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entitled 'Title Insurance: Actions Needed to Improve Oversight of the 
Title Industry and Better Protect Consumers' which was released on 
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Report to the Ranking Member, Committee on Financial Services, House of 
Representatives: 

United States Government Accountability Office: 

GAO: 

April 2007: 

Title Insurance: 

Actions Needed to Improve Oversight of the Title Industry and Better 
Protect Consumers: 

GAO-07-401: 

GAO Highlights: 

Highlights of GAO-07-401, a report to the Ranking Member, Committee on 
Financial Services, House of Representatives 

Why GAO Did This Study: 

In a previous report and testimony, GAO identified issues related to 
title insurance markets, including questions about the extent to which 
premium rates reflect underlying costs, oversight of title agent 
practices, and the implications of recent state and federal 
investigations. This report addresses those issues by examining (1) the 
characteristics of title insurance markets across states, (2) factors 
influencing competition and prices within those markets, and (3) the 
current regulatory environment and planned regulatory changes. To 
conduct this review, GAO analyzed available industry data and studies, 
and interviewed industry and regulatory officials in a sample of six 
states selected on the basis of differences in size, industry 
practices, regulatory environments, and number of investigations. 

What GAO Found: 

The U.S. title insurance market is highly concentrated at the insurer 
level, but market characteristics varied across states. In 2005, for 
example, five insurers accounted for 92 percent of the national market, 
with most states dominated by two or three large insurers. Variations 
across states included the way title agents conducted their searches as 
well as the number of affiliated business arrangements (ABA) in which 
real estate agents, brokers, and others have a stake in a title agency. 
Finally, premiums varied across states due to cost and market 
variations that can also make understanding and overseeing title 
insurance markets a challenge on the national level. 

Certain factors raise questions about the extent of competition and the 
reasonableness of prices that consumers pay for title insurance. 
Consumers find it difficult to comparison shop for title insurance 
because it is an unfamiliar and small part of a larger transaction that 
most consumers do not want to disrupt or delay for comparatively small 
potential savings. In addition, because consumers generally do not pick 
their title agent or insurer, title agents do not market to them but to 
the real estate and mortgage professionals who generally make the 
decision. This can create conflicts of interest if those making the 
referrals have a financial interest in the agent. These and other 
factors put consumers in a potentially vulnerable situation where, to a 
great extent, they have little or no influence over the price of title 
insurance but have little choice but to purchase it. Furthermore, 
recent investigations by the Department of Housing and Urban 
Development (HUD) and state insurance regulators have identified 
instances of alleged illegal activities within the title industry that 
appeared to take advantage of consumersí vulnerability by compensating 
realtors, builders, and others for consumer referrals. Combined, these 
factors raise questions about whether consumers are overpaying for 
title insurance. 

Given consumersí weak position in the title insurance market, 
regulatory efforts to ensure reasonable prices and deter illegal 
marketing activities are critical. However, state regulators have not 
collected the type of data, primarily on title agentsí costs and 
operations, needed to analyze premium prices and underlying costs. In 
addition, the efforts of HUD and state insurance regulators to identify 
inappropriate marketing and sales activities under the Real Estate 
Settlement Procedures Act (RESPA), have faced obstacles, including 
constrained resources, HUDís lack of statutory civil money penalty 
authority, some state regulatorsí minimal oversight of title agents, 
and the increasing number of complicated ABAs. Finally, given the 
variety of professionals involved in a real estate transaction, a lack 
of coordination among different regulators within states, and between 
HUD and the states, could potentially hinder enforcement efforts 
against compensation for consumer referrals. Because of the involvement 
of both federal and state regulators, including multiple regulators at 
the state level, effective regulatory improvements will be a challenge 
and will require a coordinated effort among all involved. 

What GAO Recommends: 

GAO recommends that HUD and state insurance regulators take actions to 
improve consumersí ability to comparison shop for title insurance and 
strengthen the regulation and oversight of the title insurance market, 
including the collection of data on title agentsí operations. Further, 
Congress may want to consider, as part of its oversight of HUD, 
exploring the need for modifications to RESPA, including increasing 
HUDís enforcement authority. HUD generally agreed with these 
recommendations, and NAIC agreed they should be explored. 

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-401]. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Orice M. Williams at 
(202) 512-8678 or williamso@gao.gov. 

[End of section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

Title Insurance Market Is Highly Concentrated at the Insurer Level, but 
Otherwise Differs across States: 

Multiple Factors Raise Questions about the Extent of Competition and 
the Reasonableness of Prices in the Title Insurance Industry: 

Limited State and Federal Oversight of the Title Insurance Industry Has 
Resulted in Proposals for Change: 

Conclusions: 

Matters for Congressional Consideration: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Potential Approach to Better Understand Title Agents' 
Costs and How These Costs Relate to Insurance Premiums: 

Appendix III: Comments from the Department of Housing and Urban 
Development: 

Appendix IV: Comments from the National Association of Insurance 
Commissioners: 

Appendix V: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: Information on Closed Cases and Settlements Involving Referral 
Fees Resulting from Investigations by Insurance Regulators in Six 
Sample States and HUD, 2003-2006: 

Table 2: Regulation of Title Insurance Agents in Six Sample States: 

Figures: 

Figure 1: Title Insurer National Market Share as a Percentage of Direct 
Premiums Written, 2005: 

Figure 2: Title Insurance Premiums Written, by Source, 2005: 

Figure 3: Example of an Affiliated Business Arrangement: 

Figure 4: Common Elements of the Title Search and Examination Process: 

Figure 5: Title Insurance Premium Rates for a Basic Owner's Policy on 
Median-Priced Homes in Selected Areas, 2005: 

Figure 6: Average Allocation of Closing Costs in California, 2005: 

Figure 7: Example of an Alleged Captive Reinsurance Arrangement: 

Figure 8: Combined Return on Equity for the Five Largest Title 
Insurers, and the Property-Casualty Insurance Industry as a Whole, 1992-
2005: 

Figure 9: Percentage Change in Premium Rates and Premiums Paid on 
Median-Priced Homes in Selected Areas in Five Sample States, 2000-2005: 

Figure 10: Typical Premium Splits between Insurers and Agents in Six 
Sample States: 

Figure 11: Title Industry Costs as a Percentage of Premiums Written, 
2005: 

Abbreviations: 

ABA: affiliated business arrangement: 

ALTA: American Land Title Association: 

Fannie Mae: Federal National Mortgage Association: 

Freddie Mac: Federal Home Loan and Mortgage Corporation: 

HUD: Department of Housing and Urban Development: 

NAIC: National Association of Insurance Commissioners: 

RESPA: Real Estate Settlement Procedures Act: 

RESPRO: Real Estate Services Providers Council: 

SEC: Securities and Exchange Commission: 

United States Government Accountability Office: 
Washington, DC 20548: 

April 13, 2007: 

The Honorable Spencer Bachus: 
Ranking Member: 
Committee on Financial Services: 
House of Representatives: 

Dear Mr. Bachus: 

Title insurance is designed to guarantee clear ownership of a property 
that is being sold and is a required part of most real estate 
transactions across the United States. Although home buyers pay for 
title insurance premiums, they often know little about the insurers 
themselves or the title insurance industry. Recent state and federal 
investigations into the sale of title insurance have identified 
practices by some title insurers, their agents, and others involved in 
the sale of title insurance, that allegedly allowed these entities to 
make undue profits at consumers' expense. At the same time, insurance 
regulators in at least four states have concluded that consumers are 
being overcharged for title insurance, and the California insurance 
regulator has recommended rate rollbacks--an action that some in the 
title industry have strongly criticized. Because virtually everyone who 
buys a home or refinances a home mortgage in the United States 
typically must purchase title insurance, the potential effects of such 
practices are enormous. 

We previously provided a report and testimony identifying issues in the 
title insurance market that merited further study because they could 
shed light on competition and the prices consumers pay.[Footnote 1] In 
response to the former Chairman's request, we prepared this report to 
address and elaborate on those issues. Specifically, we address (1) the 
characteristics of title insurance markets and differences across 
states, (2) prices and competition in the industry, and (3) the current 
regulatory environment and planned regulatory changes. 

To do this work, we performed a detailed review of the laws, 
regulations, and market practices in California, Colorado, Illinois, 
Iowa, New York, and Texas.[Footnote 2] We chose these six states on the 
basis of differences in the size of their markets, title insurance 
practices and customs, the rate-setting and regulatory environments, 
and the number of federal and state investigative actions. In some of 
these states, we were able to tour title plant facilities and observe 
the title search and examination process. We reviewed available studies 
of the title insurance industry and discussed their results with the 
authors.[Footnote 3] We also gathered the views of officials from a 
variety of national organizations whose members are involved in the 
marketing or sale of title insurance or related activities, and we 
spoke with insurers, agents, and title industry associations. We asked 
for, but did not receive, cost data from agents and insurers that would 
allow us to analyze agents' costs. We obtained and analyzed data 
collected by the National Association of Insurance Commissioners 
(NAIC), the Texas Department of Insurance, the California Department of 
Insurance, and the American Land Title Association (ALTA).[Footnote 4] 
We also consulted other publicly available financial information on 
title insurers and agents and spoke with agents about costs, examined 
financial data filed with the Securities and Exchange Commission (SEC), 
and spoke with officials from three of the largest title insurance 
underwriters. We interviewed key insurance, banking, mortgage, and real 
estate regulators in each state about the regulatory environments, 
spoke to officials from the Department of Housing and Urban Development 
(HUD), and reviewed relevant federal laws and regulations. We also 
discussed these issues with officials from the Federal National 
Mortgage Association and the Federal Home Loan and Mortgage Corporation 
to better understand the relationship between the secondary mortgage 
market and title insurance. Lastly, we interviewed staff and state 
regulators working with NAIC to get their views on the industry and to 
obtain information on the activities of their Title Insurance Working 
Group. 

We performed our work in Washington, D.C; Chicago, Illinois; and six 
sample states between February 2006 and March 2007 in accordance with 
generally accepted government auditing standards. Appendix I contains a 
more detailed description of our objectives, scope, and methodology. 

Results in Brief: 

In the United States, the title insurance market is highly concentrated 
at the insurer (or underwriter) level, but market characteristics 
varied across the states. In 2005, for example, five insurers accounted 
for 92 percent of the national market, and most states were dominated 
by two or three large insurers. However, state markets differed in 
several ways. For example, large insurers tended to use local or 
regional title agents to conduct their business, and the mix of 
affiliated agents (those in which the insurer has an ownership 
interest) and independent agents varied across states. The extent of 
affiliated business arrangements (ABA)--situations in which real estate 
or other professionals are part or full owners of title agencies--also 
varied. In some states the number of ABAs, which have been cited in 
many of the regulatory investigations into industry practices, has 
grown substantially. Furthermore, title agents use different processes 
to carry out title searches and examinations, largely because of 
variations in the way the industry has developed across states. Title 
agents in some states have automated "title plants" containing most 
public records, while, in other states, title agents rely on the less- 
efficient process of hiring people to search physical records. The 
extent of agents' activities also varied widely across states, 
including how they set prices for their services, the portion of claims 
they paid, and the extent of their participation in the escrow and 
closing processes. Finally, we found that premiums varied across 
states, due to cost and market variations that can make understanding 
and overseeing title insurance markets a challenge on the national 
level. 

Several factors related to the way that title insurance is marketed and 
priced raise questions about the extent of price competition in the 
title insurance industry and the ability of consumers to affect market 
prices. First, consumers find it difficult to shop for title insurance 
based on price. Purchasing title insurance is a transaction that 
consumers are unfamiliar with, and it can be difficult for them to 
gather information on all title insurance-related costs. HUD provides 
educational information on title insurance. However, the benefit of 
this information is limited because consumers may receive it after a 
title agent and insurer have been selected, and lenders are not 
required to provide it on mortgage refinance transactions. In addition, 
purchasing title insurance is generally a small part of a larger home 
purchase or mortgage refinancing process that most consumers do not 
want to disrupt or delay for relatively small potential savings. 
Second, consumers generally do not select their title agent or insurer, 
and title agents do not market to consumers but rather compete among 
themselves for referrals from those who do--that is, real estate and 
mortgage professionals. This arrangement can create conflicts of 
interest if professionals making the referrals have a financial 
interest in the agent recommended. HUD and state insurance regulators 
have recently identified instances of alleged illegal activities within 
the title industry that appeared to compensate real estate agents, 
builders, and others for referring consumers to particular title 
insurers or agents. These alleged activities, which include referral 
fees, captive reinsurance arrangements, and inappropriate ABAs, 
potentially reduce price competition and, according to some insurance 
regulators, could indicate excessive pricing by insurers.[Footnote 5] 
Third, as property values or loan amounts increase, prices that 
consumers paid for title insurance appeared to increase faster than 
insurers' and agents' costs. Insurers we spoke with argued that such a 
pricing structure reflected regulators' intent to subsidize consumers 
in low-value transactions, but they could not provide data to support 
the existence of such subsidization. Of the six regulators we spoke 
with, only one said that such subsidization was intentional. Finally, 
in states where agents' search and examination services are not 
included in the premium, it is not clear that the underlying costs 
justify the additional amounts consumers may pay to title agents. 
Insurers told us that they generally shared the same portion of 
premiums with their agents, regardless of whether agents' costs for 
search and examination services were to be included in the premium. 
Ultimately, disagreement exists between title industry officials and 
regulators over the actual extent of price competition within title 
insurance markets. Industry officials generally assert that price 
competition exists, while many regulators argue (1) that it does not 
exist and (2) that consumers may be paying too much for title insurance 
compared with the cost of providing the insurance. 

Data collection efforts and regulatory oversight, especially of title 
agents, were limited across the states we reviewed. Given consumers' 
apparently limited ability to exert pressure on title agents and 
insurers to compete on price, the critical question is whether amounts 
paid by consumers for title insurance reflect the actual underlying 
costs of producing title insurance policies. Potentially understanding 
the relationship between costs and the amounts consumers pay could help 
regulators improve their ability to protect consumers. Yet, states 
rarely audit agents; few require strong insurer oversight of agents; 
and, until recently, state regulators had done little to oversee ABAs 
or enforce laws intended to restrict business from affiliated sources. 
Also, because title insurance is a relatively small line of insurance, 
title insurers and agents get less than the usual limited market 
conduct scrutiny given other types of insurers by state insurance 
regulators.[Footnote 6] All of the regulators, both state and federal, 
face a number of challenges. For example, varying levels of cooperation 
exist within each state among the regulators who oversee entities 
involved in the sale and marketing of title insurance, with some states 
demonstrating little or no cooperation and others having somewhat more 
structured arrangements. HUD--the primary federal agency responsible 
for enforcing the Real Estate Settlement Procedures Act (RESPA)--has 
taken a number of enforcement actions under RESPA recently, but HUD 
officials told us that they face resource limitations and difficulties 
in investigating increasingly complex ABA arrangements. Furthermore, 
HUD is authorized to seek injunctions against alleged violations of 
section 8 of RESPA's provisions on referral fees and affiliated 
businesses, but HUD is not authorized to levy civil money penalties. 
Moreover, a lack of formal coordination between HUD and state 
regulators on referral fee cases may have hindered enforcement efforts. 
In response to these and other concerns, several state regulators and 
HUD are either planning or making changes to their regulatory regimes 
for the marketing and sale of title insurance. These changes include 
potentially reducing premium rates; collecting detailed cost data from 
title agents; and seeking changes to RESPA, including enhancing HUD's 
enforcement authority. Some industry stakeholders see the current model 
of selling and marketing title insurance as irretrievably broken and 
have put forth the following two alternatives: (1) requiring lenders to 
pay for title insurance and (2) following the Iowa model of a state-run 
title insurer. 

