GAO Calls For Greater Title Co. Regulation

WASHINGTON--The Government Accountability Office voiced deep concern today regarding regulation and oversight of the title insurance industry, saying current practices "raise questions about the extent of competition and the reasonableness of prices that consumers pay for title insurance."

The report called on state insurance regulators to "take actions" to improve consumers' ability to comparison shop for title insurance and strengthen the regulation and oversight of the title insurance market, including the collection of data on title agents' operations.

Further, it said Congress may want to consider, as part of its oversight of the Department of Housing and Urban Development, a beefing up of the agency's authority to enforce the Real Estate Settlement Procedures Act, which governs the sale of residential real estate.

The National Association of Insurance Commissioners agreed the report raises "certain issues in the area of consumer protection, recognizes shortcomings in consumer protection, and presents some interesting recommendations that are worthy of exploration."

HUD, for its part, said it agreed with the report's recommendations.

J. Robert Hunter, director of insurance for the Consumer Federation of America, supported the findings of the study but issued a grim prognosis for the potential for change.

"Once again, proof of title insurance's great rip-off of America's consumers has been supplied," Mr. Hunter said. "Will, once again, the reaction of Congress and the states be to do nothing about it?

"The NAIC's 'insightful' comments do not bode well for reform," he added.

Regarding state regulation, the GAO report said some aspects of agent regulation, such as licensing, varied across the six sample states the report's authors studied, "while other aspects, such as capitalization and education requirements, were minimal."

Of six sample states GAO studied, the report said, four required agents to register or obtain a license, Iowa had no title agents registered, and New York had no licensing or registration requirements.

Furthermore, the report said, state regulators rarely audited agents, and the audits that were done were usually limited to examining only accounts that title agents use to hold customers' money, known as escrow accounts.

"Audits of operating accounts were uncommon, although some industry participants said that these accounts were a source of agent defalcations," the report said.

GAO's study follows investigations in a number of states that faulted the operation of major title companies and resulted in settlements requiring the firms to make payment.

Under a November 2005 multistate agreement led by Colorado, title insurers promised to make refunds of an estimated $1.2 million to customers in at least 18 states. The title insurers admitted no wrongdoing, but the agreement outlined title captive company insurance arrangements that it said violated laws against kickbacks.

Elsewhere, title insurers have paid more than $35 million in individual settlements with states.