[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]





                            TITLE INSURANCE:
                          COST AND COMPETITION

=======================================================================

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                   HOUSING AND COMMUNITY OPPORTUNITY


                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               ----------                              

                             APRIL 26, 2006

                               ----------                              

       Printed for the use of the Committee on Financial Services

                           Serial No. 109-88

                 TITLE INSURANCE: COST AND COMPETITION


 
                            TITLE INSURANCE:
                          COST AND COMPETITION

=======================================================================

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                   HOUSING AND COMMUNITY OPPORTUNITY

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                             APRIL 26, 2006

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 109-88


                    U.S. GOVERNMENT PRINTING OFFICE
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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa                 BARNEY FRANK, Massachusetts
RICHARD H. BAKER, Louisiana          PAUL E. KANJORSKI, Pennsylvania
DEBORAH PRYCE, Ohio                  MAXINE WATERS, California
SPENCER BACHUS, Alabama              CAROLYN B. MALONEY, New York
MICHAEL N. CASTLE, Delaware          LUIS V. GUTIERREZ, Illinois
EDWARD R. ROYCE, California          NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma             MELVIN L. WATT, North Carolina
ROBERT W. NEY, Ohio                  GARY L. ACKERMAN, New York
SUE W. KELLY, New York, Vice Chair   DARLENE HOOLEY, Oregon
RON PAUL, Texas                      JULIA CARSON, Indiana
PAUL E. GILLMOR, Ohio                BRAD SHERMAN, California
JIM RYUN, Kansas                     GREGORY W. MEEKS, New York
STEVEN C. LaTOURETTE, Ohio           BARBARA LEE, California
DONALD A. MANZULLO, Illinois         DENNIS MOORE, Kansas
WALTER B. JONES, Jr., North          MICHAEL E. CAPUANO, Massachusetts
    Carolina                         HAROLD E. FORD, Jr., Tennessee
JUDY BIGGERT, Illinois               RUBEN HINOJOSA, Texas
CHRISTOPHER SHAYS, Connecticut       JOSEPH CROWLEY, New York
VITO FOSSELLA, New York              WM. LACY CLAY, Missouri
GARY G. MILLER, California           STEVE ISRAEL, New York
PATRICK J. TIBERI, Ohio              CAROLYN McCARTHY, New York
MARK R. KENNEDY, Minnesota           JOE BACA, California
TOM FEENEY, Florida                  JIM MATHESON, Utah
JEB HENSARLING, Texas                STEPHEN F. LYNCH, Massachusetts
SCOTT GARRETT, New Jersey            BRAD MILLER, North Carolina
GINNY BROWN-WAITE, Florida           DAVID SCOTT, Georgia
J. GRESHAM BARRETT, South Carolina   ARTUR DAVIS, Alabama
KATHERINE HARRIS, Florida            AL GREEN, Texas
RICK RENZI, Arizona                  EMANUEL CLEAVER, Missouri
JIM GERLACH, Pennsylvania            MELISSA L. BEAN, Illinois
STEVAN PEARCE, New Mexico            DEBBIE WASSERMAN SCHULTZ, Florida
RANDY NEUGEBAUER, Texas              GWEN MOORE, Wisconsin,
TOM PRICE, Georgia                    
MICHAEL G. FITZPATRICK,              BERNARD SANDERS, Vermont
    Pennsylvania
GEOFF DAVIS, Kentucky
PATRICK T. McHENRY, North Carolina
CAMPBELL, JOHN, California

                 Robert U. Foster, III, Staff Director
           Subcommittee on Housing and Community Opportunity

                     ROBERT W. NEY, Ohio, Chairman

GARY G. MILLER, California, Vice     MAXINE WATERS, California
    Chairman                         NYDIA M. VELAZQUEZ, New York
RICHARD H. BAKER, Louisiana          JULIA CARSON, Indiana
WALTER B. JONES, Jr., North          BARBARA LEE, California
    Carolina                         MICHAEL E. CAPUANO, Massachusetts
CHRISTOPHER SHAYS, Connecticut       BERNARD SANDERS, Vermont
PATRICK J. TIBERI, Ohio              STEPHEN F. LYNCH, Massachusetts
GINNY BROWN-WAITE, Florida           BRAD MILLER, North Carolina
KATHERINE HARRIS, Florida            DAVID SCOTT, Georgia
RICK RENZI, Arizona                  ARTUR DAVIS, Alabama
STEVAN, PEARCE, New Mexico           EMANUEL CLEAVER, Missouri
RANDY NEUGEBAUER, Texas              AL GREEN, Texas
MICHAEL G. FITZPATRICK,              BARNEY FRANK, Massachusetts
    Pennsylvania
GEOFF DAVIS, Kentucky
CAMPBELL, JOHN, California
MICHAEL G. OXLEY, Ohio


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    April 26, 2006...............................................     1
Appendix:
    April 26, 2006...............................................    39

                               WITNESSES
                       Wednesday, April 26, 2006

Cunningham, Gary M., Deputy Assistant Secretary for Regulatory 
  Affairs and Manufactured Housing, U.S. Department of Housing 
  and Urban Development..........................................     9
Hunter, J. Robert, Director of Insurance, Consumer Federation of 
  America........................................................    28
Miller, Douglas R., President and CEO, Title One, Inc., 
  Minneapolis, MN................................................    30
Sterbcow, Arthur, President, Latter and Blum, Realtors, New 
  Orleans, LA, on behalf of the Real Estate Services Providers 
  Council, Inc...................................................    32
Stevens, Thomas M., President, National Association of Realtors..    34
Toll, Erin, Deputy Commissioner of Insurance Compliance, 
  Colorado, and co-Chair of the National Association of Insurance 
  Commissioners' Title Insurance Issues Working Group............     4
Williams, Orice M., Director, Financial Markets and Community 
  Investment, U.S. Government Accountability Office..............     7
Yeager, Rande, President and CEO, Old Republic National Title 
  Insurance Co., Minneapolis, MN, on behalf of the American Land 
  Title Association..............................................    36

                                APPENDIX

Prepared statements:
    Oxley, Hon. Michael G........................................    40
    Ney, Hon. Robert.............................................    42
    Waters, Hon. Maxine..........................................    43
    Velazquez, Hon. Nydia M......................................    45
    Cunningham, Gary M...........................................    46
    Hunter, J. Robert,...........................................    55
    Miller, Douglas R............................................    78
    Sterbcow, Arthur.............................................   153
    Stevens, Thomas M............................................   171
    Toll, Erin...................................................   180
    Williams, Orice M............................................   199
    Yeager, Rande................................................   212

              Additional Material Submitted for the Record

    Statement of the American Homeowners Grassroots Alliance.....   497


                            TITLE INSURANCE:
                          COST AND COMPETITION

                              ----------                              


                       Wednesday, April 26, 2006

             U.S. House of Representatives,
                        Subcommittee on Housing and
                             Community Opportunity,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 2:55 p.m., in 
room 2188, Rayburn House Office Building, Hon. Robert Ney 
[chairman of the subcommittee] presiding.
    Present: Representatives Ney, Miller of California, Tiberi, 
Neugebauer, Campbell, Waters, Lee, Scott, Cleaver, and Green.
    Ex officio: Chairman Oxley.
    Chairman Ney. This afternoon, the Subcommittee on Housing 
and Community Opportunity meets to discuss title insurance and 
its role in the real estate transaction. I do look forward to 
today's panel, and I want to thank you for coming and sharing 
your views on title insurance, costs, and competition in the 
marketplace.
    Title insurance, of course, is designed to protect 
homeowners and lenders from future claims to their property. It 
helps protect against the risk that property may be encumbered 
at the time of sale by unknown rights and claims that would be 
asserted by others.
    Title problems can limit the homeowner's future use of real 
estate and threaten the security interests the mortgage lender 
holds on that property.
    Unlike most other types of insurance which focus on 
potential future events and are renewed annually, such as 
homeowners or automobile insurance, title insurance, of course, 
protects against losses arising from past defects, and is only 
paid at the purchase or refinancing of a home.
    For the past several years, regulators, industry groups, 
and others have suggested several changes to regulations that 
would affect the way title insurance is sold. In 2002, HUD 
proposed revisions of the Real Estate Settlement Procedures 
Act--RESPA, as everybody knows--that were designed to increase 
competition in the real estate settlement industry. The 
proposed revisions included the development of guaranteed 
mortgage packages and a more binding good faith estimate, both 
of which would have affected the pricing and sale of title 
insurance. Such revisions appear to be controversial, and HUD 
was forced to withdraw the proposal in 2004.
    However, HUD announced in June of 2005, that it was again 
considering revisions to the regulations implementing RESPA, 
and was seeking input from the industry and others. Given the 
intense member interest in this issue during the previous 
Congress, and the attention this issue has received in the 
media, RESPA reform, I don't think, is going to be a simple 
one. Rather, it's pretty complex. It's important that HUD take 
a cautious and thorough approach, weighing all the 
perspectives, of course, as it moves forward.
    While title insurance differs from many other insurance 
products in the marketplace, it's a valuable tool in protecting 
homebuyers and lenders from problems that may arise in a real 
estate transaction. However, buying a home has become pretty 
complex. It has to be simplified, so there is more transparency 
in the pricing of settlement services.
    While we all may agree on that goal, there are differences 
in how to achieve it. It's my hope that today's hearing will 
focus on the importance of regulation that balances the need 
for vigorous consumer protections with vibrant business 
competition to provide a healthy insurance marketplace for 
consumers. And with that, I will yield to the Chairman of the 
Full Committee, Mr. Oxley.
    The Chairman. Thank you, Mr. Chairman, for holding this 
hearing, and for your continued leadership in making it easier 
for consumers to buy homes. This subcommittee, under your 
leadership, has led the way with the American Dream Downpayment 
Act, the Zero Downpayment Act, and other initiatives to make 
the dream of home ownership a reality for an impressive 69 
percent of American families.
    Congress could still do more, however, to reduce barriers 
that limit competition in the real estate marketplace. Many 
home buying services with relatively fixed costs, such as 
realtor fees, title searches, and lending fees, have 
skyrocketed, along with the value of the homes, even though the 
amount of work involved has actually been reduced with improved 
automation and computerization.
    If a house has doubled in value, does it really cost the 
realtor twice as much to sell it, and the title agent twice as 
much to do the automated title search? Consumers are paying 
home purchase costs that are artificially high, because of the 
lack of competition in real estate services.
    I am particularly concerned about the ongoing 
investigations of title insurance fraud that have already 
resulted in tens of millions of dollars in settlements. In 
Colorado, Deputy Insurance Commissioner Toll, who is with us 
today, has unraveled a web of illegal kick-back schemes using 
captive re-insurance, and involving title insurance agents, 
builders, realtors, and other real estate service providers.
    These schemes have inflated the price for title insurance 
for thousands of people. Few consumers will hold up their new 
home purchase over a few thousand dollars in title insurance. 
But what the consumer doesn't know is that, in many cases, a 
large percentage of the consumer's title insurance payment is 
kicked back to the real estate professional who set up the 
closing in the first place.
    Illegal kickbacks are already a violation of RESPA. But the 
investigations by Colorado, Minnesota, California, and other 
States make it clear that this is an endemic problem. That is 
why I ask the GAO to investigate for Congress how title 
insurance gets sold in the real estate marketplace.
    GAO's interim report raises some very troubling questions 
for members of this committee. According to GAO, in several 
cases, title insurers, or agents, have created fraudulent 
businesses and arrangements to provide potentially illegal 
kickbacks to realtors, mortgage brokers, lenders, and 
attorneys, in return for steering business their way.
    GAO is finding that instead of focusing on consumers, title 
agents normally market their business to these real estate 
providers, creating a potential conflict of interest that 
benefits the providers at the expense of the consumer.
    I believe that most business professionals are beyond 
reproach, and provide consumers with the best services that 
they have available. Some of these individuals are here with us 
today. Unfortunately, the majority of professionals find 
themselves undercut by unscrupulous actors who are 
circumventing RESPA's rules on illegal kickbacks. Given the 
number of annual home purchases and refinancing, I don't 
believe it's a lack of price competition in real estate 
services, it's something we can just enforce our way out of.
    HUD and State insurance departments simply do not have the 
resources to monitor every property transaction. This is a 
structural marketplace problem that, at some point, Congress 
will have to address.
    I want to thank our witnesses for joining us today to help 
shed some light on this critical consumer issue. Ms. Toll has 
been the leader in uncovering title insurance problems and 
opening the path for others to follow in protecting consumers. 
GAO and HUD have been very helpful in analyzing the marketplace 
and initiating a discussion of potential next steps.
    And the witnesses on our second panel will be enormously 
helpful in providing us with the industry and consumer group 
perspective to separate fact from fiction, and to underscore 
why a vibrant title insurance marketplace is so important for 
our consumers.
    Mr. Chairman, I look forward to working with you, Ranking 
Member Waters, and other members of the committee, as we begin 
this discussion of the problem, and a search for solutions. And 
I yield back.
    Chairman Ney. Well, I thank the chairman for his 
participation in this, and for his leadership on the committee. 
And the gentlelady from California, Ms. Lee?
    Ms. Lee. Thank you, Mr. Chairman. I do want to thank you 
and our ranking member, Maxine Waters, for convening this very 
important hearing on title insurance. And also, I want to thank 
our witnesses for being here today.
    The home ownership process, we all know, is filled with 
confusion. Countless documents, fees that consumers must weed 
through, trying to understand this whole process, is quite 
overwhelming. Many in the real estate industry want to see a 
consolidation of the paperwork, and make the process easier for 
potential homeowners. We all agree that the process must be 
consolidated.
    And one of the ways to make the home ownership process 
benefit consumers is to look at the fees and the competition, 
or lack thereof, in shopping for a lender or a broker, 
appraisers, and home inspectors, and title insurance. All of 
these issues demonstrate why we must, quite frankly, reopen the 
RESPA, and why it's so important that we are here today.
    This hearing, I hope, will highlight some of the bad 
actors--and there are some--in the title insurance industry, 
and how we can correct the problems while maintaining a 
competitive market for consumers to choose from.
    Title companies really should have to compete, and 
consumers should have choices. That's the bottom line. So I 
hope that our witnesses will discuss the RESPA violations by 
title companies, the kickbacks, the lenders, realtors, 
brokers--these kickbacks, and that's what they are, they often 
receive these kickbacks from business referrals, as well as--I 
hope we talk about the price of insurance compared to the low 
percentage of payouts.
    So, I look forward to hearing from our witnesses, and 
working on--with our chairman and ranking member on drafting 
meaningful bipartisan RESPA legislation in the near future. 
Thank you, and I yield the balance--
    Chairman Ney. I thank the gentlelady. The gentleman from 
Texas, do you have an opening statement? And with that, when 
the ranking member comes, of course, we will have an opening 
statement.
    We will go to panel one. We have Erin Toll, who is the 
deputy insurance commissioner of compliance and market 
regulation for the State of Colorado. She also co-chairs the 
National Association of Insurance Commissioners' Title 
Insurance Working Group. Ms. Toll's investigations in the title 
insurance arrangements in early 2005 led to multi-million 
dollar settlements with title insurers.
    Orice Williams is currently Director in GAO's Financial 
Markets and Community Investment Team. Mr. Williams is 
responsible for overseeing and producing reports on topics 
affecting the insurance, banking, and securities industries.
    Gary Cunningham has been the Deputy Assistant Secretary for 
Regulatory Affairs and Manufactured Housing at HUD since April 
of 2004. The office has responsibility for enforcement of the 
Real Estate Settlement Procedures Act, RESPA, and the 
Interstate Land Sales Act, and for the administration of HUD's 
manufactured housing program.
    With that, we will begin with Ms. Toll. Thank you.

