California to Cut Housing Fees

In an attempt to ease homebuyers’ burden with high interest rates and a cooling market, the California Department of Insurance is attempting to cut 23 percent in annual closing costs. Realty Times columnist, Broderick Perkins, further explains the details in his July 24, 2006 article, “California Out To Slash Title, Escrow Fees.”

A home buyer may be able to save up to $2,300 on closing costs, with the California Department of Insurance’s proposed cuts.

“The consumer rate cuts would shave $1 billion a year off the title and escrow industry's $4.5 billion annual revenues in California.”

The department says that these cutbacks are necessary to tighten the reigns on the title and escrow industry. “The title and escrow industry is a dysfunctional system of illegal kickbacks, gratuities and questionable partnerships where the lack of competition squeezes consumers.”

Insurance Commissioner John Garamendi is seeking to cut title insurance costs by 23 percent, which means that a potential home buyer could save $2,370 on a $600,000 home.

"I have repeatedly fined these companies $1 million and more to put a stop to their illegal schemes that have dashed the hopes of consumers looking to realize the American Dream,’ said Garamendi.”

But, according to Garamendi, the $1 million dollar fine was just a slap on the wrist, and “a small cost of doing business.”

The commissioner then continued to say that the rising housing prices also elevate title and escrow fees because insurance companies base their fees on the home price.

The title insurance industry insists that competition is alive in California and that fines are the way to punish wayward companies. The industry has vowed to fight the proposed rate reductions in court.

Mike Belote, spokesman and lobbyist for the California Escrow Association said,
"It's absolutely true over the decades there have been occasions where companies have engaged in rebates to try to get business and we have tried to work with what is legal vs. kickbacks, but now he (Garamendi) wants to take a sledge hammer and reduce everybody's rates. If there are companies doing bad things, he should go after them.”

The Escrow Institute of California (EIC) does not think it is appropriate to punish escrow companies for something the insurance companies have done. “The industry argues because escrow companies order title insurance from title companies they would also be forced to lower their rates even though they are not regulated by the insurance department.”

The EIC is actually regulated by the Department of Corporations (DOC). The EIC insists that Commissioner Garamendi never consulted them or the DOC about the impact these proposed cutbacks would have on small, independent companies.

“In fact, he refused repeated requests by EIC to discuss this draconian decision, which will adversely affect thousands of independent licensed escrow companies in California," a prepared statement by the EIC said.

A public hearing to discuss Garamendi’s new rules is scheduled for August 30.

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