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.