We are recommending that HUD take two actions to improve the 
functioning of the title insurance market. Specifically, we are 
recommending that HUD (1) improve consumers' ability to shop for title 
insurance based on price and (2) improve its ability to detect and 
deter violations of section 8 of RESPA. In taking these actions, we 
recommend that HUD consider expanding the information in its home-buyer 
information booklet; evaluating the costs and benefits to consumers 
from ABAs; clarifying regulations related to referral fees and ABAs; 
and enhancing the agency's coordination with state regulators. 
Likewise, we are recommending that state insurance regulators, working 
through NAIC where appropriate, take two actions to improve the 
functioning of the title insurance market. Specifically, we are 
recommending that state regulators take action to (1) improve 
consumers' ability to shop for title insurance and (2) improve their 
oversight of title agents. As part of this process, we are recommending 
that these regulators consider evaluating the competitive benefits of 
publicizing complete title insurance cost information; strengthening 
their regulation of title agents and ABAs, including the collection of 
data on title agents' operations; and exploring ways to improve their 
cooperation with other state regulators and HUD. We also suggest, as a 
matter for congressional consideration, amending RESPA to give HUD 
increased enforcement authority for violations of RESPA's section 8 
prohibitions on referral fees by granting the ability to levy civil 
money penalties and enhance the information required to be provided to 
consumers. 

We provided a draft copy of this report to HUD and NAIC. The Assistant 
Secretary for Housing at HUD and the Executive Vice President of NAIC 
provided written comments on the draft. Their comments are included in 
appendixes III and IV, respectively, of this report. The Assistant 
Secretary for HUD generally agreed with the recommendations in the 
report, and also indicated that the report accurately assessed the 
issues that adversely affect consumers in the title insurance market. 
In response to our recommendation to better protect consumers and 
improve their ability to shop for title insurance, he acknowledged the 
importance of these goals and noted that HUD is taking several actions 
in these areas. Specifically, he said that HUD is (1) considering ways 
to improve its home-buyer information booklet; (2) evaluating whether 
various ABA structures, even though they may be legal, are operating as 
Congress intended; and (3) continuing its efforts to develop and 
clarify guidelines regarding practices that negatively effect 
consumers. With respect to our recommendation to consider improving 
regulatory coordination with state regulator agencies, the Assistant 
Secretary agreed that such coordination is necessary and pointed out 
past instances of successful cooperation between HUD and state 
insurance regulators. Lastly, he emphasized the ongoing challenge of 
RESPA enforcement without civil money penalty authority, stating that 
consumers would benefit if such authority were granted to HUD. The 
Executive Vice President of NAIC stated that the recommendations in the 
report were worthy of exploration, and she noted that the report 
recognizes that shortcomings exist in the area of consumer protection. 
Both HUD and NAIC also offered clarifying remarks. 

Background: 

In any real estate transaction, the lender providing the mortgage needs 
a guarantee that the buyer will have clear ownership of the property. 
Title insurance is designed to provide that guarantee by generally 
agreeing to compensate the lender (through a lender's policy) or the 
buyer (through an owner's policy) up to the amount of the loan or the 
purchase price, respectively. Lenders also need title insurance if they 
want to sell mortgages on the secondary market, since they are required 
to provide a guarantee of ownership on the home used to secure the 
mortgage.[Footnote 7] As a result, lenders require borrowers to obtain 
title insurance for the lender as a condition of granting the loan 
(although the buyer, the seller, or some combination of both may 
actually pay for the lender's policy). Lenders' policies are in force 
for as long as the loan is outstanding, but end when the loan is paid 
off (e.g., through a refinancing transaction); however, owners' 
policies remain in effect as long as the purchaser of the policy owns 
the property. 

Title insurance is sold primarily through title agents, although 
insurers may also sell policies themselves. Before issuing a policy, a 
title agent checks the history of a title by examining public records, 
such as deeds, mortgages, wills, divorce decrees, court judgments, and 
tax records. If the title search reveals a problem, such as a tax lien 
that has not been paid, the agent arranges to resolve the problem, 
decides to provide coverage despite the problem, or excludes it from 
coverage. The title policy insures the policyholder against any claims 
that might have existed at the time of the purchase but were not 
identified in the public record. The title policy does not require that 
title problems be fixed, but compensates policyholders if a covered 
problem arises. Except in very limited instances, title insurance does 
not generally insure against title defects that arise after the date of 
sale. 

Title searches are generally carried out locally because the public 
records to be searched are usually only available locally. Title agents 
or their employees conduct the searches. The variety of sources that 
agents must check during a title search has fostered the development of 
privately owned, indexed databases called "title plants." These plants 
contain copies of the documents obtained through searches of public 
records, and they index the copies by property address and update them 
regularly. Insurers, title agents, or a combination of entities may own 
a title plant. In some cases, owners allow other insurers and agents 
access to their plants for a fee. 

Title insurance premiums are paid only once, at the time of sale or 
refinancing, to the title agent. In what is called a premium split, 
agents retain or are paid a portion of the premium amount as a fee for 
conducting the title search and related work and for their commission. 
Agents have a fiduciary duty to account for premiums paid to them, and 
insurers generally have the right to audit the agents' relevant 
financial records. The party responsible for paying for the title 
policies varies by state and even by areas within states. In many 
cases, the seller pays for the owner's policy and the buyer pays for 
the lender's policy, but the buyer may also pay for both policies or 
split some or all of the costs with the seller. In most cases, the 
owner's and lender's policies are issued simultaneously by the same 
insurer, so that the same title search can be used for both policies. 
The price that the consumer pays for title insurance is determined by 
applying a rate set by the underwriter or state to the loan value (for 
the lender's policy) and home price (for the owner's policy). In a 
recent nationwide survey, the average cost for simultaneously issuing 
lender's and owner's policies on a $200,000 loan, plus other associated 
title costs, was approximately $859, or approximately 28 percent of the 
average total loan origination and closing fees.[Footnote 8] 

Title insurance differs from other types of insurance in key ways. 
First, in most property and casualty lines, losses incurred by the 
underwriter account for most of the premium. For example, property- 
casualty insurers' losses and loss adjustment expenses accounted for 
approximately 73 percent of written premiums in 2005.[Footnote 9] In 
contrast, losses and loss adjustment expenses incurred by title 
insurers as a whole were approximately 5 percent of the total premiums 
written, while the amount paid to or retained by agents (primarily for 
work related to title searches and examinations and for commissions) 
was approximately 70 percent. 

Second, title agents' roles and responsibilities differ from those of 
agents for other lines of insurance. Agents in lines of insurance other 
than title insurance primarily serve as salespeople, while title 
agents' work can be a labor-intensive process of searching, examining, 
and clearing property titles as well as underwriting and traditional 
sales and marketing. Title agents access and examine numerous public 
documents, among them tax records, liens, judgments, property records, 
deeds, encumbrances, and government documents, and then clear or 
exclude from coverage any title problems that emerge. Depending on the 
level of technology used, the accessibility of public documents, the 
relative efficiency of local government recorders' offices, and other 
factors, this process can take from a few minutes up to a few weeks or 
more. In some states, title agents also are responsible for claims up 
to a specific dollar amount. Most title agents also handle the escrow 
and closing processes and document recordation after the closing. In 
general, title agents issue the actual insurance policy and, after 
deducting expenses, remit the title insurer's portion of the premium. 

Third, unlike premiums for other types of insurance, title insurance 
premiums are nonrecurring. That is, title insurers have only one chance 
to capture the cost of the product from the consumer, unlike other 
types of insurers that collect premiums at regular intervals for 
providing ongoing coverage. The title insurance premium amount must 
cover losses for any future problems that were either not uncovered in 
the title agent's search or, for a small number of policies, problems 
that emerge after the day of closing. 

Fourth, title insurance has a different coverage period than other 
types of insurance. With title insurance, coverage begins on the day of 
closing and goes back in time. Most policies cover events that occurred 
in the past, including unpaid tax liens, judgments, issues with missing 
heirs, and forgeries in the document chain of title. The purpose of the 
title agent's search is to turn up these problems before closing so 
that they can be cleared or excluded from coverage. However, if a 
problem occurred in the past but only emerged after the day of closing 
and was not excluded from coverage, then the policy would offer 
protection to the lender and home owner. The comprehensiveness of the 
agent's search can be a factor in minimizing such losses. For this 
reason, title insurance is often referred to as loss prevention 
insurance, in contrast to other types of insurance that attempt to 
prospectively minimize exposure to claims. 

Finally, the title insurance market's business cycle is more closely 
related to the real estate market and to interest rates than the 
business cycle for other types of insurance. Typically, this 
relationship is inverse, so that the revenues of title companies rise 
when interest rates fall, largely because lower interest rates usually 
lead to a surge in home buying and refinancing and thus increase demand 
for title services and products. 

Under current federal law, the regulation of insurance, including title 
insurance, is primarily the responsibility of the states. However, 
title insurance entities are also subject to RESPA, a federal law 
intended to improve the settlement process for residential real estate. 
Section 8 of RESPA generally prohibits the giving or accepting of 
kickbacks and referral fees among persons involved in the real estate 
settlement process. Section 8 also lays out the conditions under which 
ABAs are permissible. First, the affiliation must be disclosed to the 
consumer, along with a written estimate of charges. Second, ABA 
representatives may not require consumers to use a particular 
settlement service provider. Third, the only thing of value that ABA 
owners may receive, other than payment for services rendered, is a 
return on their ownership interest. In addition, HUD has issued policy 
statements that describe multiple factors, including what it considers 
to be core title services, that HUD will use in determining if an 
entity is a bona fide provider of settlement services. HUD is 
responsible for administering section 8 of RESPA, but its enforcement 
authority is limited to seeking injunctions against potential 
violations. Unlike other sections of RESPA (e.g., section 10, which 
authorizes HUD to assess civil money penalties for certain violations 
by entities that fail to provide escrow account statements), section 8 
of RESPA does not authorize HUD to levy civil money penalties for 
violations. 

Title Insurance Market Is Highly Concentrated at the Insurer Level, but 
Otherwise Differs across States: 

Title insurance markets can be described by various characteristics, 
such as the following: 

* While high market concentration exists among national title insurers, 
they market insurance through large numbers of independent and 
affiliated agents, with the mix varying across states. 

* The use of ABAs--in which a real estate professional, such as a real 
estate agent, owned a share of a title agency--varied. 

* Processes used by agents to conduct searches and examinations in some 
states were more efficient than others, and the responsibilities of 
title agents also varied. 

* Premiums across states are difficult to compare, but they appeared to 
vary significantly. 

Nationally, five title insurers, or underwriters, captured about 92 
percent of the market in 2005 (see fig. 1). Most states were dominated 
by a group of two or three insurers, sometimes including a regional 
insurer. For example, in California, about 66 percent of the market 
share in 2005 was split nearly evenly between the largest two insurers-
-First American and Fidelity. The remaining approximately 33 percent of 
the market was predominantly split among the other three national 
insurers (25 percent) and five regional independent insurers (8 
percent). Although they are national insurers, these five major 
underwriters sell and market title insurance in local markets through 
networks of direct operations, partial or full ownership of affiliates, 
and contracts with independent agents. According to the annual reports 
of the four largest title insurers, they each use between 8,000 and 
11,000 agencies to sell their insurance nationwide. 

Figure 1: Title Insurer National Market Share As A Percentage Of Direct 
Premiums Written, 2005:  

[See PDF for Image] 

Source: GAO analysis of industry data. 

Note: Total may not add up to 100 percent due to rounding. 

[End of figure] 

Mix of Affiliated and Independent Agents Differs by State: 

Most state markets have two types of title agents: affiliated and 
independent. Title insurers use both types of agents, depending on 
conditions in the local market, including local tax policies and 
established market practices, as well as the level of service the 
underwriter provides to the agents. Affiliated agents carry higher 
fixed costs to the insurer as owner, and underwriters told us that 
these costs were especially challenging when the market softened and 
the insurer's tax liability for affiliated agents rose. However, 
insurers also said that with affiliated agents they had more control 
over the premium split and, because the agents were closely aligned 
with the underwriter, did not have to provide as much in services, such 
as training. Underwriters noted that they also benefited from 
contracting with independent agents because doing so kept their fixed 
costs low and allowed them to benefit from some tax advantages. 
However, according to the insurers, contracting has its disadvantages, 
by obliging the insurers to negotiate a competitive premium split (in 
nonpromulgated states) or risk having the agent establish a 
relationship with another underwriter.[Footnote 10] Independent agents, 
who work with several underwriters, also may not provide the guaranteed 
flow of business, and thus the same revenue stream, as affiliated 
agents. 

Underwriters balance these benefits and risks when determining which 
agents they will use in each state. Two underwriters told us that they 
strive to maintain about an equal balance between affiliated agents and 
independent agents. Other insurers told us that, because their expenses 
can be higher by virtue of their ownership interest in affiliated 
agents, they were reluctant to take on too many affiliated agents and 
preferred to contract with independent agents, especially when market 
conditions declined. However, several industry participants told us 
that underwriters' purchase and use of affiliated agents in some states 
had increased significantly over the last 5 years. As shown in figure 
2, affiliated agents dominated the market in California, the state with 
the largest total of premiums written, while independent agents capture 
the majority of the markets in Colorado, Illinois, and New York. 
Conversely, the Texas market was relatively more evenly balanced, with 
insurers, affiliated agents, and independent agents sharing the number 
of premiums written. In Iowa, the state-run Title Guarantee Division of 
the Iowa Finance Authority has a slight majority of the market and 
independent agents have most of the remainder. 

Figure 2: Title Insurance Premiums Written, by Source, 2005: 

[See PDF for image] 

Source: GAO analysis of title industry data. 

[A] Premiums listed as being written directly by insurer are those 
written by the state-run Title Guarantee Division of the Iowa Finance 
Authority. Premiums written by affiliated or independent agents are 
premiums written by out-of-state title insurers on properties in Iowa. 

[End of figure] 

Use of Affiliated Business Arrangements Appears to Be Increasing: 

We found that the use of ABAs varied by insurer and location. ABAs 
generally involved a referring entity, such as a real estate or 
mortgage professional, or builder, having full or partial ownership of 
an agency (see fig. 3). For example, a mortgage lender and a title 
agent might form a new jointly owned title agency, or a builder might 
buy a portion of a title agency. The owners of ABAs are to split the 
revenues in proportion to their ownership shares to satisfy 
antirebating laws. 

Figure 3: Example of an Affiliated Business Arrangement: 

[See PDF for image] 

Source: GAO analysis of interviews with industry officials. 

[End of figure] 

Nationally, the use of ABAs appears to be growing. For example, 
according to a study done for the Real Estate Services Providers 
Council (RESPRO), affiliated title agents accounted for approximately 
26 percent of title-related closing costs in 2005, up from about 22 
percent in 2003.[Footnote 11] Although precise data showing state-by- 
state growth were not available, industry participants in some states-
-especially Colorado, Illinois, Minnesota, and Texas--told us that the 
number of ABAs in their states had grown significantly.[Footnote 12] 

Agents Conduct the Title Search and Examination Process Differently 
across States: 

We found that while the basic title search and examination process 
shared certain elements across states, the process was more efficient 
in some states than in others. Figure 4 describes the common elements 
of the title search and examination process, which begins with a 
request from the consumer's representative and intake by the title 
agent. The agent then performs the search, and a title examiner hired 
by the title agent analyzes the collected documents to identify any 
potential problems to be cleared. Once any identified problems are 
cleared, exempted from coverage, or insured over, the title agent 
prepares the closing documents and collects and disburses checks at the 
closing. Finally, the agent deposits collected funds in escrow 
accounts, records the deed or title with the relevant local government 
offices, and submits the title commitment to the insurer for policy 
issuance. 

Figure 4: Common Elements of the Title Search and Examination Process: 

[See PDF for image] 

Sources: GAO observation of title plant operations and analysis of 
comments made by title industry officials; Art Explosion (images). 

[End of figure] 

Agents in some states use primarily automated processes, either owning 
or purchasing access to a title plant.[Footnote 13] Because of these 
plants, the title search process in these states can be very efficient, 
which can decrease the amount of time required to issue a title 
insurance policy. Some of the most advanced of these title plants have 
documents scanned from local government sources, indexed and cross- 
referenced by various types of identifying information. Four of the 
title data centers we visited had electronic records going back 20 
years or more. During a tour of one title plant in Texas, we observed a 
title examiner obtain nearly all documents pertinent to the title 
search and examination in electronic format within seconds. If the 
title examiner did not have immediate access to a necessary document, 
she would e-mail the owner of that information and have it sent 
electronically or through the mail from one of the search services to 
which the plant subscribed, usually within 1 day or less. For this 
plant, typical turnaround time for a completed title search, 
examination, and commitment for a title examiner simultaneously working 
on several titles was 2 to 3 days. In another highly automated plant 
located in a large urban center, we were told that the typical title 
search and examination took about 25 minutes. One of the nation's 
largest title insurers, First American, recently announced that with 
new software developments, its agents could produce a fully insured 
title commitment in 60 seconds for many refinance transactions. 

