What GAO Found
United States Government Accountability Office
Why GAO Did This Study
Highlights
Accountability Integrity Reliability
April 2007
TITLE INSURANCE
Actions Needed to Improve Oversight of
the Title Industry and Better Protect
Consumers
Highlights of
GAO-07-401, a report to the
Ranking Member, Committee on Financial
Services, House of Representatives
In a previous report and testimony,
GAO identified issues related to
title insurance markets, including
questions about the extent to
which premium rates reflect
underlying costs, oversight of title
agent practices, and the
implications of recent state and
federal investigations. This report
addresses those issues by
examining (1) the characteristics of
title insurance markets across
states, (2) factors influencing
competition and prices within
those markets, and (3) the current
regulatory environment and
planned regulatory changes. To
conduct this review, GAO analyzed
available industry data and studies,
and interviewed industry and
regulatory officials in a sample of
six states selected on the basis of
differences in size, industry
practices, regulatory environments,
and number of investigations.
What GAO Recommends
GAO recommends that HUD and
state insurance regulators 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, Congress may
want to consider, as part of its
oversight of HUD, exploring the
need for modifications to RESPA,
including increasing HUD’s
enforcement authority. HUD
generally agreed with these
recommendations, and NAIC
agreed they should be explored.
The U.S. title insurance market is highly concentrated at the insurer level,
but market characteristics varied across states. In 2005, for example, five
insurers accounted for 92 percent of the national market, with most states
dominated by two or three large insurers. Variations across states included
the way title agents conducted their searches as well as the number of
affiliated business arrangements (ABA) in which real estate agents, brokers,
and others have a stake in a title agency. Finally, premiums varied across
states due to cost and market variations that can also make understanding
and overseeing title insurance markets a challenge on the national level.
Certain factors raise questions about the extent of competition and the
reasonableness of prices that consumers pay for title insurance. Consumers
find it difficult to comparison shop for title insurance because it is an
unfamiliar and small part of a larger transaction that most consumers do not
want to disrupt or delay for comparatively small potential savings. In
addition, because consumers generally do not pick their title agent or
insurer, title agents do not market to them but to the real estate and
mortgage professionals who generally make the decision. This can create
conflicts of interest if those making the referrals have a financial interest in
the agent. These and other factors put consumers in a potentially vulnerable
situation where, to a great extent, they have little or no influence over the
price of title insurance but have little choice but to purchase it.
Furthermore, recent investigations by the Department of Housing and Urban
Development (HUD) and state insurance regulators have identified instances
of alleged illegal activities within the title industry that appeared to take
advantage of consumers’ vulnerability by compensating realtors, builders,
and others for consumer referrals. Combined, these factors raise questions
about whether consumers are overpaying for title insurance.
Given consumers’ weak position in the title insurance market, regulatory
efforts to ensure reasonable prices and deter illegal marketing activities are
critical. However, state regulators have not collected the type of data,
primarily on title agents’ costs and operations, needed to analyze premium
prices and underlying costs. In addition, the efforts of HUD and state
insurance regulators to identify inappropriate marketing and sales activities
under the Real Estate Settlement Procedures Act (RESPA), have faced
obstacles, including constrained resources, HUD’s lack of statutory civil
money penalty authority, some state regulators’ minimal oversight of title
agents, and the increasing number of complicated ABAs. Finally, given the
variety of professionals involved in a real estate transaction, a lack of
coordination among different regulators within states, and between HUD
and the states, could potentially hinder enforcement efforts against
compensation for consumer referrals. Because of the involvement of both
federal and state regulators, including multiple regulators at the state level,
effective regulatory improvements will be a challenge and will require a
coordinated effort among all involved.
www.gao.gov/cgi-bin/getrpt?GAO-07-401.
To view the full product, including the scope
and methodology, click on the link above.
For more information, contact Orice M.
Williams at (202) 512-8678 or