The American title insurance industry is successfully blocking the widespread adoption of a new, competing product--a form of title-risk coverage that cuts title costs to the consumer by about half in a typical mortgage refinancing.

Meanwhile, the two biggest players in the home mortgage market--giant investors Fannie Mae and Freddie Mac--actively are exploring ways on their own to slash the high costs of title searches and insurance in home loan transactions.

The controversy over the new product--known as Radian Lien Protection (RLP)--stems in large part from what it seeks to do. Launched last fall, Radian Lien Protection is a form of insurance that covers lenders’ losses from “unrecorded liens”--a function normally associated with title insurance.

But the plan’s developer, Philadelphia-based mortgage insurer Radian Guaranty, Inc., says its product is simply an “enhanced” form of traditional mortgage insurance that adds a new “layer” of coverage to its regular policy for pools of home loans More importantly for consumers, when a lender uses RLP insurance on a refinancing, the title-related expenses are reduced by more than 50 percent on average, according to Radian. Instead of $650 or $700 in title expenses, the Radian plan charges consumers less than $300, according to Radian president, Roy J. Kasmar.Several major lenders, including Citimortgage, Green Point, and ABNAmro, signed up for the plan last year and continue to offer it to consumers.

The problem, however, is that the title insurance industry sees the new, lower-cost competitor as an unlawful intrusion onto its turf. The American Land Title Association, the industry’s national trade group, has filed suit in California to block RLP, charging that it is acually a disguised form of title insurance, offered by a firm not licensed to underwrite title policies.

The industry also has challenged the plan in other large states, forcing Radian to temporarily withdraw its applications to offer the concept in Florida and Texas. With business in three of the most populous states effectively on hold, a spokeswoman for Radian Guaranty, Emily Riley, conceded last week that RLP “is moving very slowly.” Riley could not provide estimates of how many cut-rate RLP policies had been issued by the insurer, but said the title industry’s stiff opposition “definitely has slowed us down.”

Perhaps more significant than the ALTA-Radian battle, however, are developments now underway at both Fannie Mae and Freddie Mac. In an interview last week with Realty Times, Fannie Mae’s vice president for credit policy, Joe Biegel, confirmed that his company is actively seeking alternatives to full-cost title insurance coverage in mortgage refinancings. An official at Freddie Mac earlier confirmed that that corporation is evaluating reduced-cost title alternatives as well.

The focus of Fannie’s and Freddie’s efforts are refinancings, rather than new home purchases. Title expenses in refinancings can appear high when the borrower is not informed of the availability of discounted “re-issue” rates, and when the loan being refinanced is relatively new.

Many consumers get upset when they see title charges of $800 to $1,200 or more on a refinancing of a home mortgage barely two or three years old. The search of the title records in such cases can be quick, and the risk of previously-undiscovered title problems is remote.

It is that refi situation that the Radian plan--and others being evaluated by Fannie and Freddie--seek to address with lower costs. Executives at both companies agree on a fundamental point: Whether they ultimately use Radian Lien Protection, or opt for lower-cost coverage developed within the title industry, the costs of title coverage on mortgage refinancings will be cut significantly in the years ahead.

And that should be good news for homeowners.

Published: March 18, 2002

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Kenneth R. Harney writes an award-winning, nationally-syndicated column on housing and real estate from Washington, D.C. He is also managing director of the National Real Estate Development Center, a professional education company. He is a past member of the Federal Reserve Board's Consumer Advisory Council, a committee that by federal statute reviews all Fed actions on home mortgage, consmer credit and banking industry regulation. He served as a member of the U.S. Department of Housing and Urban Development's Working Group on Computerized Loan Origination (CLO) systems, and is a member of the Editorial Board of the Fannie Mae Foundation's journal, Housing Policy Debate. He is the author of two books on mortgage finance and real estate.