In contrast, in a less-efficient process, agents in some states must 
physically search public records, which can add to the time required to 
issue a policy. In New York, for example, title plants are rare, and 
title agents commonly employ abstractors and independent examiners who 
must go to various county offices and courthouses to manually conduct 
searches. Including the process of clearing title problems and attorney 
review, one underwriter told us that in New York, the typical title 
insurance issuance took 90 to120 days for a purchase and 30 to 45 days 
for a refinance. Most historical data are proprietary to each 
underwriter and are based on previously insured titles. At an 
underwriter-owned title plant in an East Coast city, described as 
typical for the region, we saw that although the plant held 
approximately 1.5 million records of previously insured titles, few 
records were updated when a new search came in on that same property. 
Personnel at the plant said that it was too labor-intensive to 
consolidate all of the files, although not updating the files resulted 
in a large number of redundancies in records across the plant. Also, in 
some states, industry participants told us that delays in recording and 
processing at local government offices contributed greatly to 
inefficiencies in the issuance process. 

Title Agents' Responsibilities Also Differ across States: 

We found that the extent of title agents' responsibility for claims 
losses, involvement in the closing process, and ability to set premiums 
varied widely across states. For example, in some states, agents are 
responsible for a specific portion of losses on claims. In California 
and Colorado, the underwriter-agent agreement stipulates that title 
agents are responsible for up to the first $5,000 of a title 
claim.[Footnote 14] Underwriters said that this deductible gave agents 
an incentive to conduct more diligent searches and examinations. In 
other states, agents are not responsible for a specific portion of a 
claim but may take responsibility for some part or all of it, 
especially if the claim is small. According to agents in New York and 
Minnesota, it is faster, more efficient, and more customer-friendly for 
the agent to handle smaller claims rather than passing them on to the 
underwriter. An industry organization said that current, informal agent 
claims practices show that agents generally take responsibility for 
claims under $2,500. Independent agents told us that the industry is 
moving toward more risk borne by the agents. In fact, agent application 
and review documents that we obtained from underwriters showed that the 
number and amount of claims the agent was responsible for were criteria 
insurers used when deciding whether to retain independent agents. One 
underwriter told us that although their agents did not have 
deductibles, the insurer was able to recover about $10 million in funds 
from agents on claims the underwriter had already paid through 
aggressive follow-up on and investigation into possible errors on 
previously paid claims. 

Some agents are also involved in more aspects of the closing process. 
We found that some agents handled the entire closing process, including 
the escrow, while others did not handle the escrow portion. These 
practices varied within as well as across states. In California, for 
example, title agencies have both underwriter and agent-controlled 
escrow companies that handle the full escrow process and actively 
market those services. These agencies offer a full package of closing 
services, from title search, examination, and clearance to document 
preparation and disbursement of funds at the closing. Other title 
agents were independent from escrow companies. In some states, such as 
New York, where it is customary for the home buyer and seller to have a 
lawyer present at the closing, title agents employ closers, whose chief 
duty is to handle the checks for taxes and escrow and to record the 
deed. Similarly, in Illinois, the lawyers actually serve as attorney- 
agents and are prohibited by the underwriter from handling the escrow. 

Finally, in some states, title agents determine the amount to charge 
consumers for the search and examination portion of the premium, while 
in other states, they do not. The states where they do are referred to 
as "risk-rate" states because only the insurance, or risk-based, 
portion of the premium is regulated. In these states, state regulators 
review underwriters' rates for the risk-based portion of the premium, 
but the agents set the fees for search and examination services 
(generally the larger part of the cost to consumers) without regulatory 
review. According to ALTA, 30 states plus the District of Columbia are 
considered risk-rate states. The rest of the states, excluding Iowa, 
are considered to be all-inclusive because they incorporate charges for 
the risk-based portion of title insurance and other fees, such as those 
for the search and examination, in the regulated premium. The premium 
may or may not include settlement and closing costs. In these all- 
inclusive states, agents are not able to determine the price they will 
charge for searches and examinations, because they are required to 
charge the rates set by the state or the underwriter. Insurers set 
their premium rates based on their own expected costs and how much of 
the premium they have agreed to split with the agent. 

Premiums Are Difficult to Compare across Markets, but Appear to Vary 
Significantly: 

Because title insurance premium rates depend on the amount of the loan 
or value of the home being insured, premiums differ widely across 
states. Figure 5 shows the premium rates for median-priced homes in 
major cities in our sample states. 

Figure 5: Title Insurance Premium Rates For A Basic Owner's Policy On 
Median-Priced Homes In Selected Areas, 2005: 

[See PDF for Image] 

Source: GAO analysis of National Association of Realtors' and title 
industry data. 

Note: Rates are either from the largest underwriter or are promulgated 
rates. 

[A] Lender's policy rate used in the Iowa data because a rate was not 
given for the owner's policy. Although the premium would be $146, 
according to Iowa Title Guaranty officials, additional required 
services would add approximately another $550, for a total of 
approximately $700. 

[End of figure] 

One reason title insurance premium rate comparisons are difficult is 
because, as we previously mentioned, items included in the premium 
varied by state. A study from insurance regulators in Florida, where 
rates are promulgated and include the risk portion only, noted that 
what all-inclusive rates include varies even among the all-inclusive 
states.[Footnote 15] According to the study, in Texas and Pennsylvania, 
the premium includes the risk portion, search and examination costs, 
and settlement fees, while in California, the all-inclusive rate does 
not include settlement and closing costs. The Florida study also noted 
that one state (Utah) includes closing costs but not searches and 
examinations, and another state (Illinois) allows the entire rate to be 
determined competitively as either risk-based or all-inclusive. 

A national survey conducted by Bankrate.com in 2006 also showed 
significant differences in title premiums across states.[Footnote 16] 
This survey of the 50 states and the District of Columbia compiled 
average mortgage closing costs, including title insurance, search and 
examination and settlement costs, and origination fees, using data 
obtained from as many as 15 of the largest national lenders' online 
quote systems. The survey calculated costs for a standard $200,000 loan 
in one Zip Code of the largest urban center in each state. The data 
showed costs ranging from a high of $3,887 to a low of $2,713, with a 
national average of $3,024. Bankrate.com representatives attributed 
most of the difference across states to wide disparities in the cost of 
title insurance, which they found varied almost 64 percent, from a high 
of $1,164 to a low of $418. The average was $663. However, these data 
must be viewed with caution because they do not account for differences 
in what could be included in the premium. Moreover, since these data 
came from only one Zip Code per state, they may not be representative 
of other localities. 

Industry officials said that rates vary because of differences in what 
was included in the rate and in standard business costs in each area. 
Nearly all of the industry participants we spoke with emphasized that 
title insurance is a local business, varying both within and across 
states. They said that state property, trustee, probate, and estate 
laws could partially explain the rate differences. In some states, 
these requirements make it much more expensive to do the search and 
examination work and clear all of the risks through the examination 
process. Experts told us that trying to compare rates across states 
would not be meaningful because of the differences in the components of 
the premium. 

Multiple Factors Raise Questions about the Extent of Competition and 
the Reasonableness of Prices in the Title Insurance Industry: 

Among the factors raising questions about the existence of price 
competition and the resulting prices paid by consumers within the title 
insurance industry are the following: 

* consumers find it difficult to shop for title insurance, therefore, 
they put little pressure on insurers and agents to compete based on 
price; 

* title agents do not market to consumers, who pay for title insurance, 
but to those in the position to refer consumers to particular title 
agents, thus creating potential conflicts of interest; 

* a number of recent investigations by HUD and state regulatory 
officials have identified instances of alleged illegal activities 
within the title industry that appear to reduce price competition and 
could indicate excessive prices; 

* as property values or loan amounts increase, prices paid for title 
insurance by consumers appear to increase faster than insurers' and 
agents' costs; and: 

* in states where agents' search and examination services are not 
included in the premium paid by consumers, it is not clear that 
additional amounts paid to title agents are fully supported by 
underlying costs. 

Disagreement exists between title industry officials and regulators 
over the actual extent of price competition within title insurance 
markets, with industry officials asserting that such competition exists 
and a number of regulators stating that a lack of competition 
ultimately results in excessive prices paid by consumers. 

Lack of Consumer Knowledge about Title Insurance Results in Little 
Pressure on Insurers to Compete on Price: 

For several reasons, consumers find it difficult to shop for title 
insurance based on price, raising questions about the existence of 
price competition in title insurance markets. First, most consumers buy 
real estate--and with it, title insurance--infrequently. As a result, 
they are not familiar with what title insurance is, what reasonable 
prices might be, or which title agents might provide the best service. 
According to a study commissioned by the Fidelity National Title Group, 
Inc., in response to proposed regulatory changes in California, it is 
typically not worth an individual's time to become more educated about 
title insurance, because any resulting savings would likely be 
relatively small.[Footnote 17] That is, the cost to consumers of 
becoming sufficiently educated to make an informed decision is 
potentially higher than the risk of paying more to a title agent 
suggested by a real estate or mortgage professional. However, one 
potential consequence of a failure to shop around was noted by several 
of the state insurance regulatory officials that we spoke with, who 
expressed concern that consumers may not be getting the discounts for 
which they are eligible. For instance, insurers may give (1) discounts 
on mortgage refinance transactions because the previous search and 
examination were fairly recent and (2) discounts to first-time home 
buyers or senior citizens. Several title industry officials agreed that 
consumers might not be aware of such discounts and may, in some cases, 
not be receiving discounts to which they are entitled. 

Second, consumers may have difficulty comparing price information from 
different title agents because many title agents also charge for 
services that are not included in the premium rate, such as fees 
related to real estate closing and other administrative fees. In states 
where title agents charge separately for search and examination 
services, such charges can be as large as the title insurance premium 
itself. Thus, even if consumers collected and compared premium rates, 
which are posted on some states' Web sites, they might not get an 
accurate picture of all the title-related costs they might pay when 
using a particular agent. 

Third, title insurance is a smaller but required part of a larger 
transaction that consumers are generally unwilling to disrupt or delay. 
As we have seen, lenders generally require home buyers to purchase 
title insurance as part of any real estate purchase or mortgage 
refinancing transaction. However, purchasing title insurance is a 
relatively small part of such transactions. For example, according to 
an analysis by the Fidelity National Title Group, Inc., in 2005 in 
California, on a transaction with a sales price of $500,000 and a loan 
amount of $450,000, title insurance costs, on average, amounted to only 
4 percent of total closing costs, including the real estate agent's 
commission (see fig. 6). Even when the seller pays the real estate 
agent's commission, title insurance costs are still small compared with 
the size of the buyer's transaction. In addition, it appears that by 
the time consumers receive an estimate from the lender of their title 
insurance costs as part of the Good Faith Estimate, a title agent has 
already been selected, and the title search has already been requested 
or completed.[Footnote 18] To shop around for another title insurer at 
that point in the process could also threaten to delay the scheduled 
closing. According to a number of title industry officials and state 
insurance regulators we spoke with, most consumers place a higher 
priority on completing their real estate transaction than on disrupting 
or delaying that transaction to shop around for potentially small 
savings. 

Figure 6: Average Allocation Of Closing Costs In California, 2005: 

[See PDF for Image] 

Source: Fidelity National Title Group, Inc. 

Note: Calculations done using a $500,000 sales price and a $450,000 
loan amount. We did not verify the data supporting this analysis. 

[End of figure] 

HUD publishes an informational booklet designed to help fulfill RESPA's 
goal of helping consumers become better shoppers for mortgage 
settlement services, including title insurance. Although this document 
provides much useful information, it is generally distributed too late 
in the home-buying process to help consumers with respect to title 
insurance, and it lacks some potentially useful information. RESPA 
currently requires lenders to provide the booklet to consumers within 3 
days of the loan application. HUD officials recognize the need to get 
this information to consumers earlier and recommended in a 1998 study 
that real estate agents, as well as lenders, provide the information at 
first contact.[Footnote 19] Furthermore, RESPA only requires the 
information to be distributed in a transaction involving a real estate 
purchase, and not in other transactions, such as mortgage refinances, 
where title insurance is also required by lenders. The usefulness of 
the informational booklet is further limited by the absence of 
information on the discounts most title insurers provide and on 
potentially illegal ABAs. 

Because consumers may not have access to potentially useful information 
when purchasing title insurance, they may not be able to make well- 
informed decisions on the purchase of title insurance. Specifically, 
consumers may face difficulty in independently collecting information 
on all amounts charged by title agents in order to comparison shop. In 
addition, the limitations in the content of HUD's information booklet 
and when consumers receive it can result in consumers' getting 
information too late in the process, thereby hindering their ability to 
influence the selection of a title agent or insurer. Moreover, several 
state insurance regulators expressed concern that consumers might not 
be getting all available discounts because they do not know they are 
available or that they are entitled to the discounts. In addition, HUD 
officials said that the use and complexity of ABAs in the title 
industry has increased, and consumers could benefit from additional 
information in this area. 

Title Agents Market Not to Consumers, but to Those in a Position to 
Make Referrals, Creating Potential Conflicts of Interest: 

Another factor that raises questions about the existence of price 
competition is that title agents market to those from whom they get 
consumer referrals, and not to consumers themselves, creating potential 
conflicts of interest where the referrals could be made in the best 
interest of the referrer and not the consumer. Because of the 
difficulties faced by consumers in shopping for title insurance, 
consumers almost always rely on a referral from a real estate or 
mortgage professional. In fact, some insurance regulatory officials we 
spoke with said they are concerned that consumers may not even be aware 
they are able to choose their own title agent and insurer. According to 
title industry officials, because of consumers' unfamiliarity with and 
infrequent purchases of title insurance, it is not cost-effective to 
market to them. Rather, title agents market to and compete for 
referrals from real estate and mortgage professionals. 

According to title industry officials, competition among title agents 
for consumer referrals is very intense and motivates them to provide 
excellent service to real estate and mortgage professionals. This is 
because if they do not provide good service, those professionals will 
send their future referrals elsewhere. Both title and real estate 
industry officials told us that such professionals have a strong 
interest in customers' having a good experience with respect to the 
portion of a closing conducted by a title agent, because customers' 
experiences there will reflect back on the professional. As a result, 
they said, such competition on the basis of service benefits consumers. 

However, this competition among title agents for consumer referrals is 
also characterized by potential conflicts of interest, since those 
making the referrals may have the motivation to do so based on their 
own best interests rather than consumers' best interests. Real estate 
and mortgage professionals interact more regularly with title agents 
and insurers than do consumers and, thus, are likely to have better 
information than consumers on the prices and quality of work of 
particular title agents and insurers. To the extent the interests of 
those professionals are aligned with those of the consumers they are 
referring, the knowledge and expertise of those professionals can 
benefit consumers. However, conflicts of interest may arise when the 
professional making the referral has a financial interest in directing 
the consumer to a particular title agent. Under such circumstances, the 
real estate or mortgage professional may be motivated to make a 
consumer referral not based on the customer's best interests but on the 
professional's best interests. For example, a real estate professional 
may be a partial or full owner of a title agency, such as through an 
ABA, and therefore receive a share of the profits earned by that 
agency. As such, the professional may have an incentive to refer 
customers to that title agency. 

Alleged Illegal Activities Appear to Reduce Competition and Could 
Indicate Excessive Prices Paid by Consumers: 

Text Box: Examples of Allegedly Illegal Referral Fees Described in 
Investigations by HUD and State Insurance Regulators: 
ē* A title agent paid real estate agentsí business training and 
printing expenses. 
ē* A title agent provided trips, entertainment, and catering for 
entities involved in real estate transactions. 
* A title agent contributed to a pool of funds that was given away in a 
drawing among real estate agents.
* A title agent paid an excessive rate to rent a conference room from a 
real estate company.
* Title agents provided free or below-cost marketing services to real 
estate agents. 

[End of text box] 

In recent years, HUD and state insurance regulators have identified a 
number of allegedly illegal activities related to the marketing and 
sale of title insurance that appear to be designed to obtain consumer 
referrals and, thus, raise questions about competition and, in some 
cases, the prices paid by consumers (see sidebar). In addition, several 
title insurers and agents told us that they lost market share because 
they did not provide some compensation for consumer referrals. The 
payment or receipt of compensation for consumer referrals potentially 
reduces competition because the selection of title insurer or agent 
might not be based on the price or quality of service provided, but on 
the benefit provided to the one making the referral. The giving or 
receiving of anything of value in return for referral of consumers' 
title insurance business is a potential violation of RESPA and many 
state laws. For example, it might be illegal for a title insurer to 
provide free business services to a realtor in exchange for that 
realtor's referring consumers to the title agent. It might also be 
illegal for the realtor to accept those services. 