   STATEMENT OF ERIN TOLL, DEPUTY COMMISSIONER OF INSURANCE 
COMPLIANCE, COLORADO, AND CO-CHAIR OF THE NATIONAL ASSOCIATION 
  OF INSURANCE COMMISSIONERS' TITLE INSURANCE ISSUES WORKING 
                             GROUP

    Ms. Toll. Thank you for the warm welcome. My name is Erin 
Toll and I am deputy commissioner at the Colorado Division of 
Insurance. I am also the co-chair of the title insurance 
working group for the National Association of Insurance 
Commissioners, and I am here today testifying on behalf of the 
NAIC.
    I would like to begin by thanking Chairman Ney, 
Congresswoman Waters, and the members of the subcommittee for 
inviting me here to testify. I would also like to thank 
Chairman Oxley for his leadership and interest on these 
important issues.
    Today I would like to address three basic points. First, 
what is title insurance and how is it regulated? Second, what 
problems have we, as State regulators, found with title 
insurance, and what are we doing about it? And third, what are 
some possible solutions?
    So, what is it? How is it regulated? Title insurance is a 
necessary but unique product. It protects homeowners and 
lenders in the event that a lien, or what's called a cloud, is 
found on a title. Unlike other lines of insurance, which 
protect against things that may happen in the future, title 
insurance protects against something that already happened in 
the past.
    In addition, the competition is different. Consumers rely 
on recommendations from their real estate professionals when 
choosing a title insurance agency and a title insurer, unlike 
in homeowners and auto insurance. Title insurance entities and 
all the participants are regulated by a variety of State laws 
and RESPA, the Real Estate Settlement Procedures Act.
    Because State and Federal regulators understood the unique 
way in which title insurers compete, they created laws that 
said it's illegal to give or receive remuneration in any form 
for the referral of business. This exchange of something of 
value for the referral of business is defined in Federal law as 
a ``kickback.''
    As insurance regulators, our jurisdiction only extends to 
those who are giving the kickbacks. So what are we seeing in 
our investigations? What are the kickbacks, and what are States 
doing about it?
    Our investigations show that a black market has been 
created in the residential real estate transaction world. The 
good actors absolutely cannot compete with the bad actors, 
because the playing field is not level. We have initiated 
exhaustive investigations to try and level the playing field, 
and ensure a free market.
    Settlement service providers are demanding, and title 
entities are giving, kickbacks. And the kickbacks usually take 
two forms: you've got your unsophisticated direct kickbacks; 
and there are sophisticated, indirect kickbacks. And the 
sophisticated kickbacks include things like free spa trips, or 
free just-listed, just-sold cards, or free farm packages. But 
the sophisticated indirect kickbacks, those are the ones that 
make my job interesting. Those are a lot harder to discover, 
and they include sham affiliated business arrangements and 
captive title reinsurance.
    Affiliated business arrangements are nothing more than 
ownership arrangements between and among settlement providers 
and title insurance entities. And they are legal, unless they 
are not real, and they are referred to as shams. Our 
investigations in Colorado have determined that many of these 
affiliated business arrangements are simply vehicles to provide 
kickbacks. Where we have found these kickbacks, we have shut 
them down, and we have imposed penalties.
    Now, captive title reinsurance is a lot more complicated, 
and so I have brought some flow charts, and I look forward to 
your questions and answers on that. And I will put up the flow 
charts. And it's also in your packet of materials.
    But in Colorado, our investigations uncovered that these 
reinsurance mechanisms are nothing more than vehicles that were 
created to provide kickbacks to those who were referring 
business to the title insurers.
    To date, Colorado has negotiated multi-state settlements 
that provide restitution directly into the pockets of 
consumers. Settlements negotiated, I am proud to say, by all 
States today equal almost $50 million. And we are not done.
    Regardless of the form, these kick-back schemes distort the 
marketplace, they inflate prices, and they harm consumers. So 
what are some possible solutions? States are exploring various 
ways to help with these problems. In Colorado, we are looking 
at ways to regulate all the players in the transaction. We do 
not regulate mortgage brokers yet in Colorado, but we have 
three bills that are pending that look for some sort of 
regulation.
    Colorado's general assembly has just passed a bill that 
actually goes beyond RESPA, and it tightens up enforcement for 
us, penalties, and it provides directly for restitution. But 
importantly, cooperation and information-sharing between and 
among all the regulatory bodies that are involved is necessary 
if we're going to stop this problem.
    In conclusion, a black market exists regarding real estate 
transactions. We, as State and Federal regulators, need to 
aggressively enforce the laws that we have. Lawmakers need to 
enact laws to regulate all the players and strengthen fines and 
penalties. Thank you so much for inviting me to testify, and I 
look forward to your questions.
    [The prepared statement of Ms. Toll can be found on page 
180 of the appendix.]
    Chairman Ney. Thank you. And our ranking member has 
arrived, so we will have an opening statement. I also wanted to 
thank--our ranking member requested a hearing, and we had one, 
in Los Angeles on CDBG. I want to thank Chairman Oxley and his 
staff, and Mr. Frank's staff, and ours out there. It was a very 
productive hearing, and we appreciated the comments that we 
received in Los Angeles. Ranking Member Waters?
    Ms. Waters. Thank you very much. Good afternoon, ladies and 
gentlemen. I would like, too, to thank Mr. Oxley, Chairman of 
the Financial Services Committee, for his interest in the title 
insurance industry. And I would like to thank Chairman Ney, who 
is the chairman of this subcommittee, and he certainly must be 
commended for holding today's hearing. I would like to also 
thank him for the hearing that was held in Los Angeles on CDBG. 
We have already begun to get a lot of response from the elected 
officials there.
    This hearing on the title insurance industry is important 
for a number of reasons. Primary among them is the varying 
degree of opinions about the title insurance industry. There 
are those who believe that the industry is in great shape, and 
that the imposition of additional regulations is not warranted.
    Of course, there are those who believe that the industry is 
not operating competitively, because of fraud and abuse. 
Indeed, there have been published reports of fraud and abuse in 
the title insurance industry in the State of California.
    However, whether you support one position or the other, I 
believe that industry practices need to be examined closely, to 
shed light on issues surrounding the industry. To that end, I 
believe today's hearing represents an initial step in the right 
direction.
    Why are the abuses in the title insurance industry so 
prevalent that we should consider legislation to reform the 
industry? Can the industry police itself? Are there any 
measures, short of legislation, that this subcommittee might 
consider to ensure that the consumer is protected from any 
competitive forces that could be at play in the marketplace?
    We all know that the true cost of any alleged fraud and 
abuse weighs most heavily on the consumer. Consumers cannot 
avoid paying for title insurance, but they need not pay for 
overpriced products because the market is not competitive. 
Title insurance is a fact of life in most real estate 
transactions, in every State in the Nation, although three 
States do not require licensing of title insurance agents: New 
York, Tennessee, and Georgia.
    Why? The cost of title insurance varies from State to 
State. Indeed, it is the lack of uniformity between the 
different title insurance systems that makes this an important 
issue.
    In addition, approximately 90 percent of the title 
insurance business is concentrated in the hands of a few large 
title insurance companies. Higher mortgage loan amounts can 
also result in higher title insurance premiums for the buyer. 
Loans in the sub-prime market carry higher insurance premiums. 
Does this benefit consumers?
    While today's testimony has generated broad interest, I 
could not find any agreement about why the industry is in its 
current state. Therefore, of particular interest to me is the 
GAO preliminary study, because it can provide a blueprint for 
this committee to examine the underlying factors, economic and 
non-economic, influencing the title insurance industry. Is it a 
competitive industry? How are title insurance rates determined?
    While it is too early to rely on the GAO report exclusively 
for guidance on the appropriate legislative response to these 
questions, the completed study will ultimately provide this 
committee with instructive suggestions on what remedies to 
entertain.
    Accordingly, I would strongly urge the chairman of the GAO 
to expedite the study of the title insurance industry before we 
reach any final conclusions about what is the appropriate 
response. I thank you, Mr. Chairman, and I yield back my time.
    Chairman Ney. I thank the gentlelady.
    Ms. Williams? Thank you.

STATEMENT OF ORICE M. WILLIAMS, DIRECTOR, FINANCIAL MARKETS AND 
  COMMUNITY INVESTMENT, U.S. GOVERNMENT ACCOUNTABILITY OFFICE

    Ms. Williams. Chairman Ney, Chairman Oxley, Representative 
Waters, and members of the subcommittee, I am pleased to be 
here today to discuss our views and issues concerning the title 
insurance industry.
    As you are aware, title insurance is designed to ensure 
clear ownership when a property is sold or refinanced, and is a 
required part of most real estate purchases.
    While title insurance costs may be small compared to 
overall closing costs, title insurance costs can account for as 
much as one-third of closing costs for buyers in certain parts 
of the country. As Deputy Commissioner Toll has explained, 
recent Federal and State investigations have raised questions 
about certain practices and competition within the industry.
    My comments today will focus on our preliminary report, 
which identified issues that warrant further study, and raise a 
number of questions as part of our ongoing work for Chairman 
Oxley. Specifically, I would like to discuss issues involving 
agent practices and competition.
    Agents play a much more vital role in title insurance than 
other lines of insurance. In fact, most of the title insurance 
premium is paid to or retained by title agents, generally, to 
pay for title search and examination costs and agent 
commissions.
    As shown in our graphic, in 2004, about 71 percent of total 
title insurance premiums written were paid to or retained by 
title agents. The remainder is broken out as follows: about 21 
percent went to expenses paid by insurers for salaries, rent, 
plant, and other costs; about 5 percent went to losses; and the 
remaining 5 percent was the difference between total expenses, 
including the 71 percent paid to agents, and total premiums.
    What we don't know is how much of the 71 percent 
represented the actual costs incurred by title agents to do the 
title search and examination, and take corrective actions. In 
fact, in certain parts of the country, agents can retain as 
much as 90 percent of premiums paid.
    Despite the key role agents play in the underwriting 
process, the extent to which State insurers review their 
operations is unclear.
    In fact, we found few States regularly collect information 
on title agents' operations, and three States do not license 
title agents. Moreover, most States do not take all of the 
various components of these agent costs into account during 
premium rate reviews, because they aren't considered part of 
the premium.
    The last issue I would like to discuss is competition, 
which appears to occur at various levels. That is, the 
competition among insurers, as well as among agents for the 
business of other real estate professionals, such as builders, 
lenders, or real estate agents who refer clients.
    Title insurance is largely a relationship-based business 
driven by connections among real estate professionals. While 
consumers have the right to select their insurer, most 
consumers lack the knowledge necessary to shop around for title 
insurance. Instead, they usually rely on real estate 
professionals, knowingly or unknowingly, to make these 
decisions. Given this type of ignorance-is-bliss environment, 
it is unclear whether the competition that exists always works 
to the consumer's benefit.
    These issues are further complicated by the recent trend of 
real estate brokers, lenders, and builders becoming full or 
partial owners of title agencies in what are called affiliated 
business arrangements. While these arrangements can be part of 
a legitimate business model that may benefit consumers, they 
also create potential conflicts of interests that may put 
consumers' interests at odds with those of the real estate 
professionals.
    In closing, these are just a few of the issues we are 
addressing as part of our ongoing work. All of these issues are 
significant, because they affect virtually everyone who has 
purchased, refinanced, or taken out a home equity loan, or 
plans to do so in the future. In other words, almost 70 percent 
of Americans.
    Mr. Chairman, this concludes my oral statement, and I would 
be happy to answer any questions that you may have. Thank you.
    [The prepared statement of Ms. Williams can be found on 
page 199 of the appendix.]
    Chairman Ney. Thank you very much.
    Mr. Cunningham?

