
Sullivan isn’t the only industry figure to support the idea of an annual audit as the best solution for the problem.
“Price fixing never satisfied anything,” said Chris Sander, president of the Missouri Association of Mortgage Brokers. “If you have price fixing where everyone gets the exact same price, it’s going to restrict competition.”
Title insurance companies generally have underwriters who require annual audits. But, according to Sander, “The problems with Capital Title and Phoenix Title is that the underwriters were not doing their audits on a consistent basis and when they discovered infractions they either didn’t do anything about it or just gave a slap on the wrist.”
Kevin Overstreet, the co-owner of St. Louis-based Freedom Title, which also has offices in Tampa, Fla., and Overland Park, Kan., doesn’t see it that way.
“Underwriters always audit, typically every year. The problem is, for example the people who just went out of business, they get so far behind on the reconciliation of the escrow accounts that the underwriter gets stuck behind the eight-ball because they don’t have any recourse,” Overstreet said.
“The agents in St. Louis are involved in a price war and that’s why companies are going out of business. They run out of money in their operating accounts and go into the escrow account, which they are not supposed to do, and they steal from the escrow account to keep operating. They say, ‘When we get ahead, we will put it back,’ but they never do because they can’t catch up. And then they go out of business,” Overstreet said.
“If you want to protect the consumer, it’s not by forcing us to charge so little we go out of business. It’s about helping the title companies to make enough money so they can do business the right way,” Overstreet said. “Cheaper is not better.”
Giving a rate comparison, Overstreet said in St. Louis it is not unusual for title insurance to cost $450 for a $100,000 property. In Florida, for the same title insurance services on a $100,000 property, the cost falls in the $750 range, he said.
Overstreet also supports legislation “to make sure title agents know what they are doing and surround themselves with people who have business knowledge.”
The Senate Interim Committee is also exploring and clarifying the duties and responsibilities of title insurance agents in its ongoing meetings.
“There’s far too much leniency with underwriters,” Overstreet said. “Becoming a title agent in Missouri is nothing more than paying $100 and filling out a form. There are no tests, no educational requirements. You can become a title agent without knowing how to do anything in the industry.”
According to the American Land Title Association, only 10 out of 50 states do not regulate title insurance rates in some way. As examples, the Texas Department of Insurance sets title insurance rates for the state, a spokesman for that department said. The State of Florida has set a minimum price for title insurance rates, Overstreet, who has a title insurance office in Tampa, Fla., said.
Title insurance is one of the exceptions to the general capitalist system, according to James Maher, executive vice president of the American Land Title Association.
“It’s in no one’s interest to have a highly unregulated market in the title insurance industry,” Maher said. “We’re all saying cheaper is better, but that’s only up to a point, and that point is threatening the solvency of the insurer. Then you might be better off paying 10 or 15 percent more to make sure the insurer is solvent.”
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