Wednesday, January 11, 2006

Something suspicious

John Garamendi is running for Lt. Governor and is using his position as Insurance Commissioner to make headlines as a consumer advocate. He isn’t. The Insurance Commissioner is claiming that title and escrow fees are too high. He wants to reduce the profits that the title companies have been making on their title policies.
Based upon my past experience in real estate and as a former owner of an escrow company I agree that title insurance premiums are too high BUT the corresponding escrow fees are too low. Title companies subsidies the true cost of providing escrow services for the opportunity of getting the title premium. As a kid I worked in a grocery store. Each week the manager would advertise special sale items that we actually sold below our cost. The manger knew that customers attracted into the store to buy the specials would buy other high profit margin items also. It all balanced out.
Garamendi bases his publicity stunt on a report by a Texas economist, who never asked a title or escrow company representative a single question about their pricing philosophy. The report claims that there is no competition among only 15 title companies. Gregory Vistnes, a former deputy director for antitrust at the Federal Trade Commission’s Bureau of Economics (and who is not running for a political office) reviewed the Texan report and said, “The analyses contained in the report are superficial, misleading or simply wrong.”
But let us assume that title insurance which is a requirement for any loan by any lender is too high. Who do you suppose reviews every title insurance company filed insurance rates? The Department of Insurance and John G. Then why now, after 4 years in office and after one million loans have been refinanced, all requiring title insurance, is the commissioner taking on the 100 (not 15 as the report claimed) title companies?
Competition between title and escrow companies for business is fierce. Every title company is required to file their title insurance fees with the Department of Insurance. Their policy rates have actually decreased over the past two years according to the department’s own records.
Regulators should call attention to industry practices that they feel are unfair business practices. Garamendi has had ample time over the past four years to do so. I am very suspicious.


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