STATEMENT OF GARY M. CUNNINGHAM, DEPUTY ASSISTANT SECRETARY FOR 
REGULATORY AFFAIRS AND MANUFACTURED HOUSING, U.S. DEPARTMENT OF 
                 HOUSING AND URBAN DEVELOPMENT

    Mr. Cunningham. Chairman Ney, Ranking Member Waters, 
Chairman Oxley, and distinguished members of the subcommittee, 
I appreciate the opportunity to be here today to discuss 
important issues related to title insurance under the Real 
Estate Settlement Procedures Act.
    Enforcement of RESPA is a high priority of Secretary 
Jackson and Brian Montgomery, the Assistant Secretary for 
Housing and Federal Housing Commissioner. We view RESPA 
enforcement as a very important part of HUD's mission to 
increase home ownership.
    Let me say also that while the hearing today is on title 
insurance, RESPA enforcement is an industry-wide issue. We 
recognize that most settlement service providers desire a level 
playing field on which to compete, and take their obligations 
under RESPA seriously.
    RESPA was enacted in 1974, in response to Congressional 
findings that consumers needed more timely information on the 
cost of the settlement process, and that referral fees and 
kickbacks were driving up the costs of buying a home. A study 
of the title industry conducted for HUD as long ago as 1980 
found that title insurers compete for referrals from settlement 
service providers, rather than for consumers. Current market 
case investigations indicates that this practice still exists 
in the title insurance market.
    HUD is actively investigating captive title reinsurance 
arrangements, in cooperation with several States, and the 
National Association of Insurance Commissioners. Our focus has 
been on companies receiving reinsurance premium payments.
    It is HUD's position that any captive title reinsurance 
arrangement in which payments to the reinsurer are not bona 
fide compensation, and exceed the value of the reinsurance, 
violates section eight of RESPA. In HUD's view, there is almost 
never any bona fide business purpose for reinsurance on a 
single family residence. When there is a history of few or no 
claims being paid, or the premium payments to the captive 
reinsurer far exceed the risk borne by the reinsurer, there is 
strong evidence that there is an arrangement constructed for 
the purpose of the payment of referral fees.
    I would like to mention briefly just a few recent 
enforcement actions that the Department has taken for violation 
of section eight that prohibits the payment of kickbacks and 
referral fees. There are other examples in my written 
testimony.
    HUD investigated a reinsurance arrangement between a title 
insurance underwriter and a home builder. The home builder 
created a title reinsurance company, and referred title 
insurance business to the insurer. The title insurer paid a 
premium to the builder's affiliated reinsurance company that 
far exceeded the risk assumed.
    In Memphis, a title company established eight affiliated 
title companies with various builders, real estate agents, and 
mortgage brokers. The affiliated companies were paid for 
certain title and settlement work that they did not perform, 
and HUD determined were only created to make referral payments 
to the providers who owned the affiliated companies.
    In Detroit, a title company paid real estate brokers for 
the use of conference rooms at rates that were substantially 
higher than the fair market rent, in return for the referral of 
business.
    In Atlanta, a real estate broker ordered its sales agents--
offered its sales agents--incentives, including trips, Atlanta 
Braves tickets, and higher commission splits, based on the 
number and volume of referrals to the broker's affiliated title 
company.
    HUD has increasingly devoted more resources to RESPA 
enforcement. It contracts with a private firm to provide 
nationwide investigative services, and working with its Office 
of Inspector General, the Department continues to coordinate 
investigations and conduct joint enforcement actions with other 
Federal agencies, and is developing increasingly close 
relationships with State regulators and their associations.
    The success of HUD's regulatory efforts to implement RESPA 
for the benefit of both industry and consumers depends greatly 
on RESPA enforcement. Certain statutory amendments may advance 
the goals of RESPA. For example, RESPA does not currently 
include authority for regulators to enforce violations of the 
requirements relating to the good faith estimate, or the HUD-1 
settlement statement.
    The effectiveness of RESPA could be enhanced by ensuring 
that creative business structures do not defeat the purposes of 
RESPA, and by providing the Secretary and State regulators with 
necessary tools to enforce the statute.
    I appreciate the opportunity to discuss these important 
issues regarding title insurance and the settlement services 
industry, as they relate to RESPA.
    [The prepared statement of Mr. Cunningham can be found on 
page 46 of the appendix.]
    Chairman Ney. Thank you. Chairman Oxley?
    The Chairman. Thank you, Mr. Chairman, for yielding me your 
time for questions. And Ms. Toll, in your testimony and in the 
chart, it appears that 5 percent of total annual premiums 
represent the losses in title insurance, which is a stark 
contrast to property and casualty, which is 80, 90, sometimes 
100 percent.
    I practiced law for 9 years and I did my share of title 
searches, which, by the way, were painful and boring. And I 
probably still got some exposure, somewhere along the line, 
with that. But I guess the bottom line is why on earth would 
somebody who has a 5 percent loss ratio, something that the 
property and casualty insurers would die for, what would be any 
reasonable explanation for setting up a reinsurance program, 
particularly one that is closely held?
    Ms. Toll. Thank you, Congressman Ney. Before I get to what 
title reinsurance is, captive reinsurance, I wanted to say that 
I, too, searched titles from the old, dusty books with mildew 
all over them, so I know your pain. I feel your pain.
    The Chairman. There is a fraternity of that, I think.
    Ms. Toll. I am a very visual person, so I created a diagram 
to help you understand this. First, about loss ratios, I have 
to explain that title insurance is unique--and, indeed, if they 
were doing their job perfectly well, their loss ratio would be 
at or near zero, because the risk exists on the day of the 
closing, which gets to your second question about why you would 
ever reinsure.
    There is no financial necessity to reinsure in a 
residential single family dwelling. There is absolutely none. 
And that's why we in Colorado and other States who joined on to 
the multi-settlement said that these are nothing more than 
vehicles to provide kickbacks.
    If you want to know more exact details about how it works, 
I could also get into agent splits, and why that indicates that 
this isn't real.
    The Chairman. When you did your investigation, did you have 
cooperation from the title insurance companies?
    Ms. Toll. Oh, I would like to say that I had a lot of 
cooperation. And I did, from two of the largest insurers. And 
in fact, one of the title insurers afterward told me that they 
really didn't want to be in the practice, but they had to, 
because they were losing market share.
    Unfortunately, the third company has refused to settle with 
Colorado on a multi-state basis, and was saying some--I was 
informed by another regulator--was saying some very personal 
things to try and discredit me in front of other State 
regulators and I don't know who else. And that was very 
disconcerting and alarming, and I felt very nervous and 
threatened by that.
    The Chairman. What is the status of that now?
    Ms. Toll. The status of that now is that I haven't had any 
communication with them. I don't know. I honestly don't know. 
We are trying hard, and we will keep pushing. We issued a bunch 
of subpoenas against this particular insurer's customers late 
last week, in an effort to reach some sort of settlement. But 
the last words to me from the company were, ``We're not 
settling with you on a multi-state basis.''
    The Chairman. And do these companies have captive 
reinsurance entities?
    Ms. Toll. This is the company that began the practice 9 
years ago. Now it's been 10 years. So they began the practice, 
and--
    The Chairman. They began the practice of reinsuring?
    Ms. Toll. Of captive title reinsurance. And they were 
allowed to continue, I guess--well, they continued doing this 
practice for years and years, and then the two other big 
companies jumped on the bandwagon when they saw that they were 
losing market share, is how it was explained to me by the 
companies.
    The Chairman. And how would that fee, if at all, show up on 
the closing statement?
    Ms. Toll. You know, on that I do not know. I'm sorry, I 
don't know. I can do my best to find out and get back to you, 
but--
    The Chairman. It would be my guess that it was hidden 
somewhere in the closing statement, would be a--
    Ms. Toll. I don't know how you would ever see that fee.
    The Chairman. Let me ask--you testified that eliminating 
kickbacks is the only way to ensure a level playing field. And 
kickbacks are already illegal in Colorado and most States, and 
actually in Federal law, as well. What would be the most 
effective way to eliminate that kind of practice?
    And secondly, what kind of penalties exist, for example, in 
Colorado for illegal kickbacks, and are they regularly 
enforced?
    Ms. Toll. Well, I am proud to say that in Colorado, our 
legislature just passed a bill that goes beyond RESPA, so it 
really strengthens the penalties and that gets to the first 
part of your question, which is--I mean, I agree with Mr. 
Cunningham, that RESPA needs to be strengthened. There needs to 
be more penalties and restitution available if we are ever 
going to stop this practice.
    On the State level, we are taking many, many steps to halt 
the practices, including posting interactive rating guides, so 
consumers can actually shop for title insurance in an effort to 
show rate transparency, and try and get the prices down, 
through operation of the free market.
    The Chairman. Okay. Mr. Cunningham, how long have you been 
at HUD?
    Mr. Cunningham. Two years.
    The Chairman. And so you were participating in the initial 
RESPA--
    Mr. Cunningham. Yes, I came in near the end of that 
process, when the rule was withdrawn by Secretary Jackson. I 
mean, what would have been the RESPA reform rule.
    The Chairman. Do you recall the initial RESPA package that 
was offered by Secretary Martinez? Refresh my memory. How did 
the RESPA reform effort deal with this particular issue of 
kickbacks and reinsurance?
    Mr. Cunningham. The RESPA reform proposal--which is still 
something that the Secretary is very much committed to--was 
designed to increase the transparency, if you will, and to make 
more certain the closing costs. The original proposal, which 
was withdrawn, had a portion in it where packages of settlement 
services could be developed and sold in the marketplace.
    And the idea was that there could be direct competition 
between packagers or others in the marketplace, with respect to 
the settlement service package. I mean, that was one aspect of 
it. The current process with the good faith estimate, and so 
forth, would have continued to be available, but--
    The Chairman. It would be price-based competition?
    Mr. Cunningham. Yes. And frankly, that is still part of 
HUD's goal, is to try to bring competition to the marketplace 
for all settlement services.
    The Chairman. Yes, I--the Secretary was here a week or so 
ago, and I asked him that question, and I understand that is 
still very much alive at HUD, the RESPA reform effort. And I 
would urge you folks to keep moving in the right direction, 
because a lot of these issues that continue to bubble to the 
surface are directly related to the kind of RESPA reform that 
is absolutely critical to the market. Ms. Toll, did you have a 
comment?
    Ms. Toll. No.
    The Chairman. All right. I yield back, Mr. Chairman.
    Chairman Ney. Thank you, Mr. Chairman, and our ranking 
member, the gentlelady from California?
    Ms. Waters. Thank you very much, Mr. Chairman. I think 
somewhere along the line I was told that there were only about 
five title insurance companies in the country. Is that true?
    Ms. Toll. May I?
    Ms. Waters. Yes.
    Ms. Toll. Congresswoman Waters, no, that is not correct. It 
is correct that 5 companies control a huge percentage of the 
market, but there are actually 86 insurers. I checked before I 
left the office.
    Ms. Waters. All right. Thank you. That does help. And I 
would like to know--I would like to try and understand the 
pricing. What is reflected in the pricing that consumers are 
paying? How much of this reflects the agent's costs, premiums, 
etc.? Is there any consistency in pricing? Is there any 
competition? How does it work?
    Ms. Toll. Congresswoman Waters, it varies from State to 
State. And in Colorado, you file the rate and use it, and the 
companies are required to maintain justification for their 
rates. And we would ask for justification in the event that 
there was a problem.
    To get at what you're really asking, we are trying to get 
the rates down, because it's our position that there couldn't 
be kickbacks if there wasn't a whole bunch of fluff somewhere 
in these rates. So we are posting an interactive rating guide 
up on the Internet, to hope that consumers will start shopping, 
and then pushing the title insurers to get the price down. That 
is one of the things that we are doing. But it does vary from 
State to State. Some States don't even regulate the agents or 
the agencies.
    Ms. Waters. Do you find that more expensive properties pay 
higher rates, and less expensive properties pay lower rates? 
And what's the relationship to the cost of the property and the 
title insurance rate?
    Ms. Toll. That's a good question. The cost is directly 
related to the price. The more expensive the property, the 
higher the title insurance premium.
    Ms. Waters. Why? The agents have to do more research? I 
mean, what causes that? They have to justify them in your 
State. What do they say? I mean, how do they do that?
    Ms. Toll. They submit actuarial justification, where 
actuaries--please don't ask me to explain actuarial 
justifications--where they break down the components. But we 
are just beginning this process.
    I mean, it was just a little over a year ago now that we 
found all these problems, and all the other States have banded 
together, and we share information through the NAIC, all the 
working groups there, and other States--because I also co-chair 
the NAIC title insurance issues working group. So we're all 
working together to figure out ways to examine these rates. 
It's highly unusual. Title insurance is just so different from 
all the other lines of insurance that we regulate. Indeed, it's 
only 1.9 percent of all the premium volume that we regulate.
    So, sadly, I think regulators just--it just hasn't been on 
the radar screen. But it is now.
    Ms. Waters. Let me just ask you, this committee is very 
much involved in dealing with predatory lending, and trying to 
determine how we protect consumers from predatory practices in 
