A Texas regulator announced a reduction in title insurance premiums in the state, leading to criticism and pushback among some businesses in the state.
The Lone Star State's department of insurance ordered a decrease in
"Every time a Texan buys a home, they will spend less on closing costs. This move supports housing affordability and will keep more money in home buyers' pockets," said Insurance Commissioner Cassie Brown in the announcement.
Brown issued her order in early February following an analysis of suggested changes brought forth by the Texas Land Title Association as well as the state's office of public insurance counsel. Based on their own calculations, TLTA recommended no change to title insurance rates year over year, while the counsel found a reduction in the range of 8.9% to 19% would be appropriate.
Through its own analysis of profits and expenses, the insurance commissioner's office came up with what it deemed a reasonable cutback of between 4.9% to 15.4%, making its final decision upon consideration of the Texas title industry's profit ratios of 26.6%, a level far exceeding exceeded target benchmark provisions all three organizations had previously forecasted.
"Sustaining the current levels of profits in the current real estate market with the
current levels of inflation would not be reasonable as to the public," her official state order said.
"The commissioner did not receive 'clear and convincing evidence' that a reduction in rates would lead the average title insurance company or title insurance agent to experience insolvency or earn an unreasonable rate of return," it also read.
In response, the TLTA said the order's effect was an unnecessary move that would harm members in the current housing market.
"We are extremely concerned about the commissioner's announced intention to lower rates to such a great degree, particularly given the ongoing depressed real estate market the industry has been experiencing for the last two-and-a-half years. The timing could not be worse. We are currently evaluating our options for next steps," said CEO Leslie Midgley in a statement sent to National Mortgage News.
Any change appears unlikely, though, according to Jay Beitel, principal at Texas law firm Polunsky Beitel Green.
"It wasn't just the commissioner saying, 'Okay, we're going to lower the rate.' It went through a process to get there," he said.
"They evaluate it. It goes up from time to time. It goes down from time to time. It's not locked in forever. In another three to 10 years they may re-evaluate," Beitel added.
Title industry critics have pointed to the impact of closing costs on affordability, but Texas' highly regulated environment means its law won't necessarily apply across-the-board downward pressure on rates in the country. Aside from Texas, Florida and New Mexico also promulgate title insurance rates.
While the insurance commissioner's comments might put a spotlight on title insurance's impact on affordability, a fair comparison of costs also becomes challenging when services included in the rate can vary on a state-by-state basis.
"It's kind of comparing apples and oranges," Beitel said. In Texas, a full range of services, such as title search and examination are included in the premium, whereas items are charged separately in most other states.
Some title industry businesses pushed back on the commissioner's claims of consumer benefit.
"I'm not necessarily opposed to the 10% reduction as a whole," said Jeremy Dean, co-founder of Elite Title Co. in Fort Worth and co-owner of its affiliate mortgage brokerage. But he noted the rate was significant to the bottom line of Texas small businesses during a challenging economic environment and offered almost nothing that would alleviate affordability.
"All you've really done is you just took 10% of revenue out of thousands and thousands of companies."
Dean found fault with the commissioner's claim of offering affordability to the buyer. Brown estimated the reduction would save Texans an estimated $238 million annually in costs, but a 10% reduction in title insurance premiums would save an individual consumer a few hundred dollars at most, Dean said.
Instead, he pointed to the rapid rise of interest rates, taxes
"It's not solving the bigger issue. It's not even addressing the bigger issue," he said.
The Texas insurance commissioner's decision comes after a year of heightened attention on the title industry following a Biden administration proposal that would waive certain requirements and reduce fees on some refinance transactions. The initiative encountered strong opposition from both TLTA and the American Land Title Association, but some large lenders, including Better and United Wholesale Mortgage, opted into the program currently managed by Fannie Mae.
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While the existing pilot remains controversial, the home finance community would benefit from a cooperative redesign of title insurance policy that still has homeowners paying a lender's premium when they opt to refinance, Dean said. Such a solution would help ease affordability issues for existing homeowners, he argued.
"I've been a mortgage lender for 24 years. My clients always ask, 'Why am I paying $1,800 for title? I bought a title policy and bought the house,'" he said.
"I think it would be significantly better for the customer if we, collectively as an industry, came up with a way to help them with those costs on refinances because it is just the lender's policy," he added.
