The Pennsylvania Insurance Department, effective this month, has agreed to let title insurance companies boost their mandatory minimum fee by an average 7 percent.
It's the first increase since 2002, and no one commented in opposition to the increase when the rate request was filed earlier this year, according to department spokeswoman Melissa Fox.
Under the state's complicated rate scheme, tables posted by the department show charges now total $500 for the first $30,000 in property value, plus $6.50 for each additional $1,000. That's for home purchases. It's $450 for the first $30,000 in refinancings, plus $5.25 per $1,000.
While the state modestly increased base fees, the state also "simplified" the title insurance fee system, eliminating past discounts for buying homes that had sold within the past decade, and newly-constructed homes.
For some recent purchasers, that's meant big increases in title insurance fees. Fred Glick of Philadelphia-based US Mortgage cited a Delancey Street client "who was supposed to have paid $3,458 but will now have to pay $5,350" after losing the ten-year discount for a $1.5 million home purchase. In some cases, borrowers hit by big insurance increases may have to requalify for mortgages, or cancel deals, he added.
"Appraisal costs have also skyrocketed," Glick told me, but those are set "by the market," while title insurance fees are imposed in Harrisburg after lobbying by insurance companies and agents. "Real estate agents can't set commissions at 6 percent" under federal antitrust limits, he added. "But the insurers can set title insurance rates. It bothers me." In his Center City practice, Glick seldom sees title complaints.
"This is not something that happened overnight," counters lawyer Murray Levin, owner of title insurer Grateful Abstract LLC (he's a Dead fan.) "There hadn't been any prior rate changes for 10 years." While some discounts have gone away, the new rate schedule gives new discounts to people who refinance repeatedly, Levin said.
Overall, "claims are way up, mainly as a result of identity theft and property theft," Levin told me. He cited the withdrawal of two major title insurers, LandAmerica and Commonwealth Title, since the mid-2000s mortgage crisis, as a sign of the industry's difficulties.
In their application for higher rates, insurers claimed "the average production and underwriting costs" for Pennsylvania titles "almost doubled from 2000 to 2010, increasing from $1,133 to $2,254," and putting low-end loans below the industry's target "5% profit margin."
"More goes into this than verifying the chain of title," concurred Philadelphia appraiser Ray Ohler. "A lot of title companies had to pay fines -- big fines -- because of improper disbursements and disappearing escrows and a lot of other scams." Though Ohler adds he wouldn't be surprised if the rate-paying system -- like the Public Utility commission -- gives companies an incentive to make their expenses look even higher than they really are.
Shouldn't online public records make it tougher to phony up titles, driving title-insurance costs lower as digital systems improve? "It seems to be about a tie" in the race between technology and fraud, said Glick. "Making information more accessible also makes it easier for the bad guys."