the financial services community. And I am wondering if we now 
have to expand our look, and take a look at title insurance, as 
we begin to try and reduce these costs to consumers.
    Do you think that there is an issue here, as it relates to 
predatory practices that is causing consumers to have to pay 
unnecessarily exorbitant fees for premiums, etc.?
    Ms. Toll. In Colorado, we are very concerned about 
predatory lending. The problem is, we don't regulate mortgage 
brokers. So, there is a lot of room for improvement there. And 
as I stated earlier, there are three bills that are currently 
pending in the State legislature that would address issues with 
respect to mortgage brokers.
    Ms. Waters. Let me just ask--I guess that I would ask this 
of Ms. Williams. What specific steps should be taken, if any, 
to reform the industry?
    Ms. Williams. This is one of the issues that we are 
planning to address in our ongoing work. Right now, we aren't 
in a position to make any conclusions about specific steps. But 
we hope, through the course of the work that we plan to do over 
the next several months, that we would be in a position to 
provide information that would be useful in laying out some of 
those next steps.
    Ms. Waters. Will that include perhaps some advice about how 
to expand competition in the industry?
    Ms. Williams. We are definitely looking at the issue of 
competition, the dynamics of competition in the market, and 
trying to come to terms with competition in the title insurance 
industry. At this point, we don't know if we will have 
recommendations.
    Ms. Waters. All right. Thank you very much. Mr. Chairman, I 
will yield back the balance of my time.
    Chairman Ney. Thank you. One quick question, and I have to 
go, but I will be back, and I yield my time to Mr. Miller.
    The quick question I have is for GAO. The report indicates 
that a lot of the title insurance companies offer discounted 
refinance rate for title insurance.
    Ms. Williams. Yes.
    Chairman Ney. Do you get that automatically, or do you have 
to ask for that discounted rate?
    Ms. Williams. This is one of the fundamental questions that 
we are currently grappling with. At this point, it's not clear 
whether refinance rates are automatic. We understand that in 
certain States it may be a requirement that these rates be 
provided automatically. In other places, it appears that you 
have to actually ask for the discounted or refinance rate.
    And in our review of consumer information posted on various 
websites, this is the guidance that they are giving to 
consumers. That is, you have to make sure that you ask for 
certain types of discounts.
    Chairman Ney. And I am going to recognize Mr. Scott, and 
then yield my remaining time to Mr. Miller. Mr. Scott?
    Mr. Scott. Thank you very much, Mr. Chairman. I want to 
thank you and Ranking Member Waters for holding this important 
hearing on the cost of title insurance.
    I guess my first question would be to Ms. Toll. Is there a 
problem, in your opinion, with assessing the cost of title 
insurance, due to the varying State regulations covering this 
product?
    Ms. Toll. I think everything is different in every State. 
So, on a State level, there are varying factors to take into 
account, depending on what systems they use, and so forth. In 
Colorado, we can ask for anything of virtually anyone to get 
rate justification, have anyone come in and testify to explain 
things to us. Did that answer your question?
    Mr. Scott. Yes. Since the title search process is 
automated, why have insurance costs not decreased? I would 
think that, since they were automated, that would have an 
impact on bringing down the cost. Why has that not happened?
    Ms. Toll. You would think that. The competition is very 
different in title insurance, and there is not a lot of 
competition around price. There is--it's just not there.
    The competition is on the quality and the service. As long 
as a realtor, a lender, and a mortgage broker have an incentive 
to go with someone who will facilitate the deal, the consumer 
will be protected. It's when they start--the real estate agent 
and the broker and the home builder--start getting influenced 
by these kickbacks, that the interests get out of line between 
the consumer and the person who is in the position that is 
doing all the referring of a business. I mean, that's the 
problem.
    Mr. Scott. Can you give us a little more detail on the 
characterizations of the kickbacks?
    Ms. Toll. Sure. The direct kickbacks, they're the easiest. 
In Colorado, we have this agency that flew the four top real 
estate agent producers in the State to a spa--female real 
estate agents in the State--to a spa in Arizona, and they said 
it was marketing. It was for an all-expenses-paid, 3-day thing, 
and they said it was marketing. And we went after them for the 
value of the whole package. And they said, ``Oh, no, you have 
to subtract a lot of the value, because we took the company 
jet.'' Anyway, we fined them.
    Mr. Scott. Ms. Williams, you're with GAO. In your opinion, 
what barriers prevent consumers from choosing their own title 
insurance products?
    Ms. Williams. Based on the information we have collected to 
date, a lot of it has to do with a lack of understanding. The 
entire home purchasing process is overwhelming. It's a lot of 
information to absorb. It also moves quickly. And you're 
dealing with uninformed consumers.
    Mr. Scott. So you would think that a large part of the 
answer to this is more financial literacy?
    Ms. Williams. That may be part of it. I am not sure it's 
the total solution--but literacy is likely some part of the 
solution. The other issue to be considered is that this is 
something that most homeowners do on a fairly infrequent basis. 
They may purchase a home, refinance a home, or take out an 
equity line on their home. However, it happens infrequently.
    But title insurance tends to be a small piece of the 
process, and I think that's part of the reason that it just 
gets rolled up into the entire closing process, and the buyers' 
attention isn't drawn to that particular piece of it.
    Mr. Scott. Now, in your opinion, do affiliated business 
arrangements provide cost savings to consumers, or to real 
estate companies?
    Ms. Williams. This is one of the issues that we are 
currently dealing with in the study. And based on the work that 
we have done preliminarily, we aren't in a position to answer 
this definitively, one way or the other. But it does raise a 
set of questions about conflicts of interest, and if the 
consumers are benefitting.
    Mr. Scott. So your answer to that would be probably the 
real estate companies? Okay. I will take that as a yes, without 
you having to say that.
    To the gentleman from HUD, Mr. Cunningham, why was HUD so 
unclear on its guidance on captive reinsurance arrangements?
    Mr. Cunningham. I don't know that HUD was so unclear. I 
think the issue with respect to captive reinsurance, the whole 
scheme, if you will, or the whole set-up, we viewed in the 
analysis as an arrangement which had no legitimate purpose, and 
it was a way to get fees to a referring entity--the builder, or 
the lender, or the real estate agent that had a captive 
insurance company.
    We did put some--a letter out referring to captive mortgage 
insurance as guidance, but we felt that there was, because of 
our affiliated business sham-control business entity policy 
guidance that was out there, that people were warned, and 
should have known that, essentially, in a transaction that had 
no real substance, that HUD and other regulators would be 
looking at it.
    Mr. Scott. In your opinion--
    Mr. Miller of California. [presiding] The gentleman's time 
has expired about 35, 56 seconds ago.
    Mr. Scott. Very fine, sir.
    Mr. Miller of California. I think it's very appropriate we 
talk about cost and competition and the title insurance 
company, and Ms. Toll and Mr. Cunningham, I thank you for your 
comments and your testimony you have given today. I think it's 
very enlightening.
    But it's--to me, I mean, I have been in the real estate 
business for about 35 years as a developer, a home builder, and 
a realtor. And the title company--and this is very complex, 
very complicated. And I will tell you that when we talked about 
why different fees are charged for different amounts of money, 
we also need to discuss the concept that it doesn't matter how 
extensive the title search is, or how limited it is, the cost 
is the same, based on the amount of the title policy.
    And I have had properties that I have bought that the title 
searches had to go back to the 1800's, water easements, and 
rights, and things you might have, and you get to a point where 
you want to clear your title to buy the property, and you ask 
these title companies to write around those easements and such 
which are old and antiquated. And in doing that, there is a 
cost associated with that, and a liability associated with 
that.
    And I noticed from the checking I've done over the years on 
the cost--because I always wondered why I paid as much as I 
paid for title policies--most of it is in the research, going 
back and checking the title. That's the bulk of the cost with 
most title companies. I know in California, they are extremely 
regulated. I mean, California law is very extensive on title 
companies, and they go to extensive issues on disclosure, 
enforcement, liability issues, and those type of things.
    And it's important that we deal with competition, because 
competition is good for everybody. It keeps the costs down, it 
creates a very robust marketplace. And just speaking for 
myself, it seems that in California I have no shortage of title 
company options. And of all the years that I have been in that 
business--and I know a lot of people in the business--I can 
tell you the truth, I don't know one person--and I speak for 
myself--I have never been offered anything, a kick-back from a 
title company, I don't know a realtor who has been, I don't 
know a builder who has been.
    But Ms. Toll, you talked about some bad apples in the 
industry, and I applaud you for that, for going after those bad 
apples, because--and I know HUD does the same thing, through 
RESPA. The good players don't want the bad guys in the 
marketplace. They just want to do their job.
    And I will tell you, when it comes to something going 
wrong--and we talked about, in the last year, about allowing 
banks to do title policies, and the real problem I had with 
that, I felt it was just a built-in conflict of interest, 
because you had a lender making a loan on a piece of property, 
and they guaranteed the title. And I will give you an example.
    I had--I bought a piece of property one time that had an 
easement for ingress and egress that looked real good on paper, 
but it had expired, because the municipality had not enacted 
that easement, and by law that easement expired after ``X'' 
amount of time.
    Now, had my lender, whom I borrowed the money from, written 
that title, he would be trying to find all kinds of ways to get 
out of the liability. But I went back to the title company. I 
said, ``You issued me a title policy that didn't have an 
easement. There is no easement. Fix the problem.'' And that was 
their liability and their problem.
    That's why I think all the aspects we deal with in the 
industry are integral, whether it be a realtor, a mortgage 
broker, a banker, a title company, whatever it is. All of those 
entities make the industry work.
    And I mean, I go back--when I was in my twenties, I used to 
do HUD work. I bid about the first 10 or 11 jobs with HUD, and 
I got every one of them, because my partner and I were the 
lowest bidder. And all of a sudden, one day the director from 
LA called my partner into his office and he said that if I 
don't give him a third of my profits in a kick-back before I 
ever get the HUD contract, I will never be issued another HUD 
contract. And I was young and naive, believing that they 
couldn't keep me from being low bidder. I never got a contract 
after that. They always found something wrong in the way they 
prepared the bid, and it went out.
    So there can be bad apples in any industry. And HUD, you're 
doing a great job. I'm not impugning HUD today. Alfonso 
Jackson, I just think highly of the man. But there are bad 
apples in everything.
    But my question for you, Ms. Toll, is are there adequate 
regulations on the books, if they are enforced properly, to 
deal with the bad apples?
    Ms. Toll. My first comment is that you talked about how 
complex this whole process is, and you were in it, and you 
couldn't even understand it hardly. Imagine the average 
consumer--
    Mr. Miller of California. Oh, I do.
    Ms. Toll. Which gets to the other Congressman's comments.
    Mr. Miller of California. I do.
    Ms. Toll. You know, in a lifetime you buy six homes. I 
actually had my market analyst look at this. So you have only 
six contacts with a title insurance agency. You just don't have 
any incentive to learn about title insurance.
    Mr. Miller of California. Yes.
    Ms. Toll. Really, realtors are in the best position to know 
what's going on. And as long as they're not taking kickbacks, 
everything is great. Are there existing laws--
    Mr. Miller of California. Is it illegal to take a kick-
back?
    Ms. Toll. It is illegal to--yes.
    Mr. Miller of California. I agree.
    Ms. Toll. Oh, did you just want me to say, ``Yes?''
    Mr. Miller of California. No, no, no. I just want--I'm 
asking. When you said--
    Ms. Toll. You know--
    Mr. Miller of California. I applaud you for that. I am not 
arguing with you. I think it's great. Go ahead.
    Ms. Toll. I was going to say that RESPA actually gives the 
State insurance commissioners authority to enjoin violations of 
it, as well as our own State laws.
    Mr. Miller of California. I am aware of that.
    Ms. Toll. And so we--yes, I do think that there are laws on 
the books--
    Mr. Miller of California. So I think my question would go 
more along the lines of what do we need to do to guarantee 
adequate enforcement of the laws that are currently on the 
books, or do you need additional laws? I mean, how many hammers 
do you need to beat the same guy up with?
    Ms. Toll. You know, I think the--thanks to the NAIC, and 
being able to share all this information, I think we're doing a 
great job at--
    Mr. Miller of California. I think you are, too.
    Ms. Toll. And actually, if I can say this, working with HUD 
has been a delight. I think we could institutionalize the fact 
that we need to cooperate. I mean, Ivy Jackson and I have a 
great relationship, and we call each other and send each other 
e-mails. So we are sharing. But what happens if, you know, God 
forbid, she gets bored with her job, or I do, you know.
    Mr. Miller of California. Yes.
    Ms. Toll. That could be institutionalized, that cooperation 
among all the different regulatory bodies.
    Mr. Miller of California. I am a great supporter of sub-
prime, and I detest predatory lending. I really do. But there 
is a huge market that the sub-prime lenders fill. And there is 
a huge need that legitimate title companies fill in the 
marketplace, and I applaud them for that.
    And if nothing else, if we are sending a message today that 
