Industry representatives say that real estate agents, loan officers and builders work with title insurance companies every day and are best able to recommend the most reliable and service-oriented firms.
Still, at least half of what Americans pay for title insurance can be attributed to illegal referral payments, said J. Robert Hunter, insurance director for the Consumer Federation of America.
"Title insurance is vastly overpriced," Hunter said. "It should be a few hundred dollars."
As evidence, Hunter and other consumer advocates point to Iowa, the only state with a government-run title insurance program. There, coverage for a $500,000 home costs just $110, with lawyer fees and other costs bringing the total to about $500. That price includes the owner and lender policies.
"The Iowa people have effectively a more efficient system," said Peter Rousmaniere, a Vermont-based insurance consultant.
The title insurance industry argues that it takes longer to close a home deal under Iowa's system, causing lenders to charge consumers a slightly higher interest rate.
Cliff Morgan, vice president of underwriting at First American, bristles at suggestions that title insurance is overpriced.
"Title insurance is a bargain for the work involved and the risk involved," Morgan said. "The groups that are making these statements are doing so out of ignorance of the process."
Morgan said title companies put a lot of time and effort into building and maintaining databases of public records that are used to conduct a title search. Even though automation has helped speed up title searches, he said, workers still have to look over documents turned up in a title search and decide what actions to take.
"It's not just pushing a button and whoa, you have a completed search," Morgan said. "There's a lot of human intervention."
Title insurers, like real estate brokers and appraisers, prospered during the housing boom. The industry posted $16.6 billion in revenue in 2006, up from $5.1 billion in 1996.
Now title insurers are seeing revenues decline with falling housing sales and their costs rise as increases in foreclosures and defaults lead to more title claims and disputes.
First American said last month that it expected to post a loss of as much as $50 million for the fourth quarter of 2007, compared with net income of $104 million for the same period in 2006. The company reported net income of $46.6 million for third quarter ended Sept. 30.