Nonetheless, state and federal regulators have identified a number of 
alleged instances of such payments, resulting in those involved paying 
over $100 million in fines, penalties, or settlement agreements. Table 
1 summarizes these investigations. From 2003 to 2006, insurance 
regulators in three of our six sample states had concluded at least 20 
investigations related to the alleged payment of referral fees, 
involving over 52 entities, including title insurers, title agents, and 
builders.[Footnote 20] As a result of these investigations, the 
entities involved were ordered to pay or agreed to pay approximately 
$90.6 million in the form of consumer refunds, fines, and settlements. 
Over the same period, HUD concluded at least 38 enforcement actions 
resulting in settlements related to alleged referral fee violations. 
These actions involved at least 62 entities and resulted in those 
entities' being ordered to pay or agreeing to pay approximately $10.7 
million. 

Table 1: Information on Closed Cases and Settlements Involving Referral 
Fees Resulting from Investigations by Insurance Regulators in Six 
Sample States and HUD, 2003-2006: 

Dollars in millions. 

State insurance regulators. 

Investigating organization[A]: California Department of Insurance; 
Closed cases and settlements involving referral fees: 12; 
Entities involved[B]: 26; 
Amount that entities were ordered to pay or agreed to pay[C]: $61.3; 
Portion of total payments involving captive reinsurance[D]: $37.9. 

Investigating organization[A]: Colorado Department of Regulatory 
Agencies, Division of Insurance; 
Closed cases and settlements involving referral fees: 6; 
Entities involved[B]: 24; 
Amount that entities were ordered to pay or agreed to pay[C]: 25.3; 
Portion of total payments involving captive reinsurance[D]: 25.3. 

Investigating organization[A]: New York State Insurance Department; 
Closed cases and settlements involving referral fees: 2; 
Entities involved[B]: 2; 
Amount that entities were ordered to pay or agreed to pay[C]: 4.0; 
Portion of total payments involving captive reinsurance[D]: -. 

Subtotal; 
Closed cases and settlements involving referral fees: 20; 
Entities involved[B]: 52; 
Amount that entities were ordered to pay or agreed to pay[C]: $90.6; 
Portion of total payments involving captive reinsurance[D]: $63.2. 

Investigating organization[A]: HUD[E]; 
Closed cases and settlements involving referral fees: 38; 
Entities involved[B]: 62; 
Amount that entities were ordered to pay or agreed to pay[C]: 10.7; 
Portion of total payments involving captive reinsurance[D]: 3.6. 

Subtotal; 
Closed cases and settlements involving referral fees: 38; 
Entities involved[B]: 62; 
Amount that entities were ordered to pay or agreed to pay[C]: $10.7; 
Portion of total payments involving captive reinsurance[D]: $3.6. 

Total; 
Closed cases and settlements involving referral fees: 58; 
Entities involved[B]: 114; 
Amount that entities were ordered to pay or agreed to pay[C]: $101.3; 
Portion of total payments involving captive reinsurance[D]: $66.8. 

Source: GAO analysis of state and HUD data. 

[A] Insurance regulators in Illinois, Iowa, and Texas, our other sample 
states, did not have any such closed cases or settlements. 

[B] Entities involved in multiple cases and settlements were counted 
once for each case in which they were involved. 

[C] Amounts paid included any refunds to consumers, fines, or 
settlement amounts. 

[D] In captive reinsurance arrangements, a home builder, real estate 
broker, lender, title insurance company, or some combination of these 
entities forms a reinsurance company that works in conjunction with a 
title insurer. Some investigations alleged that these arrangements were 
used as a means of paying referral fees. 

[E] Amounts paid to HUD reflect only negotiated settlements, because 
HUD cannot levy civil money penalties. 

[End of table] 

Several insurance regulators in states outside of our sample states, 
while not completing enforcement actions or reaching settlement 
agreements, expressed concerns over activities related to referral 
fees. For example, in October 2006, the Washington State Office of the 
Insurance Commissioner published the results of its investigations into 
referral practices in the title industry in Washington.[Footnote 21] 
According to the report, the use of inducements and incentives by title 
companies to obtain title insurance business appeared to be "widespread 
and pervasive," and these inducements were used to influence referrals 
by real estate agents, banks, lenders, builders, developers, and 
others. The inducements included, among other things, the provision of 
advertising services, open houses, entertainment, and educational 
classes. According to the report, the regulator decided not to take any 
enforcement actions on the basis of the activities they identified 
because of the expense of doing so and because the regulator accepted 
some responsibility for allowing such a situation to develop. However, 
the report also stated that the regulator would put the industry on 
notice that there would be consequences for any future violations. 

In Illinois, the state title insurance regulator issued a series of 
bulletins and informational handouts in 2005 and 2006 that expressed 
concerns over potentially illegal referral fees and inappropriate 
ABAs.[Footnote 22] The regulator had found that some title agents were 
using title service companies (owned by title insurers) that in some 
cases performed almost all title-related work, such that all the title 
agent had to do was sign and return some documents in exchange for 
receiving part of the premium. According to the regulator, such 
arrangements would violate state law requiring title agents to perform 
certain minimal activities in return for fees received from consumers. 
The regulator told us that the companies involved in these activities 
were cooperative in ceasing such activities and, as a result, the 
regulator was not pursuing any enforcement actions. Such arrangements, 
however, (1) may constitute an illegal referral fee under RESPA and (2) 
appear to be very similar to activities that were the subject in 
Illinois of state and HUD investigations in 1990 and 1991, resulting in 
a $1 million settlement between HUD and the title insurer involved. 

Finally, in April 2006, the state title insurance regulator in Alaska 
published a summary of title insurance examinations in which they 
expressed concern that title agents and real estate service providers 
were entering into business arrangements that blurred the line between 
legitimate transactions and illegal kickbacks.[Footnote 23] Such 
arrangements, the report noted, may undermine competition and be an 
indication that premium rates are excessively high. The report stated 
that the insurance regulator is contemplating new regulations regarding 
the legality of these arrangements, but the regulator will first obtain 
industry input through public hearings. Overall, the alleged referral 
fee arrangements identified in the state and HUD investigations could 
potentially indicate that those making consumer referrals did so based 
on their own interests, and may not have resulted in obtaining the best 
prices for consumers. 

Allegedly Illegal Captive Reinsurance Arrangements Could Indicate 
Consumers Were Paying Excessive Prices for Title Insurance: 

Text box: Example of a Captive Reinsurance Arrangement: 

In one multistate settlement that involved 26 state insurance 
regulators, regulators alleged that title insurers and home builders 
created captive reinsurance arrangements. Under these arrangements, the 
insurers deducted a processing fee of $350 from the premium, then paid 
50 percent of the remainder to a reinsurer for assuming 50 percent of 
the policy risk. The reinsurers, in turn, provided referrals to the 
title insurers. For example, in Colorado, a party to the settlement, 
the premium charged by one of the companies involved for an ownerís and 
lenderís policy on a $250,000 loan and purchase price was $1,614. In 
2005, the combined loss ratio for all insurers in Colorado was 
approximately 4.5 percent. Under the arrangement described by 
regulators, on a hypothetical $250,000 transaction, the reinsurer would 
collect approximately $632 for assuming expected losses of about $36 
(4.5 percent of the $1,614 premium), for a net profit of about $596. In 
other words, about 37 percent of the $1,614 paid by the consumer would 
allegedly go to the reinsurer as compensation for its builder, lender, 
or real estate broker-owner allegedly referring business to the insurer.

[End of text box] 

From 2003 through 2006, state and HUD investigations of captive 
reinsurance arrangements, a potential form of referral fees, resulted 
in payments by insurers and other entities of approximately $66.8 
million, as previously shown in table 1.[Footnote 24] Specifically, we 
identified 13 investigations involving 37 entities that were related to 
captive reinsurance arrangements, with 1 multistate settlement 
agreement involving activities in 26 states. In such arrangements, a 
home builder, real estate broker, lender, title insurance company, or 
some combination of these entities forms a reinsurance company that 
works in conjunction with a title insurer (see sidebar). The insurer 
agrees to "reinsure" all or part of the business it receives from the 
reinsurer's owners with the reinsurer by paying the company a portion 
of the premium (and allegedly transferring a portion of the risk) for 
each title transaction. Investigators alleged that the amounts received 
by these reinsurers exceeded the risk they assumed--particularly 
because virtually no claims were filed with either the insurer or the 
reinsurer--and considered these arrangements as a way to pay for 
referrals, allegedly violating RESPA's prohibitions on such payments. 
In settlement agreements with a lender and several home builders in 
2006, HUD stated that there is almost never a bona fide need or 
business purpose for title reinsurance on a single family residence, 
especially from an entity or an affiliate of an entity that is in a 
position to refer business to the title insurer. In addition, HUD 
stated that when the payments to the captive reinsurer far exceed the 
risk borne by the builders, lenders, or real estate brokers, there is 
strong evidence that such an arrangement was created to pay referral 
fees and, therefore, is illegal. Figure 7 provides an example of a 
captive reinsurance arrangement described in a multistate settlement 
administered by the Colorado Division of Insurance in 2005. 

Figure 7: Example Of An Alleged Captive Reinsurance Arrangement: 

[See PDF for Image] 

Source: GAO. 

[End of figure] 

According to several state insurance regulators, the activities 
involved in such captive reinsurance arrangements suggest that title 
insurance premiums paid by consumers may be substantially higher than 
the cost of providing that insurance. The arrangements generally 
involved a title insurer taking the premium from a consumer, 
subtracting a certain amount to cover the cost of a title search and 
examination, then splitting the remainder with the reinsurer. On the 
basis of details provided in a multistate settlement, insurers were 
allegedly giving away as much as one-third or more of the premiums 
consumers paid in order to obtain consumer referrals. In 2005, 
industrywide loss and loss adjustment expenses only totaled about 5 
percent of the total premiums written. The regulators stated that 
insurers' willingness to pay such a large portion of the premium to 
obtain consumers' title insurance business suggested that insurers 
overcharged consumers for this insurance. 

A Number of Investigations Found ABAs Allegedly Being Used to Pay 
Referral Fees, Raising Questions about the Cost and Benefits of ABAs to 
Consumers: 

A number of investigations found that ABAs were allegedly being used to 
compensate ABA owners--often real estate or mortgage professionals--for 
consumer referrals, raising additional questions about competition in 
the title insurance industry. RESPA allows ABAs, provided that (1) a 
disclosure is made to the consumer being referred that describes the 
nature of the relationship, including financial interests, between the 
real estate settlement service provider and the person making the 
referral; (2) compensation for the referral is limited to a return on 
the ownership interest; and (3) the consumer being referred is not 
required to use a particular title agent. HUD has also issued a policy 
statement setting forth factors it uses to determine whether an ABA is 
a sham under RESPA or a bona fide provider of settlement services. 
These factors include whether the entity actually performs substantial 
services in return for fees received, the entity has its own employees 
to perform these services, and the entity has a separate office. 
Nonetheless, federal and state investigations identified a number of 
ABAs that were alleged to be "shell" title agencies that either had no 
physical location, employees, or assets or did not actually perform any 
title services. Regulators alleged their primary purpose was to serve 
as a pass-through for payments or preferential treatment given by the 
title agent to real estate agents and brokers, home builders, 
attorneys, or mortgage brokers for business referrals. Over the past 4 
years, HUD has completed at least 9 investigations of ABAs, involving 
at least 17 entities and resulting in approximately $1.8 million being 
paid by those entities in settlements and refunds. A Colorado 
investigation found that a single licensed title agent was owner or 
part owner of 13 sham title agencies that were allegedly used to pay 
referral fees to mortgage brokers. 

A number of regulators and industry participants we spoke with 
expressed concerns about the growing use of ABAs in the title industry. 
For example, HUD officials have said that while properly structured 
ABAs may provide some consumer benefits, they also create an inherent 
conflict of interest as the owner of an ABA is in a position to refer a 
consumer to that same ABA. They expressed concern that ABAs could be 
used as a means to mask referral fees, which are generally illegal 
under RESPA, and that they were seeing more complex arrangements in 
which it was becoming increasingly difficult to trace the flow of money 
and to determine if the agents involved in ABAs were actually 
performing core title services. Several state insurance regulators we 
spoke with expressed similar concerns. For example, Colorado insurance 
regulatory officials were concerned over the extent of sham ABAs in 
Colorado that were potentially being used as a means to pay referral 
fees. Those officials also said that, on the basis of their work with 
NAIC's Title Insurance Working Group, other state insurance regulators 
that had begun to examine ABAs were also finding potentially illegal 
activities. For instance, in a September 2005 settlement in Florida, 60 
sham title agencies affiliated with 1 underwriter were alleged to have 
been fronts for referral fees. 

Some title industry participants expressed concern that ABAs might also 
restrict competition. They said that when a real estate or mortgage 
brokerage firm, for example, owns an ABA, other title agents are 
generally barred from marketing their services to individuals working 
for that firm. In addition, they said that most or all of the consumer 
referrals from a brokerage that is an owner of an ABA generally go to 
that ABA. As a result of this guaranteed order flow, they said, the 
title agents at that ABA might not be as interested in competing on 
price or service. 

In contrast, some title industry officials said ABAs can be beneficial 
because they provide consumers with better service and potential cost 
savings. According to an industry organization, ABAs can increase 
consumer satisfaction through the convenience of one-stop shopping. 
Furthermore, they benefit their owners and consumers by giving owners 
greater accountability and control over quality. Industry participants 
also stated that because of the ability to take advantage of 
efficiencies, ABAs can result in potential cost savings for the 
consumer. A recent study sponsored by RESPRO, an industry group that 
promotes ABAs, concluded that title agents that are part of an ABA do 
not charge consumers any more than title agents that are not part of an 
ABA.[Footnote 25] ABA proponents, and others, also stated that ABA 
owners, such as real estate or mortgage brokers, often have little 
leverage in encouraging their real estate agents and brokers to refer 
consumers to the ABA title agent. They said that these individuals 
compete based on their reputation, and that recommending a title agent 
that provided poor service would damage that reputation. As a result, 
they will only refer consumers to an ABA title agent if it provides 
good service. Industry organizations we spoke with said that they did 
not collect data on the percentage of business ABA title agents get 
from their owners' businesses. 

Overall, the concerns expressed by regulators and some industry 
participants over ABAs raise questions about the potential effects of 
some ABAs on consumers. Specifically, concerns about some ABAs being 
used as a means of paying illegal referral fees raise questions about 
whether referrals are always being made in consumers' best interests. 
In addition, concerns about some ABAs potentially restricting 
competition among title agents raise questions about the extent of 
competition that is beneficial to consumers. 

As Coverage Amounts Increase, Premiums Paid by Consumers Appear to 
Increase Faster Than Insurer and Agent Costs: 

Another factor that raises questions about the prices consumers pay for 
title insurance is that as the purchase price or loan amount on which a 
policy is issued increases, the amount paid by consumers appears to 
increase faster than the costs incurred by insurers and agents in 
producing that policy. A number of title insurers and agents we spoke 
with said that they made more money on high-priced transactions than on 
low-priced transactions because, while premiums increased with price, 
insurers' losses rose only slightly and agents' search and examination 
costs generally either did not increase or, in many cases, fell. In 
fact, several title insurers and agents said that transactions 
involving less-expensive properties often cost agents more to complete 
because they required agents to correct more title defects than on more 
expensive transactions. As a result of this pricing structure, writing 
title insurance on higher-value purchases and mortgages can be quite 
profitable for title insurers and agents. 

Industry Officials Said That the Current Price Structure Subsidizes 
Consumers in Lower-Value Transactions, but They Could Not Provide 
Supporting Data: 

Title industry officials told us that while high-value transactions 
could be quite profitable for title insurers and agents, this profit 
was necessary to subsidize the lower profits or even losses from 
smaller transactions. These officials also told us that if insurers 
charged consumers on the basis of the cost of the actual work done, 
consumers buying relatively inexpensive properties would pay more than 
they currently did. However, while we asked title industry officials 
for data to support their assertion that they often lost money on low- 
priced transactions, they said that they did not collect financial 
information that would allow them to provide such data. Thus, we could 
not determine whether insurers or agents were actually losing money on 
any transactions. 

