By Brenda Bell
Posted: May 4, 2013, 9:27 pm
Austin American – Statesman
Though they probably didn’t realize it, Texans started paying more last week for title insurance, already one of the biggest costs associated with buying or refinancing a home.
The price hike, quietly approved in March by the state insurance commissioner, is the first in 22 years. Aaron Day, a lobbyist for the Texas Land Title Association, said the 3.8 percent increase was justified by data submitted by the industry and the loss of business it suffered during the housing downturn, when premium income dropped by more than one-third.
“Some of these companies have been hanging on by their fingernails,” Day said.
The Texas Department of Insurance and the Office of Public Insurance Counsel, which represents consumers at rate proceedings, recommended the increase during a series of hearings that ended in February. It will generate an estimated $53 million more per year for Texas title companies and their underwriters, the handful of multibillion-dollar firms — such as Stewart Title, Fidelity, First American — that actually issue the policies guaranteeing the soundness of property deeds all across the country.
Yet it comes at a flush time for the title industry: Profits nationwide are soaring, fed by a frenzy of refinancing, and the real estate market in Texas is surging. According to several surveys, Texas homebuyers already pay some of the highest prices in the country for title insurance, helping push anticipated closing costs on a $200,000 mortgage to $4,600, second only to New York state, according to the consumer financial website Bankrate.com.
Title companies collected $1.4 billion in premiums in Texas in 2012, charging prices that consumers can’t shop for because they are “promulgated” — set by the state. Nor can they refuse to buy, since lenders require insurance guaranteeing that the title to property is free of defects or outside claims.
“There is no plausible reason why Texas title insurers just got a rate increase. Absurd,” said Birny Birnbaum, executive director of the Austin-based Center for Economic Justice, which advocates for low-income and minority consumers.
How did we get here? Credit an influential industry that stiff-arms any attempt to change the fixed-rate system and a Legislature that has resisted calls to open the business to the same deregulation it welcomes in everything from electric rates to auto insurance.
“There is zero price competition for title insurance in the state of Texas,”
said state Rep. Matt Schaefer, R-Tyler, at a hearing last month on his bill that would let title insurers use the same “file and use” rate system that governs other forms of insurance.
It would also allow the premium split — agents now get 85 percent and underwriters 15 percent — to be negotiated.
Both prospects are viewed with alarm by the industry, represented by the 105-year-old Texas Land Title Association. Executive Vice President and CEO Leslie Midgley said that promulgation “has helped smaller title agents in rural areas stay in business through the economic ups and downs. … Having that local title agent who knows the history of the area and is knowledgeable about land transfers is integral to the quality of the product.”
If the past is any indication, Schaefer’s reform bill is doomed. Though the trade group’s membership is relatively small — only about 500 agent firms plus their underwriters — its reach is wide and its influence at the Capitol well-established. Between 11,000 and 13,000 people are employed in the title industry, said Midgley. Title agents are located in all but two of the state’s 254 counties and tend to be active in local civic affairs.
“The title industry is incredibly powerful,” said state Rep. John Smithee, R-Amarillo, chairman of the House Insurance Committee, who supports Schaefer’s bill. “I think every member of the House has one or two title companies in their district. There’s never been anything as effective as a phone call from a local person.”
Several title agents are current and former members of the Legislature, and many more lawmakers have related interests in real estate, law and finance. The association and title insurers have given more than $720,000 to elected officials and candidates since 2000, according to State Ethics Commission records compiled by the Texas Tribune.
Missing from the list of recent recipients is Smithee, who has chaired the insurance committee since 1993. “I don’t see any point in not having at least some deregulation, maybe in stages. We could set a baseline or maximum rate and let companies deviate,” he said.
In 2011, Smithee introduced four bills that attempted to do that. They were staunchly opposed by the industry, which warned that deregulation would favor national outfits with deep pockets, and their affiliated agents, and hurt the smaller independents, who handle about one-third of the title business statewide. “We wouldn’t be able to compete on price,” said Dawn Moore, with Allegiance Title of Dallas, during the hearing on Smithee’s bills.
Attorney Roland Love, chairman of the Texas Land Title Association’s legislative committee, said that the legislation would destroy “a system that has created a lot of small-town independent agents, jobs, investments in title plants.”
Smithee: “This sounds worse than nuclear war, almost.”
Love: “You’re threatening something that’s working very well.”
Smithee: “It’s working well for the title agents.”
None of his bills made it out of his own committee.
