I'm including the cover because HUD put on something prettier than I've ever had put on the cover of my reports at Urban:
There are some interesting relationships not related to regulation that we were able to pull out, but by far and away the biggest was local regulation of the industry. However, be careful about drawing conclusions from that. Regulation had a lot more to do with the variability in title charges than it did in the absolute burden of title charges.
What was the purpose of this report?
ReplyDeleteBack in the 90s, before the introduction of new regs, there was a lot of concern about how opaque closing costs were. One of the biggest costs (as a percent of total costs) was the collection of title charges. Not only are these charges a big chunk of closing costs, but they were very erratic and HUD was interested in the determinants of the variation in title costs.
DeleteWhy didn't you just ask any good real estate lawyer?
ReplyDeleteFor example, your report never mentions that in certain states a real estate closing is considered the practice of law and thus a lawyer must be involved in the closing (or that a lawyer must prepare or review the deeds, deeds of trust, etc., and assure recording in the proper order). Without a detailed knowledge of state specific laws on such an esoteric subject, where is your rudder?
Further, in the State where I mostly practice, fees are excessive because title insurers dominate the state legislature. Accordingly, there is no regulation of what fees are charged for what services, except for insurance, and no state or local regulation of title insurers practices. Even policy rates are not reviewed for reasonableness.
And, you need to carefully consider Iowa, which does not have title insurance. Since you don't have title insurers engaging in corporate cronyism through the state legislature, I would expect that Iowa had the lowest charges for closing.
We did talk to real estate lawyers.
DeleteAnd the report does indeed mention that in certain jurisdictions lawyers must be involved in the closing and this is a big contributor to costs. Indeed, we included Cook County for precisely this reason. The whole point of looking at five communities rather than the whole country was that we could look at state specific circumstances, talk to ALTA representatives in each state, etc.
But the advantage we have over those guys is that we have lots of data on closings.
I forget if we mentioned Iowa in this report or not - it was not one of our five communities. We were well aware of the situation there. The Urban Institute did an earlier nationwide report and I think Iowa received a lot of discussion in that one.
We looked at Broward County, FL, Cook County, IL, Phoeniz, AZ, Sacramento, CA, and Philadelphia, PA. Cook and Philadelphia have extreme regulatory circumstances, and the other three fall somewhere in the spectrum in between.
Daniel,
ReplyDeleteI should have also mentioned that costs are high because the big four have admitted in a brief filed in the First American case that they have a concealed ownership position in about 25% of local title insurers, so you have a oligarchy effectively setting prices.
Yep, we looked at market concentration too.
DeleteIf you looked at Iowa then you got a first hand lesson in "Market Failure," as Iowa does not permit private title insurance and its costs are far lower than anywhere else in the USA.
DeleteIOW, your report ought to have supported ending the private title insurance business, replacing such with the Iowa model, and a pledge never to go near a Libertarian idea again.
Daniel, I also doubt that you have more closing data than real estate lawyers.
For example, in the last few years, a Kansas City a Missouri state circuit court has ordered Chicago Title and Old Republic in two class actions to account for closing costs on over 500,000 closings. Chicago Title and Old Republic have spent millions collecting the data. There are numerous other class actions where similar data collections have been made.
Certainly not more data than the title companies themselves. But you couldn't really use that data if its all from a single company - a sample of all closings in an area is more useful. And I should have clarified, we were able to merge on other data to the HUD-1s.
DeleteAnyway, it's a hairy topic and a lot of the variability is just because people don't know or don't have the energy to shop around (I knew all this and didn't shop around on our recent closing, precisely because there were so many other things to worry about). I think the report holds up pretty well, although obviously all of us wished it could have done a lot more.
I'm not entirely convinced this is a libertarian/non-libertarian issue. I didn't see any obvious reason to prefer the tightly regulated states to the less regulated states. The only real problematic case - I felt - was Cook County because of the giveaway to the bar association there. Aside from some reduced variability in fees, there wasn't a whole lot else that regulation seemed to do (and that variability may have existed for a good reason).
Policy-wise I remain fairly agnostic on the point. More information for consumers, which is available as a result of RESPA, seems like the real priority. I don't see a particularly strong case for setting rates.
I just learned of yet another defalcation by a local agent, costing consumers $5 millions.
DeleteDid you collect data on the number and amount of defalcations and the costst to consumers of defalcations under different environments?
For example, in Chicago, in the Intercounty case, the initial loss to consumers was about $100 million (and BTW, Illinois law does not require lawyers to be involved in closings, as is the case in South Carolina), which the Ill Dept of Insurance ordered Fidelity to repay to consumers?