Congress and the States are looking at predators who are 
violating the law, and we are going to enforce the law, then we 
are going to accomplish a lot today. But I don't know what else 
we can do.
    I mean, my wife owns a business, and I am approached all 
the time by people wanting to provide title policies. And there 
is no shortage of competitors. In California, we have everybody 
you can imagine. Well--and there are big companies and there 
are little companies.
    But what we have always based our decision on is who gives 
us the best service, and do they act in a timely fashion? And 
if there is a problem, are they accountable? That's all I care 
about. When I sold houses to people, that was my main concern: 
timing, are you competitive; and are you accountable; and 
responsive. And I used the people who were. And if I didn't 
think they were, and somebody else came along who I thought 
gave me a better--did a better job, I used them.
    And I guess I'm going to open it up to the three of you. 
What do you need from us that you cannot do on your own?
    Ms. Toll. First of all, if everybody operated the way you 
did, I don't think we would have as big of a problem as we have 
right now. So I just wanted to offer that comment, and then let 
my--the rest of the panel--
    Mr. Miller of California. You're up.
    Mr. Carter. Mr. Miller, I would say this. Nobody disagrees 
about the valuable role that title companies play, or the 
service they provide. I think some of these we are finding, 
particularly in the arena with respect to the fees and 
kickbacks area and section eight, that entities are being 
developed, more sophisticated entities, some of them tied to 
affiliated business arrangements which, again, are not, per se, 
bad. And if done properly, as many groups do, benefit the 
consumer, from the standpoint of service.
    But there has not been the directed competition on price 
issues, because the marketing of title business is not done 
directly to the consumer. So we have got to--the consumer has a 
right to pick a title company, but they don't know that. They 
don't know how to shop for it, etc. So that's one--I guess that 
is one side of it.
    We also think, from a RESPA enforcement standpoint, we only 
have, in essence, injunctive authority. We can get an 
injunction to stop a violation of section eight. We don't have 
a civil money penalties type statute which would enable HUD to 
go--or the State attorneys general, or the insurance 
commissioners, or anyone else--to go against somebody who has 
violated--
    Mr. Miller of California. Can you do that regulatorily, or 
is it--do you need legislation?
    Mr. Cunningham. No, we need legislation to do that.
    Mr. Miller of California. Okay, then we will write that 
down.
    Mr. Cunningham. So, we can't really directly enforce a 
number of the provisions of RESPA, from that standpoint. 
There--
    Mr. Miller of California. I would encourage you, in your 
RESPA proposal, for us to include that, then.
    Mr. Cunningham. All right.
    Mr. Miller of California. Because you are doing that. You 
are coming forth with one. That would be a great 
recommendation.
    Mr. Cunningham. And there are two or three other things. We 
might expand the injunction relief--and again, these are not 
proposals that I am making today on behalf of HUD, these are--
you have asked the question, ``What could we possibly do?''
    The statute of limitations under HUD--under RESPA, right 
now, for private enforcement actions is only 1 year for private 
actions, and it's 3 years for governmental actions.
    Mr. Miller of California. Then maybe--
    Mr. Cunningham. We might think about doing something like 
that. We might make it--right now, the HUD-1 only has to be 
given a day before closing to the home buyer, if the home buyer 
asks. But there is no direct enforcement for--of somebody's 
failure to do that--
    Mr. Miller of California. Do we need to enact guidelines?
    Mr. Cunningham. What?
    Mr. Miller of California. We need to enact guidelines that 
are clearly understood, and we need to provide for enforcement.
    Mr. Cunningham. And we could--
    Mr. Miller of California. And I think that's good. And we 
need to work together to do that.
    The issue you brought up on pricing, though, Ms. Toll, 
don't they have to propose their pricing structure to you for 
approval?
    Ms. Toll. Actually, they file their rate with us, and they 
use their rate. And if we find a problem with it, we require 
justification.
    Mr. Miller of California. And I think all States do that. 
So they just can't go out and dream up some figure, they have 
to file those figures with you. You review them, and you make 
comments and ask for--your questions will be answered.
    Ms. Toll. Yes.
    Mr. Miller of California. Okay. Thank you very much. Mr. 
Green, you are recognized.
    Mr. Green. Thank you. I thank the chairman and the ranking 
member for hosting these hearings, and I thank you, members of 
the panel, for appearing.
    Permit me to introduce a new term into the dialogue. But 
first, let me make mention of the fact that in Texas, title 
insurance will cost, on average, $1,443 for a $180,000 home. 
The national average is $756. Quite a difference. Gouging, 
something that we have heard a little bit about lately, haven't 
talked about it as it relates to title companies. But price 
gouging. Is that a term that we can apply to some of what we 
are seeing in these disparities, Ms. Toll?
    Ms. Toll. I have never heard that term used, and I believe 
Texas sets their rates, so they're a little different from the 
rest of the States. They actually fix the rate and say that, 
``You have to use this rate.''
    And I wanted to add also, because it hasn't been said, that 
title insurance agencies have to charge consumers the rates 
that they have on file with us. They can't deviate. You can't 
go in and bargain, if that makes a difference to you.
    Mr. Green. They have to charge a rate that they have on 
file with you. But before it's filed with you, they use some 
process in making a final determination as to what they will 
file with you.
    Ms. Toll. That's correct. That's called rate justification.
    Mr. Green. Right, and that's the part that we have some 
difficulty comprehending, totally.
    Ms. Toll. And that's the part where the actuaries get into 
the picture. And that's also the part that we are working on 
together, as State regulators. It varies across States, but all 
of us are looking for more rate transparency. We believe that 
if you can just shine some light on the components, the 
questions you're asking for--if you could see the components of 
the rate, by then, automatically, justification would be 
provided and the rates, we would hope, would start to go down, 
by operation of the free market.
    Mr. Green. Well, have we not concluded at some point in 
life that people can justify almost anything that they really 
set out to justify? I mean, doesn't that seem to happen quite a 
bit in the world that we live in?
    And given that we can justify these things, it just seems 
to me that there is something that we need to look into when we 
have the kinds of disparities that we are talking about. There 
really ought to be some desire to protect the consumer from--I 
will say it--price gouging. And it doesn't matter to me who is 
involved in it, whether it's just the entity, the title 
insurance entity, or whether the State is involved in it.
    When you charge the consumer more than you can justify --
much, much more; sometimes it's arbitrary and capricious, but 
you can justify it--seems to me that you are taking advantage 
of a person who is involved in this process, maybe for the 
first time. And it moves very fast. Very fast. You have paper 
thrown at you, one after another, one piece after another, 
``Sign here, sign there.'' And most people don't read what they 
are signing. Most people don't know that they can shop. Most 
people just want to fulfill the American dream and own a home.
    And on that day, if someone said, ``You are paying $1,000 
too much for your title insurance,'' my suspicion is a good 
many people would say, ``Can I get the house? Will I still be 
able to have my house? And if the answer is yes, I will pay 
$1,000 too much.''
    So, it seems to me, that we ought to want to find some way 
to look out for the consumer who has, in a sense, said, ``Look, 
I am sending you up there to Congress, Al, and I want you to be 
my eyes and my ears, and I want you to look out for me, because 
I don't know all of these things about this process.'' And it 
seems to me that you ought to be concerned when the prices vary 
so greatly.
    So, how would you have us try to pull these prices in line, 
such that we don't have these great disparities in pricing?
    Ms. Williams. Pricing is another issue that GAO is planning 
to look at in its study. One of the things that we have 
discovered so far is that in States that have a file and use 
policy, that means that the insurers simply file a rate. And 
it's not that they have to wait for any type of formal approval 
from the State regulator before they can use it. They file it, 
they wait the required period of time, and then they can start 
using that rate.
    So, one of the things we are trying to get our arms around 
is this issue of how the rates actually are set from State to 
State, and what that variation is, and explanations for the 
variation. So this is one of the things that we are planning to 
look into further.
    Mr. Miller of California. The gentleman's time has expired. 
Mr. Neugebauer, you are recognized for 5 minutes.
    Mr. Neugebauer. Thank you, Mr. Chairman. I guess my 
question to the panel is--and just for a little bit of 
background, I have been a land developer, home builder, and in 
the real estate business pretty much all of my life, and so I 
have, you know, purchased and done business with title 
companies for a number of years. And I understand the benefit 
of title insurance to the system.
    So, when you start talking about kickbacks, and things that 
are going on in the industry, I guess the first question I have 
is, is this a big problem, or a systemic problem throughout the 
whole industry, or is this isolated companies and States--and 
you mentioned two States, California and Colorado.
    Because sometimes what we do, we chase the 1 percent, and 
then punish the 99 percent while we're trying to chase the 1 
percent of the people that aren't playing by the rules. So I 
would like to hear your reflection on that.
    Ms. Toll. Sadly, it's a problem that we are seeing all 
across the country. It's not just Colorado and California. We 
do see it concentrated, the kick-back schemes are concentrated 
in areas where there is a lot of real estate development, such 
as Colorado, California, Nevada, Florida, and Arizona--places 
where we see a lot of new development. But it's a problem all 
across the country, and that is why it is so critical that all 
the States and all the different regulatory bodies work 
together to combat the problem, and we share information, 
including at the Federal level.
    Mr. Neugebauer. Ms. Williams?
    Ms. Williams. On this particular question, I think it would 
be wisest for me to defer to Ms. Toll or Mr. Cunningham, 
because we are still in the process of doing our work, and we 
are relying on the work that they are doing.
    Mr. Cunningham. Congressman, I am not sure that we have 
statistical information in terms of how big a problem it is. We 
see it on a pretty regular basis, and we believe that it's not 
the direct payment kind of thing, where I pay you for this 
referral.
    What it is, is some sophisticated kind of relationship like 
captive reinsurance was, like paying above-market rent for 
conference rooms to close a loan in Detroit, like title 
companies that set up affiliated--and this is not just a title 
problem, this is across the industry.
    You won't see it, I think, because my experience in private 
practice is a lot from the commercial development side, where 
you're used to bigger projects, and you're used to reinsurance, 
and so forth. You don't see it in that setting, I think. But in 
a single family real estate transaction--and what HUD thinks 
is--we need to find a better way to let title companies and 
other settlement service providers compete on the basis of 
price.
    And do an education process, maybe. Use the Internet. We 
have a consumer settlement booklet that is already part of 
RESPA that is supposed to be given out. We just collectively 
need to let people know, ``Hey, before you buy title insurance 
or hire a real estate appraiser, or anybody else in this 
process, realize that you have some choices. Shop it some. Talk 
to people, and you know, do those kinds of things.''
    And then, do some things on the enforcement side, so that 
when the rules are out there, and the rules are clear, and you 
know, you're trying to set up an entity that really does no 
work or performs no valuable service, and somehow is going to 
get a premium or referral fee, that folks are going to suffer 
the consequences for that. And they do. And when there are 
settlements, they get posted on the Internet, it gets picked up 
in your local paper, that this and that real estate agent or 
whatever, paid a kick-back, or received a kick-back, and so 
forth, and let people know.
    So, competition, we think, is part of the heart of the 
thing. But competition that's directed at the consumer. And 
then sell the services and, ``My services are better than her 
services,'' and so forth, too, as part of that process, but 
don't market primarily to the referrers of the title service.
    Mr. Neugebauer. Do you think that States ought to set title 
insurance rates, or do you think they ought to just be open to 
the market, and--
    Mr. Cunningham. Well, I mean, this is me talking. I don't 
think that--I think the States who regulate the title insurance 
business, their job is to make sure that there is somebody of 
substance standing behind the title policy that's issued, and 
so the regulatory function that Erin is talking about, in terms 
of we look at numbers and financial soundness, and those kinds 
of things, are legitimate and should be done.
    But beyond that, I think that the companies are going to 
have to say, ``Our price is cheaper, and we can still make 
money at a lower price, rather than a higher price, and so 
forth.'' And if the playing field is level, and there is 
enforcement, etc., most people will like that situation, and it 
can benefit businesses and the consumer.
    Mr. Neugebauer. So I'm clear about your answer, did I hear 
you say that you think the State's focus ought to be on safety 
and soundness, and that the marketplace ought to set the price?
    Mr. Cunningham. That's my opinion, based on what I know.
    Chairman Ney. Time has expired.
    Mr. Neugebauer. Thank you, Mr. Chairman.
    Chairman Ney. The gentleman from Missouri, Mr. Cleaver.
    Mr. Cleaver. Thank you, Mr. Chairman. I am going to digress 
just a moment, and I will come back about the subject at hand.
    I am interested in knowing whether or not you are familiar 
with an issue that has been at least surfacing around the 
country in various places with regard to title companies. 
California, 2 years ago, and Kansas, the State of Kansas, our 
next door neighbor, the Kansas legislature met last week, and 
