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Tuesday, November 11, 2008
Innovation
Buying Title Insurance Online Could Save Money
Donna Fuscaldo
FOXBusiness
Just like you can buy your car insurance direct online, for the first time, home buyers can get their title insurance without a middleman -- and potentially save about 35% along the way.
This past fall, EnTitle Insurance, the Cleveland, Ohio, title insurance company, launched Entitle Direct, an online service that lets home buyers in 31 states buy their title insurance direct by the end of the month. Claiming to be the first service of its kind, Timothy Dwyer, president and Chief Executive of Entitle Direct, said the service is already making waves in the title insurance industry.
“The industry is controlled by an oligarchy of five companies who write 92% of the $14 billion in volumes last year,” said Dwyer. “Title companies won’t take your business direct.” Title insurance is a type of insurance that protects the buyer or lender against loss of their interest in a property because of legal defects in the title. Defects could include tax liens.
According to Demotech, the insurance consulting company, Americans spent more than $30 billion on title insurance in the past two years.
Throughout its history, the title-insurance industry has been based on relationships between the real estate agent and title agent. The local real estate agent or lawyer typically refers customers to a title agent, who in turn gets a commission for sending business a title insurance company’s way.
According to Dwyer, in the past 30 years, the commissions’ title agents get from title insurance companies has inched up to a range which now stands at 70% to 90% of the premium, which ultimately means consumers end up paying more for the title insurance.
“The insurance company isn’t competing for the consumer, but for the middleman,” said Dwyer. He noted that Entitle Direct obtained the title insurance rates of its competitors in all of the states it operates in and then cut those rates by 35%.
Indeed the U.S. Government Accountability Office has recommended that HUD and state insurance regulators take actions to improve consumers’ ability to comparison-shop for title insurance.
The title insurance industry has been resistant to offering title insurance direct online because of fear the title agent will no longer bring business their way. But in the current environment, where people are looking to save any money they can on closing costs, offering title insurance direct is growing in demand.
“The need and demand is even more palpable than in the go-go environment,” said Dwyer. “We’re very positive on the demand it has received in a short period of time.” Dwyer said the company is aiming to be in all 50 states by mid to late 2009. Entitle Direct launched in early September.
While fears abound about traditional title insurers alienating title agents by going direct, Dwyer said the company is actually seeing smaller agents seek Entitle Direct out. He said the big title insurers have seen a decrease in volumes as the housing crisis forges on, and as a result, some have cut commissions on title insurance and/or terminated relationships.
Visitors to Entitle Direct Insurance should first register before signing a purchase and sale agreement. An Entitle Direct specialist will then run a search of the title to ensure there are no liens or make the home buyer aware if there are defects in the title. Entitle Direct has teamed with the National Real Estate Information Services to provide closing services as well. As part of the service, consumers can monitor the home closing on a daily basis using Entitle Direct’s patent pending Control Panel, which lets a user upload and store closing documents and download a HUD-1 settlement statement. The HUD-1 is updated in real time throughout the closing process so consumers can avoid having to pay surprise costs at closing, which is a widespread complaint.
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If you¿re like the vast majority of the population, buying a home is the largest personal investment you will ever make. You're buying something that¿s many times your yearly salary with the intention of holding onto that home for many years.
The bank you're going to get the money from to buy that home knows that, too. And if you're going to get a mortgage on a home, the bank wants to know how you're going to pay for said house.
Usually, you give a lot of paperwork to the bank, so the bank can tell if you're able to afford the house or not. You give them bank statements, credit card statements, letters from your employer stating your salary, tax returns, etc.
But, what happens if you may not be the perfect candidate for the home of your dreams? Or, you're buying too much home (the bank thinks you can afford a $200,000 home, you want a $230,000 home). Or, you don't have the money for a down payment. Or, you haven't paid your bills on time in the past. Or, the documents of how you make your salary are not 100% available.
Enter the subprime mortgage. Subprime mortgages are loans given by banks to people who may fall under any one of those above conditions, or others. Why would anyone want a subprime mortgage? Well, homebuyers get subprime mortgages because they get to buy the home they want. Banks give subprime mortgages because they can charge people more money for that mortgage. Remember, the difference in interest rates on a $200,000 or $300,000 home can mean the difference between hundreds of dollars in interest payments.
Still there¿s risk for both the person getting the mortgage and the bank granting it. When the playbook works, the value of the house rises. So, even if Joe Q. Badcredit couldn't afford the house he bought in 2001, at last resort Joe or the bank could sell the home, make a bundle off its increased value, and the bank could get its money back.
The playbook goes out the window, though, when home prices don't increase. Then homeowners run the risk of defaulting and banks lose money. At its worst, homeowners can lose their houses.
If you¿re in the market for a home, and the banker says you qualify for a subprime mortgage, it probably means you need to provide more documentation of how you¿re going to pay for that house. Or, you may be buying too much home. Talk with your banker about why you qualify for a subprime mortgage, and try to fix it.
