Though it insists the move is only temporary, the company sponsoring the most popular discount-rate alternative to traditional title insurance has just shut the program down nationwide.

Radian Guaranty Inc. President and COO, Roy J. Kasmar confirmed the shut-down in an interview with Realty Times last week. The alternative title program, launched last October, offered discount-rate title services--a flat $325 per loan-- on refinancings, home equity loans and second mortgages. It was used by major lenders such as ABN-AMRO Mortgage Corp., fifth largest originator in the U.S., and often came with other cost-saving closing elements, such as reliance on notary publics for mortgage settlements, rather than title agencies or lawyers.

The plan drew strong opposition from the traditional title insurance industry, which mounted challenges to it before state insuance commissions, and filed suit against it in the California courts. The industry charged that the plan constituted title insurance, while Radian Guaranty is licensed nationwide solely as a mortgage insurer. The $325 flat-fee coverage included $275 for a lender insurance policy and $50 for a credit and public records search to establish property ownership. ABN-AMRO Mortgage says it used the Radian coverage "extensively" on refinancings as a way to control consumer expenses in its pioneering "OneFee" guaranteed-price settlement cost package.

Radian Guaranty argued--and continues to maintain--that its program's protection for lenders against "undisclosed liens" is merely an extension of its regular mortgage pool insurance coverage,and is well within the legal limits of its insuring authority in all 50 states. But Radian's position has been rejected by seven state insurance commissions, most significant of which was California. The California commission ruled that Radian's "lien protection" constitutes title insurance, not mortgage insurance, and banned the underwriting of any addtional policies in connection with loans on California properties.

Radian officials say the real motivation behind the title industry's challenges at the state level has not been legal, but rather economic: Traditional title charges on mortgage refis and home equity loans often are significantly higher than Radian's flat fee $325. A 50-state survey by Radian produced an estimate that consumers would have saved nearly $3 billion in the year 2001 had their lenders all used the cut-rate lien-protection plan instead of traditional coverage.

Borrowers in some high-cost housing markets report being charged $800 to $1,000 or more on refinancings of loans barely two or three years old. Traditional title insurers do offer cut-rate "reissue" title policies on loans under 10 years of age in many states, and sometimes the reissue rate discounts take 50 to 60 percent or more off the regular premium charges. However, in many cases, according to title insurance industry officials, local title agencies fail to inform refinancers of the existence of the reissue rate coverage.

Radian Guaranty executives say that if its discount alternative hadn't been saving consumers and lenders large sums of money, the title industry wouldn't have mounted a national campaign against it.

"If lenders think our product is so inferior," asked Radian general counsel Howard Yaruss, "why do they want to buy it?" Moreover, he added, "if we're not good, why are the title insurers spending so much money and time to defeat us?"

The American Land Title Association argues that its opposition is on principle: Allowing companies to offer title-related coverage without having to submit to state title commission licensing and regulation would open the door to a host of unregulated new entrants. That would harm consumers, lenders, and undermine the entire system of title search and underwriting.

More importantly, says ALTA executive vice president James R. Maher, the Radian plan offers less services and isn't really cut-rate in that sense. Radian "only insurers against loss due to...undisclosed liens," says Maher, while traditional title insurance covers lenders against non-ownership of the property by borrowers and provides lenders with legal defense support in title challenges.

At the moment, there appears to be nothing more than a lull in this battle. Radian has appealed the California insurance commission's ruling and plans to go to court if unsuccessful on appeal.

"We will fight this to the bitter end," says Radian's Yaruss.

The response from the title insurance industry: So will we.

Published: August 19, 2002

Use of this article without permission is a violation of federal copyright laws.

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.