they passed legislation that removed all references to race, in 
terms of covenants, from titles.
    My--I have introduced a bill here. Unfortunately, it's not 
going anywhere. It's already, of course, unconstitutional, but 
the language is still on probably tens of thousands of titles 
all over the country.
    One of the issues that has surfaced, as title companies 
have watched what's going on, has been the cost, they say, of 
going back and trying to take care of removing all of that. And 
so it's going to be State-by-State that it's going to end up, 
unfortunately, having to be removed. But is that an issue that 
has any--that resonates with any of you, with the title 
industry?
    Ms. Toll. Congressman, that issue does not resonate with us 
in Colorado. Our general laws prohibit discriminating on 
pricing, and I believe that's part of model acts that virtually 
every State has. But I can check on the specifics. But no, we 
haven't seen a specific--
    Mr. Cleaver. No, no, no--
    Ms. Toll. Am I not understanding your question?
    Mr. Cleaver. I am sorry. It's unconstitutional. It's 
unconstitutional. The language is still there. Probably in 
Colorado, too. But the language--I'm not saying that because 
it's in the--it's on deeds or on titles that it's a legal 
problem. It is not. But just still having that archaic 
language, which is still offensive, is an issue that some are 
concerned about.
    California passed legislation for it to be removed. And so 
whatever the cost was, it had to be removed. The State of 
Kansas passed legislation 2 weeks ago to have it removed, no 
matter the cost. And I--are we still on the same--
    Ms. Toll. I'm not familiar with the issue at all. I'm 
sorry.
    Mr. Cleaver. Sir?
    Mr. Cunningham. I share your Missouri background. I'm from 
St. Louis, so I know you as mayor of Kansas City, and so forth.
    I think that, whatever the records were 100 years ago--and 
that's--Missouri has obviously got the same kind of problem--
will stay. But I sure haven't seen any recent title policies 
that come up where that sort of racial restriction is listed as 
something that is still part of the policy, or the real estate. 
So it's going to be there and in the books, but I am not--and I 
don't know how you ever get rid of that. But I'm not sure that 
people are still seeing those kinds of racial restrictions, 
even if they still exist in a particular title on current day 
documents.
    Mr. Cleaver. The Kansas City Star did a--one woman went to 
buy a home, found it, and went to the Kansas City Star. They 
did research, and found out that it was rampant. I mean, all 
over. And after a conversation with the woman, I started 
checking in it, found out that California had already done 
something about it.
    And it doesn't mean that we have a legal problem, it means 
that we have an ugly problem. And--okay. I will leave that. Let 
me go to another.
    There is a lot of paranoia on the Gulf Coast, as you can 
imagine, most of which is justifiable. And I'm wondering if you 
had any issues down in the Gulf Coast with regard to titles. 
Some of the folk--we have held hearings here, and many of the 
people say that, you know, they are living on property that was 
owned by their mother, and before that their grandmother. And 
after the flood came, they found out miraculously that they 
didn't own the property.
    Many people are saying--I don't know if this is anecdotal 
or not--but that, you know, property is actually being snatched 
from individuals who owned it, you know, for a century.
    And I don't know what all of the issues are in the Gulf 
Coast region. I am wondering if you have had any--if you have 
seen any issues like that surface since Katrina and Rita hit.
    Ms. Toll. I'm sorry, no. In Colorado, we haven't seen those 
issues. I could check with the NAIC, who could check with the 
Gulf States, Louisiana and any States affected. But I haven't 
heard of that. So, I'm sorry, I have to say, ``I don't know'' 
twice, but I don't.
    Mr. Cleaver. I have to tell my children that, too. But no, 
I appreciate it. Thank you.
    Chairman Ney. Mr. Campbell?
    Mr. Campbell. Thank you, Mr. Chairman. A couple of 
questions for Ms. Toll, please, if I may. In your testimony, 
you talked about large title companies setting up this sort of 
reinsurance arrangement. Did they all, all the big players, did 
they all do it?
    Ms. Toll. You know, I'm really glad you asked that 
question. No. About five large groups of insurers control about 
90, or 95 percent of the market; it's a huge portion of the 
market. And in Colorado, we found that three of the four top 
companies were engaged in the process. But the fourth was not 
engaged in captive title reinsurance. And when I asked them why 
not--because I was just, frankly, curious so I asked their 
principals why they did not engage in these practices. And they 
said that they believed that they were illegal, so they never 
entered into them.
    Mr. Campbell. Did they lose market share?
    Ms. Toll. They claim they lost--their exact words were, 
``Erin, we're taking a beating in the market, but it's not 
right.''
    Mr. Campbell. Can title insurers in Colorado pay a sales 
commission?
    Ms. Toll. A sales--I don't know what you mean, I'm sorry.
    Mr. Campbell. Okay. If this--this arrangement, or a kick-
back, if it were not illegal, wouldn't we say that that was a 
sales commission? You are paying someone to market your product 
for you?
    Ms. Toll. Yes, that's a really interesting way to look at 
it, and it gets back to the competition and the unique way that 
insurers compete for business. If it were like other lines of 
insurance, we wouldn't have anti-kick-back laws, and we don't 
have them for other lines. You can split your commissions in 
other lines of insurance.
    But it's because this product is not marketed to the 
consumer, they're not controlling it, they don't have knowledge 
about it. It's those reasons that we have these kick-back laws. 
Whoever came up with--oh, you all came up with RESPA--and the 
various State legislatures passed mirror laws, or similar laws. 
It's because they understood that the competition was 
different. And so, it would not be illegal in other lines, at 
least not in Colorado.
    Mr. Campbell. Okay. I am trying to think if there--aren't 
there other forms of insurance where--I'm just trying to 
think--where someone else--I mean, you might have mortgage 
insurance on the same transaction, which is really often 
recommended, or put together, by the title company or the 
lender, or whomever.
    Ms. Toll. Okay, you're getting into this anecdotal 
information I am starting to hear about.
    Mr. Campbell. Okay.
    Ms. Toll. I keep getting sort of anonymous calls and 
whispers in the hallways, which is how I learned about captive 
title reinsurance, that there is a problem with the issue 
you're talking about. But I am not prepared to discuss it now; 
I don't know anything about it.
    Mr. Campbell. Okay. All right. Well, thank you. That's all. 
I yield back my time, Mr. Chairman.
    Chairman Ney. Thank you. Mr. Tiberi?
    Mr. Tiberi. Thank you, Mr. Chairman. To the three of you, 
obviously we all have experiences in the marketplace, whatever 
market we're in. I will give you my bias and my experience, and 
maybe we can have some sort of exchange.
    Clearly, what you all are talking about is these affiliated 
agreements in the marketplace. I was a realtor. Not a broker. I 
didn't get anything out of referring somebody to a particular 
title agency, whether they were in the office that I worked or 
not. Nothing. Zero. I did it for one reason, and that's to 
benefit my client. And I had an interest in benefitting my 
client as a realtor, because if I serviced my client well, 
hopefully they would be a client again.
    And in the marketplace, I have to tell you, as a realtor, I 
didn't have any clients say, ``I will pay an extra $1,000 to 
get in this house.'' It was usually them beating on me to 
reduce my commission, and beating on me to reduce wherever I 
could reduce. So it was in my interest, quite frankly, to refer 
them to different services.
    And I usually did three, whether it was three mortgage 
bankers, or three title insurers, or three termite inspectors, 
or whatever, so they could be part of the process. But it was 
in my interest, quite frankly, to try to do everything I could, 
as a real estate professional, to get the best deal at the best 
cost for my client.
    Now, I'm not saying that every single realtor is going to 
do that. But the ones that are most successful, and are going 
to be in this for the long term, are doing that in the 
marketplace for the benefit of their client. And I think that's 
probably with most industries in the marketplace.
    My question, I guess to you, going from your right to left, 
my left to right, is isn't there an acknowledgment that in 
today's world the real estate industry is so competitive that 
the majority--certainly not all--the majority of folks that 
are, number one, realtors at least, who aren't legally allowed 
to get a--I think the word used earlier was kick-back--are in a 
position in a competitive environment, and refer based upon 
their reputation in the marketplace, and on behalf of their 
client?
    Ms. Toll. Congressman, am I on your left, because you 
wanted--
    Mr. Tiberi. Yes, that's right.
    Ms. Toll. All right, then I will go first. As long as your 
interests--pretending you're a realtor--are aligned with those 
of the consumer, that is you are choosing appraisers and 
termite control people based on quality of service, then I 
don't think there is a big problem in the market.
    Mr. Tiberi. But isn't it in my best interest to do that?
    Ms. Toll. Yes, it--well, yes. But if I were standing there, 
handing you money, maybe--not everybody is swayed by this--but 
you might say--I hate to use you personally, but--
    Mr. Tiberi. No, you can use me, because no one ever handed 
me money.
    Ms. Toll. But someone, a less scrupulous broker, might say, 
``I will take that $1,000, and direct my business to the 
company that you own.'' And then it's not based on the 
reputation and the quality of the service that the title 
insurance agency is providing, and it's not--you know, it might 
not be a seamless closing. And so that's not in your interest.
    But because title insurance is what's called a long claim 
tail business, the consumer might not know about it for about 8 
years, because it's only when you go to sell your house that 
you went, ``Oh, my goodness, there was a problem.'' So you 
might not find the problem right away, which is why we, as 
State regulators--
    Mr. Tiberi. And how are you defining the problem?
    Ms. Toll. The kick-back or the lien.
    Mr. Tiberi. The illegal kick-back.
    Ms. Toll. Right. If you don't use a reputable title 
insurance agency, there are a number of things that can go 
wrong. They might not file the release of the liens on time. 
There might be problems with disbursement of fees. It might not 
be a seamless transaction. But you might not find that that 
release was not filed until you go to sell your house. You 
know, we don't all go around going, ``Oh, I think I'm going to 
go over to the records and see if my note was released.''
    So that's why it's critical that you use a reputable title 
insurance agency, and that's why, if a realtor is referring 
someone to somebody just based on the service, to a title 
agency just based on the service, I don't think there is a big 
problem. And unfortunately, it is a few bad actors that are 
tainting the industry. It's a--and we're trying to get rid of 
the bad actors so everybody else that does it right can 
compete, and--
    Mr. Tiberi. So you would acknowledge that it's a few bad 
apples?
    Ms. Toll. It's a pervasive problem in the sense that it 
exists in every State. I think, as a percentage of premium, 
that would be an interesting thing to explore. All I know is we 
are just going crazy at the Colorado Division of Insurance, 
finding the bad actors. And a lot of our complaints actually 
come from competitors. So we know there are good guys out there 
that want the playing field to be level, and we are trying to 
respond.
    Mr. Tiberi. Could you imagine that there might even be, in 
a competitive marketplace, actually a benefit to consumers, 
meaning if the three of you are title insurers, and I know all 
three of you, and I said to my client, Mr. Campbell here, ``Go 
talk to these three, and get the best deal possible,'' don't 
you think that actually encourages competition and lowering the 
cost?
    Ms. Toll. If I, as a consumer?
    Mr. Tiberi. No, he is the consumer. You are the title 
agency.
    Ms. Toll. Oh.
    Mr. Tiberi. You three are the title agency, and he talks to 
all three of you, and asks for a bottom line.
    Ms. Toll. Sure.
    Mr. Tiberi. Thank you.
    Ms. Toll. We would start competing.
    Mr. Tiberi. Okay, next--oh, I ran out of time.
    Chairman Ney. Quickly, for the next--
    Mr. Tiberi. Thank you, Mr. Chairman.
    Chairman Ney. You want to answer?
    Ms. Williams. This is one of the issues that we are also 
looking at in our study.
    Chairman Ney. Okay. Mr. Cunningham?
    Mr. Cunningham. I think if you do it that way, and price is 
one of the considerations that you use to base the referral, 
absolutely. Anybody who refers business and takes price into 
account as well as the other factors, that is part of the 
solution to this whole problem.
    Chairman Ney. Thank you. I yielded my time to Mr. Miller, 
so I'm not going to take the time now. But I am going to put in 
writing the question to you about competition. I want to thank 
you for your time today.
    Thank you. I want to thank panel two for being here. Bob 
Hunter is the director of insurance for the Consumer Federation 
of America, and a consultant on public policy and actuarial 
issues. Mr. Hunter is the former commissioner of insurance for 
the State of Texas. He also found the National Insurance 
Consumer Organization.
    Doug Miller is the president and CEO, and co-owner of Title 
One, Incorporated, in Bloomington, Minnesota. Title One, 
founded in 1992, currently has 8 offices with 55 employees. Mr. 
Miller is certified by the Minnesota State Bar Association as a 
real property law specialist.
    Mr. Arthur Sterbcow has been president of New Orleans-based 
Latter and Blum, Incorporated since 1995. He is also a member 
of the board of directors for the Real Estate Services 
Providers Council, Incorporated. Mr. Sterbcow was appointed by 
former Louisiana Governor, Mike Foster, to the State's property 
insurance task force.
    Tom Stevens is a 2006 president of the National Association 
of Realtors. The association represents more than one million 
members, and is involved in all aspects of the residential and 
commercial real estate industries. Mr. Stevens is a past 
president of the Virginia Association of Realtors, and was 
named Realtor of the Year by the State association in 1991.
    And Rande Yeager is president and CEO of Old Republic Title 
Insurance Company Group of Minneapolis, Minnesota. He joined 
the company in 1987, and is responsible for all operations of 
Old Republic Title and its subsidiaries. Mr. Yeager is also the 
2006 president of the American Land Title Association. Welcome, 
and we will start with Mr. Hunter.