According to industry officials, insurers and regulators purposely 
designed the current premium rate structures with an element of 
subsidization built in--that is, premiums for high-priced transactions 
were intended to subsidize the costs associated with lower-priced 
transactions. Among the six state insurance regulators we spoke with, 
although most agreed that insurers made more money on higher-priced 
transactions, only one told us that subsidization of consumers on lower-
priced transactions was intentional on the part of the state. Among the 
rest, three said that there was no intentional subsidization, and two 
said that they did not know. 

Industry Officials Said That Recent Higher Profitability Compensated 
for Years of Lower Profitability, but Industry Return on Equity Has 
Been Relatively Stable: 

Recent high profits within the title insurance industry have raised 
additional questions about the prices being paid by consumers. Several 
title insurance industry officials acknowledged that insurers' profits 
had been good over the past several years as a result of increased home 
prices and large numbers of consumers refinancing their home mortgages, 
but these officials said that such profits made up for very low profits 
during weaker markets. However, we found that title insurers' financial 
performance, as measured by return on equity, has been positive since 
at least 1992 and, in every year except one, has been above that of the 
property-casualty insurance industry as a whole. As shown in figure 8, 
the combined return on equity for the largest five title insurers has 
been at or above 9 percent, in every year except one, over the period 
from 1992 to 2005, and in most years it was above 12 percent. Over that 
same period, only one insurer had a year with a negative return on 
equity. In addition, during 2006 public conference calls with financial 
analysts, several of the largest insurers said that they expected 
business to be profitable even during the weakest real estate markets. 

Figure 8: Combined Return on Equity for the Five Largest Title 
Insurers, and the Property-Casualty Insurance Industry as a Whole, 1992-
2005: 

[See PDF for image] 

Source: GAO analysis of insurer financial data submitted to SEC and 
Insurance Services Office and Insurance Information Institute data. 

Note: The combined return on equity data for title insurers are based 
on consolidated operating results, which for some title insurers may 
include some services other than title insurance. 

[End of figure] 

An industry-sponsored study stated that several insurers had reduced 
title insurance rates in the last several years, and that such 
reductions provided evidence of price competition, at least in 
California.[Footnote 26] We were able to obtain historical premium rate 
information in five of our six sample states. Between 2000 and 2005, 
premium rates for the median-priced home went down in three of those 
five states, stayed the same in one state, and increased by only 2 
percent in the other state (see fig. 9). However, because total 
premiums are determined by applying that rate to the home price or loan 
amount, and median home prices increased substantially over that 
period, total premiums paid by consumers in most of our sample states 
also increased substantially. For example, among these five sample 
states, consumers' premiums fell in one state, but rose in the 
remaining four states, sometimes dramatically. Specifically, premiums 
decreased by 12 percent in one state but increased 93 percent in 
another, and in one state where premium rates fell by 29 percent, 
actual premiums paid rose by 75 percent. Historical information on 
possible additional amounts charged by title agents in our sample 
states was not available. 

Figure 9: Percentage Change In Premium Rates And Premiums Paid On 
Median-Priced Homes In Selected Areas In Five Sample States,2000- 2005: 

[See PDF for Image] 

Source: GAO analysis of data provided by the National Association of 
Realtors, state insurance regulators, and title insurers. 

Note: We were unable to obtain historical premium rate information in 
the sixth sample state--Colorado. 

[A] Premium rates in California, Illinois, and Iowa are those for the 
insurer writing the most premiums in 2005. 

[B] Premium rates in New York and Texas are those promulgated by the 
state insurance regulator. 

[C] Lender's policy rate was used in the Iowa data because a rate was 
not given for the owner's policy. 

[D] Premium paid by consumer does not include any additional amounts 
that may have been charged by title agents. 

[End of figure] 

In States Where Agents Charge Separately for Search and Examination 
Services, It Is Unclear Whether Those Charges Are Fully Supported by 
Underlying Costs: 

One more factor that raises questions concerning the prices consumers 
pay for title insurance is that in states where agents' charges for 
their search and examination services are not included in the premium 
paid by the consumer (i.e., agents charge separately for these 
services), it is unclear whether consumers may be overpaying for those 
services. The lack of clarity stems from the way in which title 
insurers determine premium rates that consumers will pay. 

Officials from title insurance companies told us that they generally 
determined their premium rates on the basis of their expected expenses, 
which include losses from claims, as well as the amounts retained by 
the title agents that write insurance for them. Title insurers know 
what share of consumers' premiums the title agents that write policies 
for them will retain--generally around 80 to 90 percent--and what share 
the insurer will receive.[Footnote 27] Insurers then set their premium 
rates at a level sufficient to ensure that their share of the premiums 
will be enough to cover their expected costs and earn them a reasonable 
profit. These calculations take into account the portion of the 
premiums that title agents retain, but not whether that amount reflects 
the agents' actual costs. Officials of insurance companies and title 
agencies told us that the split was negotiated between the insurer and 
agent on the basis of a number of factors, including the agent's volume 
of business, the quality of the agent's past work, and the insurer's 
desire to increase its share of business in a certain geographic area. 
Among our sample states, the amount retained by title agents ranged 
from around 80 percent in one state to 90 percent in another (see fig. 
10). Some insurance company officials told us that they had an idea of 
what agents' costs should be based on their experience with their own 
direct agents, but these officials said that they did not analyze how 
the amounts retained by agents compared with those costs. 

Figure 10: Typical Premium Splits Between Insurers And Agents In Six 
Sample States: 

[See PDF for Image] 

Source: GAO analysis of interviews with title insurers, title agents, 
and state insurance regulators. 

Note: We did not independently verify the information in this figure. 

[A] There is no premium split in Iowa on policies issued by the state- 
owned Iowa Title Guaranty Division. 

[End of figure] 

Insurers that we spoke with also told us that they generally share the 
same percentage of the premium with their agents, around 80 to 90 
percent, regardless of whether those agents were in states where 
consumers were to pay for agents' search and examination services 
within the premium rate--known as all-inclusive states--or whether they 
were in states where agents can charge consumers separately for those 
services--known as risk-rate states. However, if title agents are 
charging separately for their search and examination services, outside 
of the premium, you would generally expect the percentage of the 
premium retained by agents to be lower because they would not need to 
recover the costs for those services from the premium. Because insurers 
told us that the percentage of the premium given to the agent does not 
depend on whether the title agent is in a risk-rate or all-inclusive 
state, this practice raises the possibility that in some risk-rate 
states, title agents may be (1) retaining 80 to 90 percent of the 
premium--a percentage meant to be sufficient to cover agents' search 
and examination costs in all-inclusive states--and (2) charging the 
consumer a separate, additional amount intended to pay for those same 
services. According to HUD officials, in risk-rate states, the amount 
consumers pay title agents for their search and examination services, 
which is in addition to the title insurance premium, can sometimes be 
as large as the premium itself. However, reliable data did not exist to 
determine whether consumers in risk-rate states consistently paid more, 
in total, than those in all-inclusive states. 

Disagreement Exists among Industry and Regulatory Officials over the 
Extent of Price Competition and the Appropriateness of Title Insurance 
Prices: 

While many title industry officials acknowledge that competition in 
title insurance markets is based primarily on service rather than 
price, disagreement exists between the industry and regulators over the 
extent of actual price competition. According to some of the title 
industry officials we spoke with, price competition does exist within 
the title insurance industry. While these officials acknowledged that 
consumers generally rely on referrals from real estate and mortgage 
professionals, they argued that these professionals could have an 
interest in obtaining lower-priced title services for their customers 
and, thus, could exert downward pressure on premium rates. Others cited 
various factors, such as changes in premium rates and increased levels 
of coverage, as evidence of price competition and have stressed the 
benefits for consumers of competition that is based on service. 

In contrast, insurance regulators in two of our sample states have 
concluded that premium rates are too high relative to costs, 
potentially due to a lack of price competition. In California, the 
state insurance regulator concluded in 2006 that title insurance 
markets were lacking competition, resulting in increased prices for 
consumers. The regulator there has also proposed lowering current title 
rates. In Texas, where title insurance premium rates are promulgated by 
the state insurance regulator, in each of the last two rate hearings, 
the regulator has proposed a premium rate reduction to account for a 
competitive structure that inflates prices for consumers. That is, the 
regulator has requested premium rate reductions to account for a market 
structure in which consumers pay for title insurance but others 
generally choose the title agent and insurer, which the Texas regulator 
says can result in unnecessary and unreasonable expenses. 

Limited State and Federal Oversight of the Title Insurance Industry Has 
Resulted in Proposals for Change: 

In the states we visited, we found that regulators did not assess title 
agents' costs to determine whether they were in line with premium 
rates; had made only limited efforts to oversee title agents (including 
ABAs involving insurers and agents); and, until recently, had taken few 
actions against alleged violations of antikickback laws. In part, this 
situation has resulted from a lack of resources and limited 
coordination among different regulators within states. On the federal 
level, authority for alleged violations of section 8 of RESPA, 
including those involving increasingly complex ABAs, is limited to 
seeking injunctive relief.[Footnote 28] Some state regulators expressed 
frustration with HUD's level of responsiveness to their requests for 
help with enforcement, and some industry officials said that RESPA 
rules regarding ABAs and referral fees need to be clarified. Industry 
and government stakeholders have proposed several regulatory changes, 
including RESPA reform, strengthened regulation of agents, a competitor 
right of action with no monetary penalty, and alternative title 
insurance models.[Footnote 29] 

Regulators Do Not Fully Assess Title Agents' Costs during Rate Reviews: 

Because consumers can do little to influence the price of title 
insurance, they depend on regulators to protect buyers from, for 
example, excessive premium rates. As they do with most lines of 
insurance, such as property-casualty coverage, regulators seek to 
ensure that title insurance premium rates are representative of the 
underlying risks and costs associated with the policies that are 
issued. In reviewing insurance rates, regulators generally focus on 
confirming that insurers' projections of their expected losses on 
claims are accurate, because for virtually all lines of insurance, the 
majority of consumers' premiums go to pay such losses. For property- 
casualty insurance in 2005, for example, 73 percent of total premiums 
were used to cover losses. For title insurers, however, only 5 percent 
of title insurance premiums went to cover losses (see fig. 11), while 
more than 70 percent went to title agents. 

Figure 11: Title Industry Costs As A Percentage Of Premiums Written, 
2005: 

[See PDF for Image] 

Source: GAO analysis of NAIC data. 

[A] The "Other expenses" category includes salaries, rent, and 
equipment costs, among other things. 

[End of figure] 

Despite this difference, few regulators review the costs that title 
agents incur to determine whether they are in line with the prices 
charged. In fact, in the majority of states, agents' costs for search 
and examination services are not considered part of the premium and, 
thus, receive no review by regulators. Therefore, title agents charge 
separately for their search and examination services, yet they receive 
about the same percentage of the premium as agents in states where 
these costs are included in the premium. In our six sample states, one 
regulator did not regulate premium rates for title insurance at all, 
and one state sold title insurance through a state-run program that did 
not regulate title search and examination costs. In the remaining four 
states, agents' search and examination costs were considered part of 
the premium, but regulators in only one of those states regularly 
reviewed title agents' costs as part of the rate review process. The 
other three regulators saw the amount retained by the agents as a cost 
to the insurer that they would review as justification for insurers' 
premium rates. However, these states did not go beyond the insurer to 
review the agents' costs. 

Furthermore, only two of the six regulators we reviewed collected 
financial and operational data on title agents, and regulatory 
officials in both those states said that the data that they currently 
collect were insufficient to analyze the appropriateness of current 
premium rates. For example, while officials from the California 
insurance regulator have concluded that a lack of competition exists 
and that premium rates are excessive, they have determined that they 
would need to collect a significant amount of additional information 
before they could assess the extent of overpricing. In July 2006, the 
officials proposed an extensive plan for collecting these data that 
involved gathering information at the individual transaction level. 
Similarly, the Texas insurance regulator has been collecting financial 
data on title agents, but officials there have concluded that these 
data, which are not organized by functional categories, are 
insufficient for determining the extent of potentially excessive costs. 
Because costs incurred by title agents receive such limited review, 
most state insurance regulators are limited in their ability to assess 
whether the amounts that consumers are charged for title insurance 
reflect the costs they are intended to cover. Appendix II describes the 
types of information that would be helpful in assessing title agents' 
costs and operations. 

States Conduct Only Limited Regulation and Oversight of Title Agents: 

Some aspects of agent regulation, such as licensing, varied across our 
sample states, while other aspects, such as capitalization and 
education requirements, were minimal. Of our six sample states, four 
required agents to register or obtain a license. Iowa had no title 
agents, and New York had no licensing or registration 
requirements.[Footnote 30] Furthermore, state regulators rarely audited 
agents, and the audits that were done were usually limited to examining 
only accounts that title agents use to hold customers' money, known as 
escrow accounts. Audits of operating accounts were uncommon, although 
some industry participants said that these accounts were a source of 
agent defalcations.[Footnote 31] Table 2 summarizes some aspects of 
title agent regulation in our sample states. 

Table 2: Regulation of Title Insurance Agents in Six Sample States: 

State: California; 
State licensing: Yes; 
Continuing education: No; 
Capitalization requirements: Net worth of $75,000 to $400,000; 
State audits: Quarterly; financial statements; 
Insurer oversight: Oversees escrow procedures and approves agent 
bonding; 
Proposed regulations: Yes. 

State: Colorado; 
State licensing: Yes; 
Continuing education: No; 
Capitalization requirements: $10,000; 
State audits: With cause; 
Insurer oversight: Compliance with title insurance laws, report fraud 
or late premium payments; 
Proposed regulations: Yes. 

State: Illinois; 
State licensing: Yes (registration only); 
Continuing education: No; 
Capitalization requirements: No; 
State audits: With cause; 
Insurer oversight: Can withdraw agent registration; 
Proposed regulations: No. 

State: Iowa; 
State licensing: Must have law license[A]; 
Continuing education: No; 
Capitalization requirements: No; 
State audits: Attorneys are subject to state audits; 
Insurer oversight: Participating attorneys are subject to relevant 
state law; 
Proposed regulations: N/ A. 

State: New York; 
State licensing: No; 
Continuing education: No; 
Capitalization requirements: No; 
State audits: No; 
Insurer oversight: General Agency Law governs; 
Proposed regulations: Yes. 

State: Texas; 
State licensing: Yes; 
Continuing education: Yes; 
Capitalization requirements: No; 
State audits: Annual; 
Insurer oversight: Report failure to provide annual audit report; 
Proposed regulations: Plans to call for more agent data. 

Source: GAO analysis of state insurance laws and regulations. 

[A] Attorneys and abstractors, rather than title agents, perform title 
work in Iowa. 

[End of table] 

Moreover, few states we visited require strong insurer oversight of 
agents. The nature of such oversight is usually negotiated between the 
insurer and the agent and defined by contract. Typically, the insurers 
sign up agents based on the quality of their service and their 
reputation in a certain area and audit their escrow accounts every 18 
to 36 months. Industry participants told us that contractual 
stipulations and questions of unfair competitive practices were among 
the reasons that prevented insurers from looking into independent 
agents' operating accounts. When we asked the major title insurers that 
we spoke with for information on title agents' costs, they said that 
they did not collect data from title agents in a manner that would 
allow for an analysis of costs and profitability and, thus, could not 
provide us with such information For example, these insurers said that 
while they reviewed the records of agencies that wrote policies for 
them, contracts with the agencies generally limited such reviews to 
escrow accounts and policy records--that is, only enough review to 
ensure that the insurer had received its share of premiums for the 
policies issued, but not enough review to evaluate the components of 
agent costs. 

Although insurers may not have access to all of the data they need from 
independent title agents (1) that write for several companies and (2) 
that do not want insurers to see financial information related to their 
entire business, the situation with affiliated title agents is 
generally different. In affiliated arrangements, the insurer has an 
ownership interest in the title agent and seemingly would have access 
to the agent's financial records--especially in cases where the insurer 
has a controlling interest in the agent and may be required to 
consolidate its affiliated agent's financial statements with its own. 
According to regulators, however, the industry has been resistant to 
calls for more extensive data collection because of the potential cost 
burden on the insurers and their agents. 

