Title Group Blames HUD For ?Kickback' Problem

Title Group Blames HUD For ?Kickback' Problem

By Daniel Hays

NU Online News Service, Feb. 1, 11:10 a.m. EST?A title insurance trade group executive accused federal officials yesterday of failing to provide his members with legal direction concerning activity that has led to allegations of a kickback scheme.

"We asked if this was a violation and they refused to provide any kind of guidance," said Jim Maher, executive vice president with the American Land Title Association.

His comments came after Erin Toll, Colorado's deputy insurance commissioner, said she was investigating whether nine title companies, in order to secure home builder's business, were rewarding them with kickbacks disguised as high-priced reinsurance payments.

Fifteen reinsurance outlets were operated by the builders as captive insurers based in Vermont and one in Hawaii, according to officials.

Title firms, according to Ms. Toll, shared 50 percent of their premiums with the reinsurers even though "essentially no reinsurance claims have been paid in five years." Builders buy title insurance for their home purchasers.

She said she would be informing HUD of the builder's activities and would shortly take enforcement action against nine title insurers.

Mr. Maher said that the Real Estate Settlements Procedures Act (RESPA), administered by the U.S. Department of Housing and Urban Development, "prohibits so-called kickbacks," and when the reinsurance practice first came to light in 1999, ALTA wrote HUD and "asked if this was a violation."

Late last year, he said, HUD finally answered, but the agency's only advice was to refer ALTA to a ruling it had made in 1997 concerning mortgage insurance firm practices.

"We were looking to have them apply criteria and at least engage in a dialogue," said Mr. Maher, adding that HUD should not "leave our people in the dark."

The mortgage insurance letter did not help, according to Mr. Maher. "One would have to know the exact terms of the reinsurance agreements. This is what we wanted HUD to do for us and they refused," he said.

Colorado has not identified the companies being examined. Mr. Maher said he suspected it involved the five largest national concerns--Fidelity National, First American, Land America, Steward Title and Old Republic?along with four corporate subsidiaries.

A HUD spokesman, Brian Sullivan, said he would not comment concerning any advice the department has given ALTA, but he said "it would be a violation of RESPA if the insurance premiums being charged did not reflect the risk these companies were taking," adding that "any fee has to reflect the service that's being rendered."

Mr. Sullivan said courts have been split on the issue of "upcharging" or "fee inflation" and suggested that "the Supreme Court might have to rule on this."

HUD's historical stance, he said, is to examine "if the service or the risk matches the premium or fee charged to the consumer."