  STATEMENT OF ROBERT HUNTER, DIRECTOR OF INSURANCE, CONSUMER 
                     FEDERATION OF AMERICA

    Mr. Hunter. Good afternoon, Mr. Chairman, members of the 
subcommittee. Excessive title insurance premiums are not a new 
problem. In 1977, I assisted as Federal Insurance Administrator 
when the Justice Department first criticized the practice of 
reverse competition in title insurance. We haven't used the 
word reverse competition, but this is the crux of the problem.
    Reverse competition is a feature of certain insurance 
transactions in which the buyer of the insurance is not the 
shopper, but is really looking for something larger, like a car 
or a home, and insurance is either required or suggested as 
part of that process.
    At that point, a third party--a real estate broker, car 
dealer, or someone--is in a position to steer the consumer to a 
particular insurer. The third party is often influenced in 
making the selection of an insurer by kickbacks that take many 
forms: commissions, underpriced services, captive reinsurance, 
and so on. The focus of competition is on rewarding the third 
party for the steering. Since this increases the price of the 
insurance, the competition is the reverse of normal.
    I heard Prudential say in a reverse competition situation, 
that they could not sell insurance, because they were--their 
price was too low. This was credit insurance. Their price was 
too low, therefore they were non-competitive.
    In the case of title insurance, title insurers market their 
products to real estate professionals who, because of their 
position of market power in the real estate transaction, can 
steer consumers to a particular title agent or insurer. The 
consumer has little or no market power in this transaction, 
because title insurance is required, because the consumer 
infrequently purchases reinsurance, and has little knowledge.
    It is very powerful uninformed consumers buying required 
insurance subject to market power exercised by trusted 
professionals, and only breaking the power of this incentive 
can end reverse competition and bring title insurance premiums 
down.
    In 2005, consumers paid $17 billion in title insurance 
premiums: 4 times what they paid in 1995. This increase was 
driven by increased home sales, mortgage refinancings, and 
growth in home values. Yet the--given automation, there should 
have been savings, and prices should not have gone up at the 
same rate as these other factors.
    BankRate estimates that national average premiums for title 
insurance on a $180,000 loan is $925. I am an actuary, and I am 
using the title report and other estimates, that it should only 
cost somewhere between $200 and $300 for the 5 percent that was 
paid out in claims, and for the costs. So we're talking about 
triple the fair price.
    The majority of title insurance costs are not for losses or 
operating costs, but payments to title agents. The top four 
title insurance paid an average of 80 percent of the title 
insurance premiums to their agents, and it's not disclosed to 
borrowers.
    The widening number of investigations, State and Federal, 
into allegations of illegal kickbacks are helpful, but too 
little and too late. Congress must act to remove the financial 
incentive for reverse competition.
    There are two possibilities for doing this. One, replace 
title insurance with a Torrens-type system. Torrens title is 
another method for protecting buyers. It started in Australia 
in 1858, and is used throughout the world in most countries. In 
Torrens, title to the properties is created by the act of 
registration in the central register. Once your name is on the 
register, you are the owner, by the fact of registration. Title 
by registration is the pivotal concept of Torrens.
    The State of Iowa uses this system, and it saves a lot of 
money. The current premium in Iowa is $110 for mortgages up to 
$500,000. Here, in D.C., a $500,000 mortgage costs, for title 
insurance, $1,775, 16 times what it was charged in Iowa. Given 
that most of the world--and even Iowa--has moved to an 
efficient method of protecting home buyers from defects in 
titles, Congress should encourage more States to experiment 
with less expensive alternatives.
    Second, make lenders pay for their title insurance. Another 
alternative is to have lenders pay for the title insurance 
policies, and include the cost in the APR, which is clearly 
subject to positive competitive forces. The general approach 
would be to make those requiring title insurance pay for it: 
the lender for lender's policies, and the buyers for the buyer 
or owner's policies. This would hold down the cost of insurance 
premiums, because there would no longer be an ability to 
indirectly pass the costs through to the home buyer. The direct 
pass-through approach, part of the APR, will pressure lenders 
to squeeze out excessive kickbacks from title insurance 
products.
    We have known about these kickbacks for decades. Study 
after study has shown that they exist, and that they are very 
powerful, and have doubled or tripled the real price. As has 
been true since 1977, these incentives for kickbacks are great.
    And you just can't outlaw them by saying they are illegal--
    Chairman Ney. I'm sorry--
    Mr. Hunter. You have to stop them by taking away that 
incentive.
    [The prepared statement of Mr. Hunter can be found on page 
55 of the appendix.]
    Chairman Ney. I'm sorry, Mr. Hunter, your time has expired. 
The reason I am--I just got notice that we are going to have 
votes, so I want to get everybody's testimony in, so I am just 
staying strict to the time because of that reason.
    Mr. Hunter. Fine.
    Chairman Ney. Mr. Miller? Thank you.

 STATEMENT OF DOUGLAS R. MILLER, PRESIDENT AND CEO, TITLE ONE, 
                     INC., MINNEAPOLIS, MN

    Mr. Miller. Thank you. I am here today because I am being 
shut out of the Minnesota title industry by controlled business 
relationships. My company can no longer compete because we 
won't pay referral incentives to realtors and loan officers. 
There are a lot of realtors and loan officers who would like to 
send me business, but because of management pressures, they 
can't do it.
    When you mix controlled business and fiduciary 
relationships, competition becomes, ``Who can pay the most in 
referral fees?''
    I have been in business for 14 years. I have a great 
company. We strive to have the best service, product, and 
pricing. We are one of the most technologically advanced 
companies in the Nation. We have 60 great employees and 8 
convenient locations. But none of that matters any more. 
Consumers typically rely upon realtors to select their title 
company.
    For title service providers, there is almost irresistible 
incentive to financially influence these realtors to refer them 
business. And nowhere are there more referral incentives 
tainting the market than in Minnesota.
    Minnesota is the most corrupt place in the Nation to close 
a home. Service excellence and price are now meaningless in my 
market. Instead, we have a system that rewards real estate 
professionals for manipulating their clients into selecting the 
highest priced title companies. That system is called 
controlled business.
    My title company is stopped at the door at most real estate 
brokerage houses in town. They have their own affiliated title 
company, and don't want to hear about us. Loan officers who are 
loyal to our cause are powerless to risk making a title company 
recommendation that is contrary to the realtor's 
recommendation, for fear of losing a referral source. Consumers 
are carefully guarded from key information about competing 
title companies, and agents are chastised if they recommend a 
title company other than their in-house company. I could give 
away my services for free, and still be shut out.
    RESPA was designed to prevent exactly what happened in 
Minnesota. Unfortunately, RESPA created some loopholes for 
certain affiliated businesses. Minnesota is now one big anti-
competitive loophole.
    Real estate agents are trustees of their clients' real 
estate affairs. They are fiduciaries. Controlled business and 
fiduciary relationships don't mix. When you start talking about 
capture rates in fiduciary relationships, it is the equivalent 
of talking about manipulating fiduciary relationships for 
financial gain.
    It may be a great business plan, may make tons of profit 
and they may be hugely successful, but for the same reason that 
they are so successful is also why they are very illegal. It is 
self-dealing and anti-competitive.
    NAEBA, the National Association of Exclusive Buyer Agents, 
is one organization of realtors that takes the position that it 
would be self-dealing, and an obvious breach of fiduciary 
duties, to accept pressures or incentives in the selection of a 
title company. Take a look at Exhibit A.
    CBA's don't have to compete, so they are expensive. In 
fact, CBA's are the most expensive title companies in the Twin 
Cities marketplace, sometimes by as much as 40 percent. And you 
can take a look at my price comparison over there. The entire 
basis for a CBA's existence is to control fiduciaries, so that 
their clients are prevented from making an informed decision. A 
vulnerable and trusting consumer will pay more, so controlled 
business charges them more.
    If you have a CBA, then you have a license to charge 
whatever you want. CBA's are bad for consumers, and they 
destroy competition. Joint ventures are the worst form of CBA. 
They are created by title companies for the purpose of paying 
referral incentives. Instead of competing on service and price, 
the title company captures the realtor's business by setting up 
a joint venture with them.
    The joint venture provides identical services that the 
title company already provides, but the realtors get to share 
in the profits. There is no legitimate reason for their 
existence, they add nothing to the transaction, except an extra 
step and kickbacks or referral incentives to realtors. This 
adds a huge, unnecessary step and cost to a transaction that is 
already very complex and expensive.
    The realtor just tells the client where to go for their 
closing, the HUD will show an extra line item to the JV for 
services that should have been done by the original title 
company, the companies that compete on service and price never 
even have a chance. The realtor's advice has been bought and 
tainted, just as clearly as if they had been paid a cash kick-
back.
    Where there used to be a handful of title companies in the 
Twin Cities market, there are now over 500, and most of them 
are JV's.
    Although the elderly, first-time home buyers, and some 
protected classes may be victimized the most, these schemes 
cross over all racial and demographic borders.
    The impact of CBA's is nowhere more apparent than in 
Minnesota. The Federal Housing Finance Board conducted a survey 
of mortgage closing costs in U.S. cities, and concluded that 
our closing costs were more than twice the national average. A 
recent investigation by Money Magazine concluded that 
widespread existence of controlled business relationships was 
the main reason Minnesota now has the highest closing costs in 
the Nation.
    Conclusion. Minnesota's free market system has been 
horribly perverted, and it is harming consumers and legitimate 
business to the tune of billions of dollars per year. Whether 
legal or not, controlled business in a fiduciary relationship 
will always have an anti-competitive effect. Why would any 
fiduciary, truly acting in a client's best interests, 
repeatedly send those clients to an affiliate that it knows 
will cost them hundreds of dollars more, on average? The system 
has been breached, and the culprit is controlled business. 
Thank you.
    [The prepared statement of Mr. Miller can be found on page 
78 of the appendix.]
    Chairman Ney. Thank you.
    Mr. Sterbcow?

   STATEMENT OF ARTHUR STERBCOW, PRESIDENT, LATTER AND BLUM, 
    REALTORS, NEW ORLEANS, LA, ON BEHALF OF THE REAL ESTATE 
                SERVICES PROVIDERS COUNCIL, INC.