Regulators in California and Colorado have recently implemented or plan 
to implement stronger regulations for title agents, including more 
stringent qualifying examinations, higher capitalization requirements, 
criteria to identify sham business arrangements, and more detailed data 
calls focusing on the costs of providing title insurance. The 
regulators said that these stronger regulations would be key to 
preventing illegal actions by agents by eliminating both bad actors and 
questionable practices in the title industry. 

Until recently, state regulators had done little to oversee ABAs. 
Although three of our six sample states have some type of restriction 
on the amount of business a title company can get from an affiliated 
source, enforcement of these laws appeared to be limited. In 
California, the laws specify that a title company can get no more than 
50 percent of its orders from a controlled source. In Colorado, until 
recently, an insurance licensee was prohibited from receiving more in 
aggregate premium from controlled business sources than from 
noncontrolled sources.[Footnote 32] However, one regulator told us 
that, until recently, it had not rigorously examined data from agents 
to verify their compliance with the percentage restrictions. 

Amid recent reports of enforcement actions taken by HUD and some states 
against allegedly inappropriate ABAs, some state insurance regulators 
told us that they had begun looking into these increasingly popular 
arrangements. Regulatory officials told us that they had found various 
problems, including the level of compliance with mandatory percentage 
restrictions from controlled sources; the existence of potentially 
illegal referral fees and kickbacks among ABA owners; and title work 
performed at some agencies that might not qualify as "core" title work 
for which liability arises (such as the evaluation of title to 
determine insurability, clearance of underwriting objections, issuance 
of the title commitment and policy, and conducting the title search and 
closing). In Colorado and Minnesota, officials estimated that the 
number of ABAs had doubled in the past few years. Colorado regulatory 
officials attributed some of the growth to lax agent-licensing 
requirements, including low capitalization requirements and minimal 
prelicense testing. In contrast, California regulatory officials 
credited the relative lack of ABAs in their state to more stringent 
licensing and capitalization requirements. Agents in California, 
referred to as Underwritten Title Companies, must raise between $75,000 
and $400,000 in capital to conduct business, depending on the number of 
documents recorded and filed with the local recorder's office. 
Furthermore, California has an extensive licensing process, including a 
review of the character, competency, and integrity of prospective 
owners; a financial assessment; and a review of the reasonableness of 
their business plan. As we previously noted, from 2003 to 2006, a 
growing number of federal and state investigations into ABAs alleged 
that these arrangements were being used to provide illegal referral 
fees and kickbacks. Colorado's regulator has implemented stronger agent 
regulation, such as a stricter review of agents' applications, mandated 
disclosure of any affiliated relationships, and higher capitalization 
and testing requirements. Regulatory officials said that these changes 
would help prevent future illegal actions by title agents, especially 
through the improper use of questionable ABAs. However, the more 
limited regulation and oversight of title agents and ABAs in other 
states could provide greater opportunity for potentially illegal 
marketing and sales practices. 

States' Enforcement of Antikickback and Referral Fee Provisions Was 
Uneven: 

Kickbacks are generally illegal under both RESPA and most state 
insurance laws. Although the enforcement provisions of laws in five of 
the six states in our sample included suspension or revocation of 
agents' licenses and monetary penalties, state regulators and others 
did not see these sanctions as effective deterrents against kickbacks. 
One state regulator and some industry participants expressed concern 
that title insurers and agents saw the fines simply as a cost of doing 
business, since these businesses stood to gain much more in market 
share and revenue through illegal kickbacks than they would lose in 
state-assessed monetary penalties. From 2003 to 2006, officials in 
states we reviewed settled with insurers for over $90 million in 
penalties for alleged referral fee violations. In comparison, in 2005 
alone net earnings for the five biggest title insurers totaled almost 
$2 billion. In addition, at least one group of industry participants 
told us they took the fact that regulators had taken little action in 
the past to mean that they would not get caught if they engaged in 
illegal activity. 

RESPA specifies that states--through their attorneys general or 
insurance commissioners--may bring actions to enjoin violations of 
section 8 of RESPA. In nearly all of our sample states, title insurance 
laws contain antikickback and referral fee provisions similar to those 
in RESPA. Also, although RESPA provides for injunctive action by state 
regulators, they have hesitated to use it and have only recently begun 
to look into RESPA section 8 violations. In one state, regulators 
concluded that they were prevented by state law from seeking injunctive 
relief under section 8 of RESPA because their only available court for 
complaints was an administrative one that did not satisfy RESPA 
requirements.[Footnote 33] Moreover, some state insurance regulators 
said that they had limited enforcement options against those that they 
identified as the major contributors to the kickback problem: real 
estate agents, mortgage brokers, and other real estate professionals. 
Even though receiving kickbacks is generally illegal under RESPA, some 
state regulators told us that they had no authority to go after these 
entities, which were regulated by other state agencies. Meanwhile, the 
regulators that oversee these real estate professionals have shown 
little interest in or knowledge of potential violations of their 
licensees. In California and, until recently, in Colorado, regulators 
said that inconsistencies in laws governing kickbacks for title 
insurers and other real estate professionals have made it difficult to 
pursue recipients of illegal kickbacks. Furthermore, some state 
officials told us that they received little response when they 
forwarded potential kickback cases to HUD investigators. A lack of 
consistent enforcement of antikickback and referral fee provisions by 
all relevant state regulators, as well as HUD, could limit the 
effectiveness of enforcement efforts. 

Limited Resources and Lack of Coordination among Regulators within 
States May Limit the Effectiveness of Enforcement Efforts: 

Regulators at the state and federal levels told us that limited 
resources were available to address issues in title insurance markets. 
Title insurance is a relatively small line of insurance, and title 
insurers and agents often get even less than the usual limited market 
conduct scrutiny that state insurance regulators give other types of 
insurers.[Footnote 34] With little ongoing monitoring, selected 
regulators told us that their attention is drawn to problems largely 
through complaints from competitors. Complaints from consumers have 
been rare because, as we have discussed, they generally do not know 
enough about title insurance to know that they have a problem. 

Furthermore, the many entities besides title insurers and agents that 
are involved in the marketing and sale of title insurance often have 
their own regulators. These entities include real estate agents, 
mortgage brokers, lenders, builders, and attorneys, all of which may be 
regulated by different state departments. Our previous work has shown 
the benefits of coordinated enforcement efforts between state insurance 
regulators and other federal and state regulators in detecting and 
preventing illegal activity.[Footnote 35] According to some state 
officials' comments, varying levels of cooperation exist among 
different state regulators, with some states demonstrating little or no 
cooperation and other states having more structured arrangements, such 
as a task force that might include the state insurance regulator, 
mortgage lending department, real estate commission, and law 
enforcement officials. Until a recent Colorado law was passed, however, 
these arrangements stopped short of being codified in legislation or 
regulation in any of our sample states. The previously mentioned task 
force in Texas meets monthly to discuss current and potential fraud 
cases, and the regulators involved noted that it has helped them 
identify and investigate cases of which they would have otherwise been 
unaware. 

In our discussions with some noninsurance regulators, we observed that 
they had an apparently nominal understanding of violations of laws such 
as RESPA, and that they had taken few actions against their licensees 
for violations. Two of the state real estate regulators we spoke with, 
for instance, said that they were not aware that referral fees were 
illegal under their state laws or under RESPA.[Footnote 36] Another 
real estate regulator said that the department did not maintain a 
complaint category for RESPA violations against licensees and, thus, 
could not provide us with the number of RESPA-specific complaints the 
agency had received. In 3 years, this department had not revoked any 
licenses and could only identify one RESPA violation case in which 
licensees were publicly censured and fined. All of these actions were 
less than what was allowed by state law. 

One difficulty for state insurance regulators may be that the state 
laws and regulations for mortgage brokers, real estate agents, and 
others may differ from those for title insurers and agents, and these 
laws and regulations may not view referral fees in the same way, thus 
making interdepartmental enforcement difficult. For example, Illinois 
and New York real estate law contains no reference to referral fees 
related to settlement service providers, although the title insurance 
laws prohibit these fees. However, given the lack of coordination we 
noted among regulators in the same state, it is not surprising that 
different regulatory agencies were not aware of differences in the way 
state laws and regulations treat certain activities. Without greater 
communication and coordination among the various state regulators, some 
potentially illegal activities carried out by those involved in the 
sale and marketing of title insurance could go undiscovered and 
uncorrected. 

HUD Officials Expressed Concern over Lack of Enforcement Authority for 
Violations of Section 8 of RESPA: 

The investigative actions HUD has taken have largely resulted in 
voluntary settlements without admission of wrongdoing by the involved 
parties. According to HUD officials, it is difficult to deter future 
violations without stronger enforcement authority, such as civil money 
penalties, because, as we previously mentioned, companies view small 
settlements as simply a cost of doing business. While HUD has obtained 
a number of voluntary settlements from 2003 to 2006, the average amount 
assessed by the department was approximately $302,000. During the same 
period, the combined net earnings of the five major national title 
insurers averaged about $1.6 billion each year. 

One particular area of possible section 8 violations about which HUD 
officials expressed concern was the difficulty of investigating complex 
ABA relationships. RESPA provides an exemption to the antikickback 
provision for compensation for goods or services actually provided. 
However, HUD officials told us that it was often difficult to establish 
what type of and how much work an entity actually did. In the past, the 
most common type of ABA was an entity, such as a real estate broker, 
that owned another entity, such as a title agent. Recently, the 
arrangements have begun to involve three or more entities, making it 
difficult to trace the flow of money among entities and the 
responsibilities of each entity. 

HUD's enforcement mechanism is also complaint-driven, but, as we 
previously noted, most consumers are not well-informed enough to bring 
complaints. Thus, violations could exist that HUD would not know about. 
HUD has few staff focused on RESPA issues, although their number has 
increased from 5 full-time employees in 2001 to more than 19 in 2006. 
According to other regulators, these employees are generally limited to 
responding to some complaints and pursuing a few large cases. Recently, 
HUD officials responsible for enforcing RESPA have begun training 
employees in HUD's Office of the Inspector General on RESPA issues. The 
officials said that they have received some forwarded cases as a result 
of the training. In addition to staff specifically assigned to RESPA 
issues, resources in other parts of HUD, such as the Office of the 
General Counsel, also provide support, according to HUD officials. HUD 
also spends $500,000 per year on an investigative services contract to 
assist RESPA enforcement efforts. HUD tracks cases of alleged RESPA 
violations along with their disposition, staff assigned, closing date, 
and settlement, but we did not obtain this information by the time this 
report went to print. 

Some state regulators expressed frustration with HUD's level of 
responsiveness, saying that the agency did not always follow up with 
them on forwarded cases, potentially limiting the success of 
investigative efforts. State regulators told us that they looked to HUD 
to enforce kickback provisions beyond what they had concluded was 
allowed by state insurance laws--for example, against mortgage brokers, 
real estate agents, and others that state insurance regulators do not 
oversee. Yet HUD officials and state regulators told us that there was 
no formal plan for coordinating with states, and that cooperation, 
where it existed, relied on requests and informal relationships. 

HUD officials cited several possible reasons for not communicating the 
results of forwarded cases to the states. Among these reasons were 
state and federal jurisdictional issues, constrained resources, and 
complaint-driven enforcement that limited HUD's scope. As we mentioned, 
our previous work has shown the benefits of coordinated enforcement 
efforts between state insurance regulators and other federal and state 
regulators to detect and prevent illegal activity. A September 2000 
report recommended that state insurance regulators improve information 
sharing by developing mechanisms for routinely obtaining data from 
other regulators and implementing policies and procedures for sharing 
regulatory concerns with other state insurance departments.[Footnote 
37] 

Some industry officials also said that the rules under RESPA were not 
always clear and that HUD had not been responsive in answering their 
inquiries, potentially resulting in activities that HUD later deemed to 
be illegal. For example, in the case of captive reinsurance, two large 
underwriters told us that they had never received clear answers from 
HUD to inquiries about the legality of such arrangements, and that they 
entered into them as a result of competitive pressures. Eventually, 
these underwriters ended the arrangements after federal regulators 
investigated and deemed them improper. As a result, these underwriters 
and other entities paid over $66 million in settlements with states and 
HUD. Some industry participants, including HUD's former general 
counsel, have suggested that HUD clarify RESPA by instituting a no- 
action letter process similar to the one that the SEC uses to address 
industry questions on potential activities and to the process that HUD 
uses in its Interstate Land Sales Program.[Footnote 38] Although 
clarifying regulations can provide benefits, without greater 
enforcement authority and more coordination with state regulators, 
HUD's effectiveness at deterring, uncovering, and stopping potentially 
illegal title insurance activities may be limited. 

HUD, State Regulators, and Industry Stakeholders Have Developed 
Proposals for Improving the Regulation and Sale of Title Insurance: 

With knowledge gained from their recent investigations into the title 
insurance industry, and in line with their mission to increase access 
to affordable housing, HUD has developed a two-pronged approach to 
regulatory changes. First, HUD plans to propose reforms to the 
regulations that govern RESPA. Agency officials said that the reforms 
will help consumers shop for settlement services, and that, hopefully, 
consumer-driven competition will put downward pressure on prices. 
However, agency officials have not yet made public the specifics of 
these reforms. Second, HUD plans to seek substantial authority to levy 
civil money penalties that it expects will deter future violations of 
section 8 of RESPA. HUD officials said that having the authority to 
levy civil money penalties would greatly enhance their RESPA 
enforcement efforts. HUD's obtaining civil money penalty authority in 
section 8 of RESPA, however, would require a legislative change. 

Some state regulators also have proposed changes in oversight of the 
title insurance industry. Regulatory officials found that weak 
licensing regulations may have contributed to problems in the industry, 
and that a lack of data on title agents' costs hindered their ability 
to analyze prices paid by consumers and to ensure such prices were not 
excessive. As a result, regulators have proposed the following changes: 

* In Colorado, state regulators have made changes that are primarily 
aimed at making the identification and, thus, the elimination of 
improper ABAs easier--for example, through mandatory disclosure of 
ownership structures on agent applications and higher capitalization 
requirements. At least one industry participant has welcomed the 
changes, which it said will help level the playing field for 
independent agents. 

* In California, state regulators have concluded that premium rates are 
excessive and have proposed premium rate rollbacks derived from a 
detailed evaluation of costs. 

* In Texas, state regulators are attempting to collect more detailed 
information on agent costs, shifting their emphasis to comprehensive 
data on functional categories that would allow them to more easily 
identify excess costs and illegal kickbacks. 

In addition, the NAIC Title Working Group is looking at modifications 
to the model laws in an effort to align referral fee provisions with 
those of RESPA and enhance state regulators' enforcement authority. 

Finally, some industry officials have said that state and federal 
regulators either did not have the ability or lacked the will to 
address violations, which the officials said was the fault of only some 
in the industry. Other officials said that they had concluded that the 
industry would be better off policing itself, and some underwriters 
proposed giving insurers the right to seek private injunctive relief 
against competitors suspected of engaging in illegal activities, but 
with no monetary award. One underwriter official said such self- 
policing by the industry would help government enforcement and maintain 
honesty among industry participants. However, it was not clear whether 
such actions could be used punitively or as a way to stifle 
competition. 

Some industry stakeholders, however, see the current model of selling 
and marketing title insurance as irretrievably broken and have put 
forth two alternative title insurance models designed to benefit and 
protect consumers through lower prices and government intervention. The 
first alternative model would require lenders to pay for title 
insurance, on the theory that as regular purchasers of title insurance, 
lenders would be better informed and could potentially use their market 
power to obtain lower prices. However, some fear that this model would 
make the process less transparent, and that lenders would not pass on 
any cost savings. The second alternative model would be a system like 
Iowa's, with state-run title underwriters. But it is not clear that 
this system would make the necessary changes to the current model or 
that it would save consumers money. For example, although title 
underwriters are barred from selling title insurance in Iowa, nothing 
prevents consumers from choosing to purchase it from them out of state, 
and the underwriters end up providing title insurance to about half of 
the market. Furthermore, while premium rates for Iowa Title Guaranty 
might be lower, although not the lowest, than rates in many other 
states, the total costs that consumers pay for title searches, 
examinations, and clearing of any title problems might not differ 
substantially. In Bankrate.com's survey of closing costs, Iowa's total 
costs were about the same as those in Maryland, Nebraska, South Dakota, 
Washington State, and West Virginia, where private title underwriters 
are free to do business. 

