Title insurance underwriters doing business in Wisconsin have just made it a lot more expensive to refinance or sell a home.
"I've heard complaints from people all over the place, in all corners of the state," says Tom Larson, chief lobbyist for the Wisconsin Realtors Association.
On Aug. 24, Fidelity National Title Insurance Co. and Chicago Title Insurance Co., which Fidelity owns, filed rate increases effective Oct. 1 with the state Office of the Commissioner of Insurance that significantly raise the cost of title insurance. Their rate structure now starts at $375 on the first $15,000 of property value and adds per-thousand increment charges at different thresholds after that.
On Sept. 12, three more underwriters — Old Republic National Title Insurance Co., Westcor Land Title Insurance Co. and Commonwealth Land Title Insurance Co. — followed suit with their own increases, also effective Oct. 1. Those hikes were of different sizes, but the final rate structure in each case is the same as those for Fidelity National and Chicago.
That is also true for Stewart Title Guaranty Co., which filed its rate increase on Sept. 26 with an effective date of Nov. 1.
Together, those companies underwrite the vast majority of title insurance policies in Wisconsin.
The underwriters have also done away with what's known as "downward deviations," colloquially known as discounts. While Wisconsin requires underwriters to use the rates they file with the insurance commissioner, the state allows them to deviate downward from those rates. Until Oct. 1, discounts were offered to practically everyone who sold or refinanced a home, but the amounts varied widely. The move to eliminate discounts is in response to tightened regulations by the insurance commissioner, the companies say.
A prominent local title company president also says the rate changes are desperately needed because the industry has been suffering in recent years because of low prices resulting from Wisconsin's highly competitive title insurance industry and the lean years spawned by the real estate meltdown. Underwriters deny that there has been any collusion among them.
Consumers will definitely notice a price increase.
One local mortgage lender, who requested anonymity, says a comparison of the costs of a refinance before and after the rate changes revealed that the new rates for Commonwealth pushed the price for title insurance on a $245,000 home sale from $700 to $920, a 31-percent hike.
An area title agent, who agreed on the condition of anonymity to run the numbers, came up with similar results. The agent, using an example from an unnamed underwriter, found that the cost of title insurance on a $200,000 home sale went from $675 before the rate changes to $830 under the new rates, a 23-percent increase. For a $500,000 home sale, the cost went from $975 to $1,430, a 47-percent hike.
Larson says the changes have infuriated real estate clients, some of whom are already upset over the declining value of their homes.
"They're saying, 'I've got to pay an extra few hundred bucks because you gave me the wrong information,'" he says. "And the Realtors say, 'That's the information I was given in September when we started looking into this, and now it's changed.'"
The timing of the rate changes is raising some eyebrows.
"It seems kind of fishy," says Larson. "If the real estate industry sent something out to everybody saying all of our rates are going to be 10 percent (a 6 percent commission is common) starting Oct. 1, somebody would be filing an antitrust lawsuit."
Peter Carstensen, an expert on antitrust issues at the University of Wisconsin Law School, agrees that the nearly industry-wide rate change "looks a little suspicious."
But he adds that past state and federal court rulings make it hard to go after insurance providers with antitrust litigation.
"The message here is, 'Hey, we figured out that nobody could hold us liable,'" he says.
He adds: "This is the kind of thing, anywhere else in the world, if you saw it you would immediately as a government prosecutor convene a grand jury and you'd start looking for a criminal indictment."
Carstensen says despite court rulings that provide shelter for insurers who are required to file rates, as they are in Wisconsin, it may be possible to get an injunction against the rate increases or to win some other remedy under state law.
"The real question here is who can get into court successfully, and then what kind of remedy are they going to be entitled to," he says.
While the state Attorney General's Office won't comment on cases that are under investigation, a Department of Justice spokeswoman says the office is aware of the situation.
"We've heard about this, but we're not going to comment beyond that at this point," says spokeswoman Dana Brueck. "We are always concerned about things that may raise prices for consumers."
But John Arcidiancono, senior vice president of marketing at Stewart Title, denies that any collusion took place among the various underwriters, and that same message is echoed by others in the industry.
"We don't talk to our competitors," Arcidiancono says. "We filed our own rates."
Carstensen says Ted Nickel, the state insurance commissioner, could exercise his influence on behalf of consumers.
"He doesn't have much authority to change the rates, unfortunately," Carstensen says, "but he can make life pretty difficult going forward for these firms."
The prospects of that happening are uncertain.
J.R. Weiske, a spokesman for the insurance commissioner's office, says his office hasn't reviewed the new rate filings in detail, but he also says the office is in the business of promoting competition.
"I think there could be a concern," he says. "I don't know that there is, but I think there could be."
Weiske called the underwriters' decisions to eliminate discounts "an overreaction" that they will likely rethink when they feel the pressure of market forces.
"We don't expect that this is going to happen for the long haul," he says, "and they may be, to a certain extent right now, cutting their nose off to spite their face."
The underwriters have said they decided to do away with discounts after an April 30 bulletin from the commissioner reiterating that downward deviations have to be properly documented. The bulletin was in response to reports that title companies were providing discounts randomly, compromising predictability in the marketplace. The commissioner's office made it clear to the underwriters that discounts had to adhere to criteria contained in an established rate program, be based on the cost of title work or reduced risk factors, and can't be made for purely competitive reasons.
Weiske says the commissioner's bulletin was aimed at stopping a practice that had gotten out of hand.
"You just don't know whether consumers are being treated fairly," he says, "whether or not similarly situated consumers" are getting the same deal from the same company, rather than getting a better deal "depending on who they know or what they look like, or whatever."
In response, the companies simply did away with the discounts.
"Eliminating discounts is the key thing because the discounts are the things that were creating the competition," says Carstensen.
But Tom Rostad, owner and president of Dane County Title Co., says that in recent years, title companies have been at pains to make a profit in the state.
"They said they were having a hard time surviving in Wisconsin," says Rostad. "It was out of line with the surrounding states in terms of what was being charged, and there were so many deviations that they decided, 'We're filing new rates.'"
Rostad is not speaking on behalf of underwriters. His company, like other title service businesses, acts as an agent for underwriters and has to charge the rates they set.
Rostad points out that under the previous rate structure, residential customers were subsidizing large commercial clients, who paid lower rates. The new rate structure raises rates on commercial transactions.
"It's a level playing field across the board," he says.
The rates had not seen an increase for eight years, Rostad says, even as the rate of inflation rose. Low rates and discounts for both residential and commercial clients, resulting from intense competition, had put the Wisconsin title insurance market in a tailspin, he says.
"In my opinion, we were an industry with a death wish."
Rostad says the fact that the companies all went to the same rates at the same time is likely the result of one company filing rates, then the others following suit.
"I don't think they had any secret meeting behind closed doors and said, 'Hey, let's do this,'" he says. "It's an industry where word gets around."
But for homeowners, the decision to make selling and refinancing more expensive still stings.
"Imagine when you're selling your house and you're already taking a bath on it," says the Realtors Association's Larson. "You bring a check to the closing. Now they're saying they're nicking you for another few hundred bucks. Yeah, you're pissed."
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