    Mr. Sterbcow. Good afternoon, Mr. Chairman, and members of 
the subcommittee. My name is Arthur Sterbcow, and I am 
president of Latter and Blum Realtors, a full service real 
estate brokerage company, headquartered in New Orleans, 
Louisiana, since 1916. Despite Hurricane Katrina, we are still 
around.
    Latter and Blum Realtors has 28 real estate brokerage 
offices that engage in real estate sales and leasing in 
Louisiana and southern Mississippi through over 1,000 sales 
associates and 250 employees. Latter and Blum offers mortgage 
services through our wholly owned subsidiary, Essential 
Mortgage Company, and we offer title and closing services 
through Essential Title, another wholly owned subsidiary.
    We also offer insurance through Latter and Blum Insurance 
Services, which is a joint venture, jointly owned by Latter and 
Blum and Hartwig Moss Insurance Agency.
    Today I am representing the Real Estate Services Providers 
Council, known as RESPRO, as a member of its board of 
directors, and as its 2006 vice chair. RESPRO is a national, 
non-profit trade association of approximately 275 residential 
real estate firms, mortgage lenders, home builders, title 
companies, and other settlement service companies. The bond 
that unites this diverse membership is that we all offer one-
stop shopping for home buyers and home owners through what are 
known under RESPRO as affiliated business arrangements.
    My testimony today will primarily focus on one topic of 
this hearing, affiliated title businesses, and particularly the 
difference between legitimate affiliated businesses and sham 
affiliated businesses.
    In RESPRO's opinion, affiliated title businesses that 
comply with RESPA and similar State laws, which I will refer to 
today as legitimate affiliated businesses, increase competition 
by facilitating entry into the title industry by non-
traditional providers such as real estate brokers, home 
builders, and mortgage lenders. They have also been documented 
over the years as providing consumers the benefits of 
convenience, accountability, and potentially lower costs.
    One of the reasons that companies like Latter and Blum have 
entered the title business over the last several years is 
because it allows us to improve the quality of the title and 
closing process for our customers. Another reason is consumer 
surveys--that are more fully explained in my written 
testimony--have shown that the majority of home buyers prefer 
to be able to get everything they need in one place.
    The reason these home buyers said they prefer one-stop 
shopping, or that they have just one person to contact, it 
speeds up the home buying process. It prevents potential 
problems and falling through the cracks. It ensures one 
standard level of service from all providers in the entire real 
estate transaction.
    Over the last 15 years, there have been a number of 
economic studies by both independent economists and HUD that 
have documented the increased competition and potentially lower 
costs that legitimate affiliated business arrangements have 
brought to the marketplace. In the interest of time, I won't 
repeat their findings here. But the details are provided in my 
written statement, and I will be glad to provide the complete 
studies to the subcommittee for the record.
    It is important, however, for affiliated businesses to 
comply with the Federal regulatory framework governing them 
that Congress and HUD have provided under RESPA. This 
regulatory framework requires a person referring business to an 
affiliate to disclose the nature of the financial interest. It 
prohibits that person from requiring the use of the affiliated 
service, and it prohibits that person from accepting illegal 
referral fees from the affiliated company.
    RESPRO has served as a regulatory compliance resource for 
our members' affiliated businesses throughout the years through 
our publications, a comprehensive desktop reference kit on 
regulatory compliance issues for managers of affiliated 
businesses, our workshops, and through our website at 
www.respro.org.
    Our organization, however, is very frustrated, frustrated 
that some providers in today's marketplace are violating RESPA 
and similar State laws by creating sham affiliated businesses 
that are established primarily through a vague RESPA's anti-
kickback prohibitions.
    In addition, we see illegal kickbacks in the marketplace, 
such as certain title agents or mortgage originators blatantly 
paying certain real estate agents for referrals of business.
    RESPRO has long been concerned about these violations, 
because they make it more difficult for legitimate affiliated 
businesses to compete, and because they tarnish the reputation 
of our companies. It is, frankly, frustrating for companies 
like mine to devote substantial resources to assuring that our 
affiliated business are in compliance with RESPA and similar 
State laws, and then observe competitors bypassing those 
protections with clear-cut violations.
    For that reason, we totally support efforts by HUD and the 
States to more effectively enforce RESPA and State laws, and we 
support State efforts to put more teeth in their State laws, to 
enable them to more effectively curb sham affiliated businesses 
and illegal cut-backs by both affiliated and unaffiliated title 
companies.
    In fact, RESPRO's Colorado chapter recently worked closely 
with Colorado regulators on a new State law governing 
affiliated businesses that is modeled after RESPA. We believe 
this law could provide a workable framework that can be a model 
for other States in the future.
    Mr. Chairman, we offer our assistance to Congress, HUD, and 
State regulatory agencies, as you effectively deal with shams 
and illegal kickbacks in the future. I thank the committee for 
the opportunity to testify, and I will be happy to answer any 
questions.
    [The prepared statement of Mr. Sterbcow can be found on 
page 153 of the appendix.]
    Chairman Ney. Thank you.
    Mr. Stevens?

STATEMENT OF THOMAS M. STEVENS, PRESIDENT, NATIONAL ASSOCIATION 
                          OF REALTORS

    Mr. Stevens. Thank you, Chairman Ney, and members of the 
subcommittee. Thank you for inviting me here today. My name is 
Tom Stevens, and I am the former president of Coldwell Banker 
Stevens Realtors, which is now Coldwell Banker Residential Mid-
Atlantic, right here in the Washington/Baltimore area.
    As the 2006 president of the National Association of 
Realtors, I am here to testify on behalf of our nearly 1.3 
million realtor members, representing all aspects of the 
residential and commercial real estate industry. I appreciate 
the opportunity to share our views on title insurance costs and 
competition in the marketplace.
    Realtors take concerns about competitiveness and any sector 
of the real estate services industry very seriously. In fact, 
just a few months ago, the Government Accountability Office was 
asked to analyze competition among real estate brokerages. The 
GAO concluded that the industry has a number of attributes 
associated with active price competition. These include a large 
number of relatively small firms that are active throughout the 
country, and the ease of entry into the profession.
    Realtors have a particular interest in ensuring 
competitiveness in the title industry, as title companies play 
an important role in the real estate transaction. As you may 
know, real estate professionals interact with title companies 
in a number of ways. Let me highlight one, in particular, that 
explains why we believe the industry is competitive.
    Through affiliate business arrangements, a real estate 
broker or agent may refer business to a settlement service 
provider, such as a title company that is owned in whole or in 
part by the referring party. Under this arrangement, the 
referring party receives no direct payment for the referral, 
but he or she can benefit indirectly, based on the financial 
growth of the affiliated provider.
    While NAR does not have comprehensive data on nationwide 
real estate affiliated title companies, based on my experience 
I estimate that about 20 percent of real estate professionals 
have established title company affiliations. Industry experts 
acknowledge that the average capture rate, or the number of 
transactions completed by the affiliate, is around 30 percent.
    Why is this number so low? First, a broker-owner has little 
influence over how real estate agents manage their clientele. 
Second, agents are highly motivated individuals, whose future 
business depends on giving their clients a high level of 
customer satisfaction. Consequently, an agent will recommend 
the provider that they believe will provide the best experience 
for their client. More often than not, it is not the broker's 
affiliated company.
    Title insurance providers must be highly competitive to win 
business from their partners in the transaction. I have 
detailed in my written testimony additional reasons why we 
believe title insurance also is competitive. These facts are 
not in serious dispute among real estate service providers.
    The question we have often heard debated is, if the 
business is so competitive, why haven't the costs of title 
insurance decreased, especially with the proliferation of the 
Internet? Simply put, there is no do-it-yourself easy way to 
issue title insurance. Each home has its unique title and 
history. Each sales transaction requires its own title search, 
its own title examination and commitment, title policy, and 
settlement closing.
    Purchasing a home requires weeks, if not 1 or 2 months of 
work, and there is tremendous liability at stake for all 
parties. So while a person can go on the Internet and in just a 
few minutes have an airline ticket to virtually anywhere in the 
world, the time, complexity, and liability part of the real 
estate transaction precludes a point and click approach.
    However, there is one area of the title insurance market 
that greatly concerns realtors: illegal kickbacks. Not only are 
illegal kickbacks wrong, but they drive up closing costs for 
consumers. Real estate professionals want to see sham companies 
who engage in such practices removed from the marketplace 
quickly. NAR applauds HUD and State insurance commissioners for 
shining a bright light on sham companies and illegal kickbacks.
    We are optimistic that HUD's increased enforcement and 
coordination with Federal agencies and State regulators will 
send a clear signal to the bad actors, that they are not 
welcome in our industry.
    We also wish to issue a challenge to our industry partners 
to allocate resources to RESPA education efforts, as NAR has 
done with its RESPA awareness campaign. NAR is committed to 
ensuring that realtors understand RESPA, and fully comply with 
its provisions. We welcome every opportunity to work with HUD 
on our compliance efforts, to ensure that the real estate 
industry remains strong and competitive, well into the future.
    And I want to thank you for your time, and I would be happy 
to answer questions.
    [The prepared statement of Mr. Stevens can be found on page 
171 of the appendix.]
    Chairman Ney. Thank you.
    Mr. Yeager?

  STATEMENT OF RANDE YEAGER, PRESIDENT AND CEO, OLD REPUBLIC 
NATIONAL TITLE INSURANCE CO., MINNEAPOLIS, MN, ON BEHALF OF THE 
                AMERICAN LAND TITLE ASSOCIATION

    Mr. Yeager. Thank you Chairman Ney, members of the 
subcommittee. Again, I am Rande Yeager. I am president and CEO 
of Old Republic National Title Insurance Group. But today I am 
appearing as the 2006 president of the American Land Title 
Association.
    ALTA represents those poor souls sentenced to life in 
painful title insurance. We have over 3,000 members, including 
title insurers, title insurance agents, abstractors, and 
attorneys.
    Mr. Chairman, all of us who work in the land title business 
are justifiably proud of the essential role our industry plays 
in making our real estate market the envy of the world. Nowhere 
else is the creation and transfer of interest in real property 
accomplished more efficiently and securely than in the United 
States. It is because we are so proud of the many good and 
unnoticed things that our industry does, that we are so 
concerned about any questionable practices involving our 
members.
    Let me make this clear at the outset. We support strong, 
consistent enforcement of State and Federal regulations that 
address referral fee arrangements. Businesses that do not play 
by the rules gain an unfair competitive edge, and often provide 
inferior services at higher prices to the consumer.
    Because my time is so limited today, I will urge you to 
read our comprehensive written statement.
    And while consumers today are more knowledgeable about real 
estate transactions than they ever were in the past, the fact 
remains that most consumers still look for advice to their real 
estate agent or mortgage lender in selecting a title company. 
That is not likely to change in the foreseeable future.
    When title companies compete for recommendations on the 
basis of service, quality, and price, consumers benefit. 
However, captive reinsurance and sham affiliated business 
arrangements may involve indirect kickbacks or referral fees to 
the builder, lender, or broker, as a way of securing their 
recommendations.
    It's important for the subcommittee to appreciate that ALTA 
has always been a strong supporter of RESPA, and its objective 
to insure that competition is not skewed by illegal referral 
fees and other kickbacks. The reason for this support is clear. 
Such payments and practices cause great harm to the vast number 
of ALTA members who are complying with RESPA.
    Our association, therefore, has a strong interest in 
working with HUD and State authorities, and we do applaud the 
efforts of Erin Toll to insure that the rules are enforced 
fully, consistently, and fairly. Indeed, most enforcement 
actions are brought due to industry complaints to regulators.
    Accordingly, some of the changes we recommend to build on 
this private relationship are: section eight should be amended 
to provide competitors to bring a section eight case for 
injunctive relief. At present they do not have that right. 
Companies in the industry know when their competitors are 
engaged in unlawful payments to get business, and they have a 
strong incentive to stop such practice.
    Second, we would ask HUD to respond with a reasonable time 
to request for guidance on RESPA issues that are submitted by 
ALTA or other national settlement service associations. This 
screening process will ensure that only important questions 
with broad significance will be brought to HUD's attention.
    Third, we believe that States should be encouraged to adopt 
and enforce referral fee prohibitions against the recipients of 
such payments. Frequently, it is the title companies that are 
under pressure from persons in a position to refer business to 
make questionable payments in order to get referrals.
    Fourth, greater emphasis should be placed on consumer 
education, both directly and through the Internet. ALTA 
allocates substantial resources to educating its members, and 
for many years has been actively engaged in consumer education. 
ALTA's website contains clear and helpful information for 
consumers, as well as regulators.
    ALTA appreciates this opportunity to provide its views to 
the subcommittee, and I am prepared to respond to questions 
that any of the members have about the title insurance or its 
industry.
    [The prepared statement of Mr. Yeager can be found on page 
212 of the appendix.]
    Chairman Ney. Thank you. Without objection, the statement 
of the American Homeowners Grassroots Alliance will be entered 
into the record.
    Chairman Ney. Mr. Green, do you have a question?
    Mr. Green. Mr. Chairman, I do realize that we have the 
vote, and I will just compliment the persons who have appeared 
for doing so, and thank you for your testimony. And I thank 
you, Mr. Chairman, for providing the opportunity.
    Chairman Ney. Thank you for your participation in the 
hearing. I appreciate the second panel and I think it's 
important for your views to have been here today, to be part of 
the record.
    And I would note that some members, including myself, may 
have additional questions that they wish to submit in writing 
so, without objection, the hearing record will remain open for 
30 days for members to submit written questions to the 
witnesses, and for the responses to be placed in the record. 
Thank you.
    With that, the hearing is adjourned.
    [Whereupon, at 4:55 p.m., the subcommittee hearing is 
adjourned.]


                            A P P E N D I X



                             April 26, 2006


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