Conclusions: 

Title insurance can provide real benefits to consumers and lenders by 
protecting them from undiscovered claims against property that they are 
buying or selling. However, multiple characteristics of current title 
insurance markets, as well as allegedly illegal activities by a number 
of those involved in the marketing of title insurance, suggest that 
normal competitive forces may not be working properly, raising 
questions about the prices consumers are paying. Compounding this 
concern is the apparently very limited role that most consumers play in 
the selection of a title insurer or agent, and the fact that consumers 
must purchase title insurance to complete a real estate purchase or 
mortgage transaction. This puts consumers in a potentially vulnerable 
situation where, to a great extent, they have little or no influence 
over the price of title insurance but, at the same time, they have 
little choice but to purchase that insurance. Furthermore, federal and 
state regulators have identified a number of recent allegedly illegal 
activities related to the marketing and sale of title insurance, which 
suggests that some in the title insurance industry are taking advantage 
of consumers' vulnerability. To begin to better protect consumers, 
improvements need to be made in at least three different areas. 

First, price competition between title insurers and between agents, 
from which consumers would benefit, needs to be encouraged. Educating 
consumers about title insurance is critical to achieving this 
objective. Some state regulators have begun to encourage competition by 
attempting to educate consumers and improve transparency by publicizing 
premium rate information on their Web sites. While HUD's existing home- 
buyer information booklet also provides some useful information on 
buying a home, the information on title agent ABAs and available title 
insurance discounts is outdated and fails to provide sufficient detail. 
As a result, home owners may not be making informed title insurance 
purchases. Moreover, although some in the industry complain about 
ambiguity in the regulations concerning referral fees associated with 
ABAs, their use has continued to grow even while the extent to which 
any realized benefits from such arrangements are passed along to 
consumers is unknown. In addition, these arrangements can create 
potential conflicts of interest for the real estate and lending 
professionals involved that may disadvantage consumers. 

Second, to ensure that consumers are paying reasonable prices for title 
insurance, more detailed analysis is needed on the relationship between 
the prices consumers pay and the underlying costs incurred by title 
insurers and, especially, title agents. Because of the key role played 
by title agents, such analysis will not be possible until state 
regulators collect and analyze data on those agents' costs and 
operations, including those operating as ABAs. 

Third, to ensure that consumers are not taken advantage of because of 
their limited role in the selection of a title insurer or agent, more 
needs to be done to detect and deter potentially illegal practices in 
the marketing and sale of title insurance, particularly among title 
agents. HUD and several state regulators have already begun to take 
steps in this area, but these efforts often face challenges, such as 
HUD's limited enforcement authority, statutory limitations of RESPA, 
potentially confusing regulations, and a lack of coordination among 
multiple regulators. Increased regulatory scrutiny of the increasing 
number of complex ABAs appears to be particularly important because 
although only a few state regulators have looked at such arrangements 
in detail, those that have looked at this issue have discovered 
potentially illegal activities. Because entities other than insurance 
companies are integrally involved in these transactions, identifying 
approaches to increase cooperation among HUD, state insurance, real 
estate, and other regulators in the oversight of title insurance sales 
and marketing practices is also critical. Ultimately, because of the 
involvement of both federal and state regulators, including multiple 
regulators at the state-level, effective regulatory improvements will 
be a challenge and will require a coordinated effort among all 
involved. 

Congress can also play a role in improving consumers' position in the 
title insurance market by reevaluating certain aspects of RESPA. For 
example, HUD currently lacks the authority to assess civil money 
penalties for violations of section 8 of RESPA, generally forcing HUD 
to rely on voluntary settlements, which can be seen by some in the 
title insurance industry as simply a cost of doing business. In 
addition, RESPA dictates when and under what circumstances HUD's home- 
buyer information booklet is to be distributed to prospective buyers 
and borrowers. Revisiting RESPA to ensure that consumers receive this 
information as soon as possible when they are considering any type of 
mortgage transaction, not just when purchasing real estate, could be 
beneficial. 

Matters for Congressional Consideration: 

As part of congressional oversight of HUD's ability to effectively 
deter violations of RESPA related to the marketing and sale of title 
insurance, Congress should consider exploring whether modifications are 
needed to RESPA, including providing HUD with increased enforcement 
authority for section 8 RESPA violations, such as the ability to levy 
civil money penalties. Congress also should consider exploring the 
costs and benefits of other changes to enhance consumers' ability to 
make informed decision, such as earlier delivery of HUD's home-buyer 
information booklet--perhaps at a real estate agent's first substantive 
contact with a prospective home buyer--and a requirement that the 
booklet be distributed with all types of consumer mortgage 
transactions, including refinancings. 

Recommendations for Executive Action: 

We are recommending that HUD take the following two actions, as 
appropriate. The Secretary of HUD should take action to (1) protect 
consumers from illegal title insurance marketing practices and (2) 
improve consumers' ability to comparison shop for title insurance. 
Among the actions they should consider are the following: 

* expanding the sections of the home-buyer information booklet on title 
agent ABAs and available title insurance discounts; 

* evaluating the costs and benefits to consumers of title agents' 
operating as ABAs; 

* clarifying regulations concerning referral fees and ABAs; and: 

* developing a more formalized coordination plan with state insurance, 
real estate, and mortgage banking regulators on RESPA enforcement 
efforts. 

Likewise, we are recommending that state insurance regulators, working 
through NAIC where appropriate, take the following two actions. State 
regulators should take action to (1) detect and deter inappropriate 
practices in the marketing and sale of title insurance, particularly 
among title agents, and (2) increase consumers' ability to shop for 
title insurance based on price. Among the actions they should consider 
are the following: 

* strengthening the regulation of title agents through means such as 
establishing meaningful requirements for capitalization, licensing, and 
continuing education; 

* improving the oversight of title agents, including those operating as 
ABAs, through means such as more detailed audits and the collection of 
data that would allow in-depth analyses of agents' costs and revenues; 

* increasing the transparency of title insurance prices to consumers, 
which could include evaluating the competitive benefits of using state 
or industry Web sites to publicize complete title insurance price 
information, including amounts charged by title agents; and: 

* identifying approaches to increase cooperation among state insurance, 
real estate, and other regulators in the oversight of title insurance 
sales and marketing practices. 

Agency Comments and Our Evaluation: 

We requested comments on a draft of this report from HUD and NAIC. We 
received written comments from the Assistant Secretary for Housing of 
HUD and the Executive Vice President of NAIC. Their letters are 
summarized below and reprinted in appendixes III and IV, respectively. 

The Assistant Secretary for Housing at HUD generally agreed with our 
findings, conclusions, and recommendations. Specifically, he indicated 
that the report accurately assessed the issues that adversely affect 
consumers in the title insurance market. He also acknowledged the 
importance of protecting consumers and improving their ability to shop 
for title insurance. In response to our recommendation to expand the 
sections of the home-buyer information booklet on ABAs and discounts, 
he noted the importance of home-buyer education and amending the home- 
buyer's booklet to include this information. Addressing our 
recommendation to evaluate the costs and benefits of ABAs, he said that 
while ABAs are currently legal, HUD is in the process of evaluating 
various ABA structures to ensure they operate as Congress intended. We 
also recommended that HUD clarify regulations about referral fees and 
ABAs. The Assistant Secretary stated that HUD will continue its efforts 
to clarify existing guidelines, as well as develop new guidelines, to 
address practices that negatively impact consumers. Furthermore, he 
generally agreed with our recommendation for greater coordination with 
state regulators, noting that such coordination is necessary and 
pointing out past instances of HUD coordination with state regulators 
on RESPA enforcement that have resulted in successful outcomes. Lastly, 
he emphasized the ongoing challenge of RESPA enforcement without civil 
money penalty authority, stating that consumers would benefit if such 
authority were granted to HUD. 

The Executive Vice President of NAIC agreed that our report identified 
concerns in the area of consumer protection. She also said that our 
recommendations are worthy of exploration, and that NAIC would continue 
to work to improve consumer education, consumer protections, and price 
transparency in the title insurance market. 

We also received separate technical comments from staff at HUD and 
NAIC. We have incorporated their comments into the report, as 
appropriate. 

As agreed with your office, unless you publicly announce its contents 
earlier, we plan no further distribution of this report until 30 days 
from the report date. At that time, we will send copies to the 
Chairman, House Committee on Financial Services, and the Chairman and 
Ranking Member, Senate Committee on Banking, Housing, and Urban 
Development. We will also send copies to the Secretary of Housing and 
Urban Development, the President of the National Association of 
Insurance Commissioners, and each of the state insurance commissioners. 
We will make copies available to others upon request. The report will 
also be available at no charge on our Web site at http://www.gao.gov. 

Please contact me at (202) 512-8678 or williamso@gao.gov if you or your 
staff have any questions about this report. Contact points for our 
Offices of Congressional Relations and Public Affairs may be found on 
the last page of this report. Key contributors to this report are 
listed in appendix V. 

Sincerely yours, 

Signed by: 

Orice M. Williams: 
Director, Financial Markets and Community Investment: 

[End of section] 

Appendix I: Objectives, Scope, and Methodology: 

We previously provided a report and testimony identifying 
characteristics of current title insurance markets that merited 
additional study, including the extent to which title insurance premium 
rates reflect underlying costs and the extent of state oversight of 
title agents and other real estate professionals.[Footnote 39] This 
report focuses on issues related to (1) the characteristics of title 
insurance markets across states, (2) the factors that raise questions 
about prices and competition in the industry, and (3) the current 
regulatory environment and planned regulatory changes. 

Because of our awareness that title insurance regulation varies 
considerably from state to state, we chose six states in which to 
perform a detailed review of their laws, and regulatory and market 
practices. These states were California, Colorado, Illinois, Iowa, New 
York, and Texas. We chose these states to obtain a broad variety of 
state title insurance activity across the following dimensions: 

* Proportion of the premiums written nationwide. 

* Differences in the process of purchasing title insurance and the real 
estate transaction, including the relative importance of attorneys and 
alternative systems for title insurance. 

* Domiciling of the largest national insurers and larger regional 
insurers. 

* Varying rate-setting regimes and total premiums. 

* The existence of ongoing or past Department of Housing and Urban 
Development (HUD) investigations in the state. 

* Different combinations of premium rates, annual home sales, and rate- 
setting regimes. 

* The activity of known proactive regulators in some states. 

Except where noted, our analysis is limited to these states. We used 
the information obtained in the states to address each of our 
objectives, in addition to other work detailed in the following text. 

To gain an overall understanding of the characteristics of national and 
local title insurance markets, we reviewed available studies. These 
included the study on the California title insurance market (as well as 
numerous criticisms of that study) and recent studies conducted on 
behalf of the Fidelity National Title Group, Inc., and the Real Estate 
Settlement Providers Council (RESPRO).[Footnote 40] We discussed the 
studies' results with the authors and raised questions about their 
methodology and conclusions to further broaden our knowledge of the 
varying approaches in analyzing title insurance markets. 

To better understand the effect consumers have on the price and 
selection of title insurance, we obtained information from title 
insurers, title agents, and state title industry associations about 
typical consumer behavior in the title insurance transaction. To deepen 
our understanding of the dynamics of the industry and current practices 
and issues within the title insurance industry that affect consumers, 
we gathered views from a variety of national organizations whose 
members are involved in the marketing or sale of title insurance or 
related activities. These organizations included the American Land 
Title Association (ALTA), RESPRO, the National Association of Realtors, 
the Mortgage Bankers Association of America, the American Bar 
Association, the National Association of Home Builders, and the 
National Association of Mortgage Brokers. 

To better understand the relationship between premium rates and 
underlying costs, we discussed these issues with insurers, agents, and 
title industry associations. We attempted to obtain cost data from 
agents and insurers, but they were not able to provide us with data 
that would allow analysis of agent costs. In some states, we toured 
title plant facilities and observed the title search and examination 
process to broaden our analysis of underlying title insurance costs. To 
gain a better understanding of how title insurance premiums are shared 
between insurance companies and agents, we reviewed annual financial 
data collected by the National Association of Insurance Commissioners 
(NAIC) from title insurance companies and, to some extent, data 
collected by the Texas Department of Insurance, the California 
Department of Insurance, and ALTA.[Footnote 41] We analyzed these data 
to deepen our understanding of title insurer and agent costs and 
revenues. We also consulted other publicly available financial 
information on title insurers and agents and spoke with agents. To 
determine how insurers account for premiums, we also looked at 
financial data filed with the Securities and Exchange Commission and 
spoke with officials from three of the largest title insurance 
underwriters. 

To assess the current state and federal regulatory environment, we 
reviewed laws and regulations, and interviewed key regulators. To 
determine the role that states play in overseeing the various parties 
involved in the title insurance industry, we reviewed laws and 
regulations governing title insurance, real estate, and mortgage 
banking in six selected states. We also spoke with insurance, banking, 
mortgage, and real estate regulators in each state. To obtain an 
understanding of the federal oversight role in the title insurance 
market, we interviewed officials from HUD and reviewed relevant laws 
and regulations. We also discussed these issues with officials at the 
Federal National Mortgage Association and the Federal Home Loan and 
Mortgage Corporation to better understand the relationship between the 
secondary mortgage market and title insurance. Furthermore, we 
interviewed staff and state regulators working with NAIC to get their 
views on the industry and to obtain information on the activities of 
their Title Insurance Working Group. 

We performed our work in Washington, D.C; Chicago, Illinois; and 
selected sample states between February 2006 and March 2007 in 
accordance with generally accepted government auditing standards. 

[End of section] 

Appendix II: Potential Approach to Better Understand Title Agents' 
Costs and How These Costs Relate to Insurance Premiums: 

Understanding title agents' costs and how these costs relate to title 
insurance premiums that consumers pay is important because title agents 
do or coordinate most of the work necessary for issuing title insurance 
policies, and they retain most of the premium. Understanding these 
costs would require state insurance regulators to gather and analyze 
financial data on title agents. The list below illustrates the types of 
data that might be gathered and analyzed. This would be a multistep 
process and could involve detailed analysis of some title agents, such 
as those that look quite different financially from group (such as 
county or statewide) averages. Reasonable explanation for such 
differences could be informative of agency costs, while the absence of 
reasonable explanation could raise questions about the legitimacy of 
such costs. 

We identified the following information on affiliated agents and direct 
operations that could be requested from insurers: 

1. A complete list of underwriters' affiliated title agents and title 
service companies that would include the company name and address and 
the year acquired or established by the underwriter. 

2. Financial data on each affiliate that would include balance sheets 
and statements of changes in owners' equity. 

3. Revenue data that would include title premium revenues and 
production fees earned from others (e.g., search and examination, 
closing, and recording). 

4. Title premium revenues and policies written that would be broken out 
between residential and commercial. 

5. Personnel cost data that would include salaries, commissions, 
bonuses, benefits, and full-time equivalent employees, by function. 

6. Other personnel data that would include average salaries, bonuses 
and benefits, and brief descriptions of any incentive pay systems, by 
job type and function. 

7. Five years of other expense data that would include search and 
examination fees paid to contractors, advertising, entertainment, plant 
maintenance, rent, office supplies, and legal fees and settlements. 

8. Expenses allocated to and from the underwriter. 

9. For each affiliated title service company, the names of the 10 
largest clients. 

10. For each subsidiary of the underwriter, the names of any other 
underwriters, escrow companies, realtors, builders, developers, 
mortgage brokers, lenders, or other entities in the title, real estate, 
or mortgage industry: 

* that have ownership interests in the subsidiary, 

* in which the subsidiary has an ownership interest, or: 

* that are vendors of the subsidiary and owned by subsidiary 
management. 

Likewise, we identified the following information on independent title 
agents that could be requested from insurers: 

1. The number of independent agents, by state. 

2. The number of offices of each independent agent, by state. 

3. Each agent's title premiums written for the underwriter as a 
percentage of the agent's total title premiums written. 

4. Premiums written by each agent for this underwriter, by state. 

5. Revenue data that would include title premium revenues and 
production fees earned from others (e.g., search and examination, 
closing, and recording). 

6. Expense data that would include employee and owner salaries, 
commissions, bonuses, and benefits; director fees; search and 
examination fees paid to contractors; advertising; entertainment; plant 
maintenance; rent; office supplies; legal fees and settlements; and 
claim losses. 

