ALTA® Releases Study Citing Radian Lien Protection Could Cost California Consumers More Than $1 Billion
May 28, 2003
Study Reveals California Homeowners Could Pay Stiff Price if Lawmakers Allow RLP Policy
The American Land Title Association (ALTA), the national trade association for the title insurance industry, today released a study warning of the negative consumer impact that would result from substituting Radian Lien Protection (RLP), a controversial alternative to title insurance, for traditional lender's title insurance on refinance loan transactions.
The study was conducted by Dr. Nelson R. Lipshutz, president of the Regulatory Research Corp., in response to an earlier study released by Radian Guaranty, which members of the title industry felt was misleading.
According to the Lipshutz study, substituting RLP for lender's title insurance on refinance loans could cost California consumers more than $1 billion in higher title insurance rates. The rate increase would be driven by a deterioration of the public record and the consequent increase in title insurer operating costs and losses, as well as by increased mortgage interest charges produced by a slowing of real estate closings.
"This threat comes at a time when the title industry has taken measures to reduce title insurance premiums," said James Maher, executive vice president of the American Land Title Association.
The argument forwarded by Radian that RLP, at $275, is cheaper than traditional title insurance has resonated with certain officials. However, two of the industry's leading title insurers offer refinance lender's title insurance at rates as low as $275 and are currently issuing thousands of policies per month in California.
The title industry also points out that RLP does not locate and correct title defects, does not offer the protection of traditional title insurance and does not provide the industry's legal defense guarantee, but it does put consumers at risk for any undetected liens on their property.
According to the study, RLP also discriminates against low-income and minority families because of stringent credit rating and property-type qualification criteria and, further, would result in an error-riddled public record that increases the risk of financial fraud.
California lawmakers are currently considering a bill that would allow Radian Guaranty, an out-of-state PMI company, to issue the RLP product despite a cease and desist order issued by the California Department of Insurance in June 2002. Radian appealed the order before Administrative Law Judge Leonard Scott, who ruled in favor of the department, calling the RLP "title insurance masquerading as mortgage guaranty insurance."
Radian is not licensed to sell title insurance in California or any other state. While the order remains in effect, California Insurance Commissioner John Garamendi is currently reviewing the matter and is expected to render a decision within the next several months.
"California regulations prohibit mortgage insurers from offering other lines of insurance because it would put consumers at risk," said Maher. "Radian has attempted to skirt these regulations by offering a title insurance product and calling it mortgage guaranty insurance.
"We believe that lawmakers and regulators must enforce our consumer protection laws by allowing Radian to offer this product only after becoming a properly licensed title insurer and submitting to the necessary regulatory oversight."
Radian is now pursuing legislative remedy through a bill sponsored by Sen. Jackie Speier, SB 344, which would allow private mortgage insurers to sell title insurance despite existing statutes that prohibit this activity -- a bill that is opposed by the Mortgage Insurance Companies of America, among others. SB 344 is scheduled to go before the Senate Insurance Committee on April 30.
"At a time when California is facing serious budget deficits, we are surprised that legislation essentially benefiting a single out-of-state company would be forwarded that could cost the state as much as $7 million annually in premium tax dollars," said Maher.
"In exchange for an illusory decrease in initial consumer cost, substitution of RLP for refinance title insurance would impose costs on the California consuming public that more than outweigh any putative benefits," said Lipshutz.
"Big surges in mortgage defaults occur only when the overall economy is in trouble. At times when unfavorable loss experience is stressing the title insurance sector, a PMI company will have its hands full managing its own extraordinary losses and will not likely have the surplus funds available to bail out its title insurance operations."