[End of section] 

Appendix III: Comments from the Department of Housing and Urban 
Development: 

U.S. Department Of Housing And Urban Development: 
Washington, DC 20410- 8000: 
Assistant Secretary For Housing-Federal Housing Commissioner: 

March 29, 2007: 

Orice M. Williams, Director: 
Financial Markets and Community Investment: 
U.S. Government Accountability Office: 
441 G Street, NW: 
Washington, DC 20548: 

Dear Ms. Williams: 

Thank you for providing the Department of Housing and Urban Development 
(HUD) with the opportunity to respond to the Government Accountability 
Office (GAO) draft report entitled, "Title Insurance: Actions Needed To 
Improve Oversight of the Title Industry and Better Protect Consumers" 
(GAO-07-0401). 

GAO concludes that normal competitive forces may not be working 
properly in the title industry and that increased oversight of the 
title insurance industry may be necessary due to a potential lack of 
competition and conflicts-of-interest between settlement service 
providers and consumers, lack of uniformity in federal and state 
regulations and differing state licensing requirements. The GAO further 
concludes that sufficient data is not available to analyze the 
reasonableness of the cost of title insurance. 

HUD believes that the report accurately assesses issues that adversely 
impact consumers related to the title insurance industry. The 
recommendations of the report pertaining to HUD are addressed below. 

GAO Recommendation for Executive Action by HUD: 

That HUD take actions to protect consumers and improve their ability to 
comparison shop for title insurance. 

General Response: 

HUD strongly agrees that taking action to protect consumers and improve 
their ability to comparison shop for title insurance is very important. 
As the report notes, HUD has been actively working on reform of its 
RESPA regulations to provide greater opportunity for the consumer to 
shop. Clearer and more certain disclosure of settlement costs are key 
objectives of these efforts. 

Special GAO Recommended Actions: 

Action 1: Expanding the sections of the homebuyer information booklet 
on title agent affiliated business arrangements (ABA) and available 
title insurance discounts. 

HUD Response: Homebuyer education is an important part of HUD's 
mission. HUD views expanding the homebuyer booklet to include 
additional information related to title insurance as beneficial to 
consumers. Further, HUD will include information that will alert 
consumers to inquire about all available discounts when purchasing 
title insurance. 

Action 2: Evaluating the costs and benefits to consumers of title 
agents operating as ABAs. 

HUD Response: HUD agrees with the GAO report that there are challenges 
in attempting to evaluate the costs and benefits of ABAs. HUD notes 
that Congress amended the Real Estate Settlement Procedures Act (RESPA) 
in 1983 to allow for ABAs. HUD is currently evaluating numerous ABA 
structures to ensure that they operate in the manner Congress intended. 

Action 3: Clarifying regulations concerning referral fees and ABAs. 

HUD Response: The Department will continue its efforts to clarify its 
current guidelines and develop new guidelines to address new and 
questionable patterns and practices that may have an adverse impact on 
consumers. 

Action 4: Developing a more formalized coordination plan with state 
insurance, real estate, and mortgage banking regulators on RESPA 
enforcement efforts. 

HUD Response: HUD agrees that further coordination with state 
insurance, real estate and mortgage banking regulators on RESPA 
guidance and enforcement actions is necessary. HUD regularly 
coordinates with many state and federal regulatory agencies. In the 
past two years, in addition to coordinating with various federal 
agencies including the Federal Deposit Insurance Corporation, Federal 
Trade Commission and Office of the Comptroller of the Currency, among 
others, HUD has coordinated regulatory and enforcement efforts with 
Alaska, Arizona, Colorado, Florida, Minnesota, New Mexico, Tennessee 
and Texas. HUD appreciates the efforts of state regulators in enforcing 
RESPA and looks forward to strengthening its relations with these and 
other state agencies. 

The report reviews recent enforcement actions taken by HUD and state 
regulators regarding captive title reinsurance. Captive reinsurance 
cases were an area of cooperation between HUD and state regulators 
working through the National Association of Insurance Commissioners 
(NAIC). 

Other HUD Comments: 

As noted in the report, the inability to assess civil money penalties 
for violations of RESPA Section 8 continues to present enforcement 
challenges. Amending RESPA to allow HUD to assess civil money penalties 
for violations of RESPA Section 8 would significantly increase HUD's 
ability to protect consumers from unnecessarily high settlement charges 
caused by kickbacks and referral fees that tend to increase 
unnecessarily the costs of title insurance and other settlement 
services. 

Making delivery of the HUD-1 to the consumer mandatory two or three 
days in advance of closing, and granting HUD civil money penalty 
authority to enforce this and other provisions of RESPA that directly 
or indirectly relate to title insurance and settlement cost disclosure 
would additionally benefit consumers. 

While the report delineates the numerous challenges presented in 
homebuyer education, regional "pattern and practice" differences and 
state regulatory incongruities, HUD remains committed to strong 
enforcement of RESPA. 

The Department appreciates the opportunity to respond to the draft 
report. If you have any questions, please contact Gary M. Cunningham, 
Deputy Assistant Secretary for Regulatory Affairs and Manufactured 
Housing at (202) 708-6401. 

Sincerely, 

Signed by: 

Brian D. Montgomery: 
Assistant Secretary for Housing-Federal Housing Commissioner: 

[End of section] 

Appendix IV: Comments from the National Association of Insurance 
Commissioners: 

National Association Of Insurance Commissioners: 

March 21, 2007: 

Orice Williams: 
Government Accountability Office: 
441 G St. N.W., Rm. 2A28: 
Washington, DC 20548: 

Dear Ms. Williams: 

Thank you for the opportunity to review the Government Accountability 
Office (GAO) report Title Insurance: Actions Needed to Improve 
Oversight of the Title Industry and Better Protect Consumers. The 
report was reviewed by Ms. Catherine Weatherford, Executive Vice 
President and Chief Executive Officer of the NAIC; Mr. Andrew Beal, 
Deputy Executive Vice President and Chief Legal Officer; and Eric 
Nordman, Director of Research. 

We thought the report was very detailed and evidenced a eat deal of 
work on the part of the GAO. The GAO raises certain issues in the area 
of consumer protection, recognizes shortcomings in consumer protection, 
and presents some interesting recommendations that are worthy of 
exploration. 

We appreciate the opportunity to review and comment on the report and 
look forward to working with you and HUD to improve consumer education, 
consumer protections and price transparency. 

Sincerely, 

Signed by: 

Catherine J. Weatherford: 
Executive President and CEO: 

[End of section] 

Appendix V: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Orice Williams, (202) 512-8678, williamso@gao.gov: 

Staff Acknowledgments: 

In addition to the contact person named above, Lawrence Cluff, 
Assistant Director; Patrick Ward; Tania Calhoun; Emily Chalmers; Jay 
Cherlow; Nina Horowitz; Thomas McCool; Marc Molino; Donald Porteous; 
Carl Ramirez; and Melvin Thomas made key contributions to this report. 

FOOTNOTES 

[1] GAO, Title Insurance: Preliminary Views and Issues for Further 
Study, GAO-06-568 (Washington, D.C.: Apr. 24, 2006); and Title 
Insurance: Preliminary Views and Issues for Further Study, GAO-06-569T 
(Washington, D.C.: Apr. 26, 2006). 

[2] Except where noted, our analysis is limited to these states. 

[3] Birny Birnbaum, Report to the California Insurance Commissioner: An 
Analysis of Competition in the California Title Insurance and Escrow 
Industry (Austin, TX: December 2005); Donald Martin, PhD, and Richard 
Ludwick, Jr., PhD, Affiliated Business Arrangements and Their Effects 
on Residential Real Estate Settlement Costs: An Economic Analysis 
(Washington, D.C.: October 2006); and Gregory Vistnes, An Economic 
Analysis of Competition in the Title Insurance Industry (Washington, 
D.C.: March 2006). 

[4] NAIC is a voluntary organization of the chief insurance regulatory 
officials of the 50 states, the District of Columbia, and the four U.S. 
territories. NAIC assists state insurance regulators by providing 
guidance, model (or recommended) laws and guidelines, and information- 
sharing tools. ALTA is a national trade association for title insurers 
and agents, but its members may also include attorneys, builders, 
developers, lenders, and real estate brokers. 

[5] In captive reinsurance arrangements, a home builder, real estate 
broker, lender, title insurance company, or some combination of these 
entities forms a reinsurance company that works in conjunction with a 
title insurer. Sham ABA arrangements are those in which the affiliated 
entity performs little or no actual settlement services and is 
allegedly being used just to compensate ABA owners for consumer 
referrals. Other arrangements include the use of inducements and 
incentives by title companies to obtain title insurance business, 
especially when these inducements were used to influence referrals by 
real estate agents, banks, lenders, builders, developers, and others. 

[6] Market conduct examinations are performed by state insurance 
commissioners, and they review agent-licensing issues, complaints, 
types of products sold by the company and agents, agent sales 
practices, proper rating, claims handling, and other market-related 
aspects of an insurer's operation. See GAO, Insurance Regulation: 
Common Standards and Improved Coordination Needed to Strengthen Market 
Regulation, GAO-03-433 (Washington, D.C.: Sept. 30, 2003). 

[7] Both the Federal National Mortgage Association and the Federal Home 
Loan Mortgage Corporation require a guarantee of title as a condition 
of purchasing loans from mortgage lenders. 

[8] Bankrate.com, Closing Costs Survey, [Hyperlink, 
http://www.bankrate.com/brm/news/mortgages/ccmain2006a1.asp] (North 
Palm Beach, FL: August 2006). The survey was conducted by Bankrate.com 
in 2006 by obtaining online information where available. We did not 
assess the validity of the data collected in the survey. 

[9] According to industry experts and analysts, the different loss and 
expense structure of the title insurance industry reflects the fact 
that title insurance is primarily focused on preventing losses through 
title searches and examinations, and that most property-casualty 
insurance is focused on compensating policyholders for losses. 

[10] The term "nonpromulgated states" refers to those states where the 
title rate is determined by a method other than a state regulatory body 
setting it. 

[11] RESPRO is a national nonprofit trade association of settlement 
service providers, including real estate broker-owners, real estate 
franchisers, mortgage lenders/brokers, title insurers/agents, home 
builders, and home warranty companies. Many of its members offer 
affiliated services through subsidiaries, joint ventures, and 
partnerships. 

[12] Although Minnesota was not in our sample, we spoke to state 
insurance regulators in the state. 

[13] Some state laws, such as those in Iowa and Texas, require title 
agents or abstractors to have access to a title plant. 

[14] California insurance department guidelines say that title agents 
cannot pay more than $5,000 of a claim. 

[15] Florida Office of Insurance Regulation, An Analysis of Florida's 
Title Insurance Market: Three Studies That Provide a Comprehensive, 
Multi-Faceted Review of the Florida Title Insurance Industry 
(Tallahassee, FL: July 2006). 

[16] Closing Costs Survey, [Hyperlink, 
http://www.bankrate.com/brm/news/mortgages/ccmain2006a1.asp]. 

[17] Gregory Vistnes, An Economic Analysis of the California Department 
of Insurance Proposal to Impose Rate Regulation in the California Title 
Insurance Industry (Washington, D.C.: August 2006). 

[18] RESPA requires lenders to provide consumers with an estimate of 
the costs a consumer will likely have to pay, called a Good Faith 
Estimate, prior to the closing of a mortgage transaction. 

[19] Board of Governors of the Federal Reserve System, Department of 
Housing and Urban Development, Joint Report to the Congress Concerning 
Reform to the Truth in Lending Act and the Real Estate Settlement 
Procedures Act (Washington, D.C.: July 1998). 

[20] Entities involved in multiple cases and settlements were counted 
once for each case and settlement in which they were involved. 

[21] Washington State Office of the Insurance Commissioner, An 
Investigation into the Use of Incentives and Inducements by Title 
Insurance Companies (Olympia, WA: October 2006). 

[22] Title Insurance Section, Division of Financial Institutions, 
Illinois Department of Financial and Professional Regulation, Bulletin 
1-05: Title Insurance Agent Requirements (Springfield, IL: July 2005); 
Title Insurance Industry Meeting Informational Handout 1-06 
(Springfield, IL: February 2006); and Title Insurance Industry Meeting 
Informational Handout 2-06 (Springfield, IL: February 2006). 

[23] Division of Insurance, Alaska Department of Commerce, Community, 
and Economic Development, Summary of Title Insurance Examinations: 
Division of Insurance (Juneau, AK: April 2006). 

[24] Reinsurance is a mechanism that insurance companies routinely use 
to spread risk associated with insurance policies. Simply put, it is 
insurance for insurance companies. 

[25] Donald Martin and Richard Ludwick, Affiliated Business 
Arrangements and Their Effects on Residential Real Estate Settlement 
Costs: An Economic Analysis (October 2006). 

[26] An Economic Analysis of the California Department of Insurance 
Proposal. 

[27] Title insurers also have direct operations where none of the 
premium is retained by an agent. As a result, while title agents 
typically retain from 80 to 90 percent of the premium paid by 
consumers, in 2005, agents retained only 70 percent of total premiums 
written by insurers. 

[28] RESPA does provide criminal sanctions for violations of section 8, 
a fine of up to $10,000 or up to 1 year in prison. However, according 
to HUD officials, such sanctions are rarely used, in part because they 
require prosecutions to be conducted by U.S. attorneys from the 
Department of Justice. 

[29] A competitor right of action would allow industry participants to 
seek to stop activities of their competitors that they think violate 
the law. 

[30] Because the sale of title insurance within Iowa--one of our sample 
states--is prohibited, attorneys and abstractors do title work. 

[31] Agent defalcation occurs when an agent misappropriates funds and 
fails to pay off a prior mortgage. 

[32] Under Colorado's new law, ABAs are authorized provided that they 
meet conditions similar to those in RESPA, and ABAs must be disclosed 
to the state division of insurance or real estate in connection with 
license applications. In addition, the divisions of insurance and real 
estate are to consult with one another to promulgate ABA rules, and to 
share information derived from investigations of ABAs. New Colorado 
regulations include specific rate and fee rules; standards of conduct 
for title insurance entities, including standards for ABAs; and rules 
regarding consumer protections. 

[33] Actions pursuant to section 8 of RESPA may be brought in the 
United States district court or in any other court of competent 
jurisdiction, with certain other limitations. HUD officials disputed 
the regulators' assertion. 

[34] Market conduct examinations are performed by state insurance 
commissioners, and they review agent-licensing issues, complaints, 
types of products sold by the company and agents, agent sales 
practices, proper rating, claims handling, and other market-related 
aspects of an insurer's operation. See GAO-03-433. 

[35] GAO, Insurance Regulation: Scandal Highlights Need for 
Strengthened Regulatory Oversight, GAO/GGD-00-198 (Washington, D.C.: 
Sept. 19, 2000). 

[36] During the course of our communication with these regulators, we 
informed them that referral fees were generally illegal under the state 
law in question and under RESPA. 

[37] GAO/GGD-00-198. 

[38] SEC's no-action letter process allows an individual or entity that 
is not certain whether a particular product, service, or action would 
constitute a violation of the federal securities law to request a "no- 
action" letter from the SEC staff. 

[39] GAO, Title Insurance: Preliminary Views and Issues for Further 
Study, GAO-06-568 (Washington, D.C.: Apr. 24, 2006); and Title 
Insurance: Preliminary Views and Issues for Further Study, GAO-06-569T 
(Washington, D.C.: Apr. 24, 2006). 

[40] Birny Birnbaum, Report to the California Insurance Commissioner: 
An Analysis of Competition in the California Title Insurance and Escrow 
Industry (Austin, TX: December 2005); Donald Martin, PhD, and Richard 
Ludwick, Jr., PhD, Affiliated Business Arrangements and Their Effects 
on Residential Real Estate Settlement Costs: An Economic Analysis 
(Washington, D.C.: October 2006); and Gregory Vistnes, An Economic 
Analysis of Competition in the Title Insurance Industry (Washington, 
D.C.: March 2006). 

[41] NAIC is a voluntary organization of the chief insurance regulatory 
officials of the 50 states, the District of Columbia, and the four U.S. 
territories. NAIC assists state insurance regulators by providing 
guidance, model (or recommended) laws and guidelines, and information- 
sharing tools. ALTA is a national trade association for title insurers 
and agents, but its members also may include attorneys, builders, 
developers, lenders, and real estate brokers. 

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