Title insurance alternative offers savings, controversy
A company has come up with an alternative to
title insurance for home equity loans and refinancings. It is cheaper
and faster than title insurance, and title insurance companies are
fighting it in the courts of law and of public opinion.
The product, introduced last fall, is called Radian
Lien Protection. It is sold by Radian Group Inc., the nation's fourth-largest
mortgage insurance company. You might be a customer of Radian's
if you pay private mortgage insurance, or PMI.
Depending on who you talk to, Radian Lien Protection
is either a time-saver and money-saver for homeowners who are looking
to liberate some cash, or a title insurance impostor that provides
no protection to borrowers and might cause them hassles down the
To understand what Radian Lien Protection is, you
have to understand what it isn't. It's not title insurance, which
involves a thorough records search to discover any undisclosed liens
or other problems with a property's title. Radian doesn't perform
title searches; it looks at borrowers' credit reports to see if
any liens are reported there.
How it works
Radian is a form of mortgage insurance that protects the owner of
debt against intervening liens. Let's say you got into a payment
dispute with a roofer, and the roofer filed a mechanic's lien on
your house but the lien doesn't show up on your credit report. Later,
you refinance the mortgage from a lender that uses Radian Lien Protection.
The roofer's claim is an intervening lien, meaning the roofer gets
paid before the holder of the debt when the house is sold. If you
default and if the house is foreclosed upon and sold, Radian Lien
Protection pays the debt-holder if he or she loses money because
of the roofer's claim.
That's a lot of "ifs." It's an unlikely
scenario, which is partly why Radian Lien Protection costs less
than title insurance.
How much less?
"It's really going to depend on the specific
mortgage that the individual has," says Bob Quint, chief financial
officer of Radian Group Inc. "Some of the averages that we've
put together is title insurance costs anywhere between $200 and
$1,300 -- the average being $650 -- and RLP costs an average of
$275. So it costs less than half of traditional title."
Title insurers acknowledge that Radian Lien Protection
isn't title insurance. At the same time, they're trying to convince
state regulators that Radian's product is a form of title insurance.
So far, Connecticut, Florida and Texas have ruled that Radian Lien
Protection is title insurance, and that Radian cannot sell it in
those states because it isn't a title insurance company. A title
industry trade group has filed a lawsuit in California to force
the same type of ruling in the Golden State.
Radian points to title insurers' mixed messages. They
tell lenders and consumers that Radian Lien Protection isn't title
insurance, but tell state regulators that it is, in an effort to
knife the new product in its crib. "It's a threat to a very
profitable part of their business, and there's absolutely no doubt
they're concerned about it," Quint says.
Retorts Steven Winkler, senior vice president of Fidelity
National Title Insurance Co., "It's not that we don't want
competition. It's just that we want a level playing field."
If Fidelity and other insurers have to comply with
title insurance regulations in all 50 states, Radian should, too,
Radian tells lenders that it can give them a competitive
edge by allowing them to pass along the cost savings to borrowers.
And there's the speed factor. A home equity loan or refinancing
with title insurance can take weeks to close, whereas one with Radian
Lien Protection and an automated appraisal takes a few days, Quint
Potential problems of lien protection
Winkler, of Fidelity National Title, doesn't dispute that Radian
Lien Protection saves time and money on the front end. He warns
that Radian's product could cost time and money on the back end,
when borrowers sell their homes.
"The bane of the title insurance business now
is no (lien) releases or inaccurate releases," Winkler says.
All the inadequate releases (when liens are cleared)
are taken care of when the borrower refinances using title insurance,
Winkler says. That doesn't happen with alternatives to title insurance.
"With these new products, in the future, when you sell, you're
going to find multiple mortgages, and if those multiple mortgages
start going back in time, it's going to be very, very hard to get
releases," Winkler says, noting that lenders go out of existence
and so do their records. "Our best guess is that that there's
going to be a huge problem."
Radian's Quint says the concern over inadequate releases
is overblown because liens often show up on credit reports. As a
backup, Radian requires borrowers to sign an affidavit stating that
there are no other outstanding liens on the property.
Anyway, Quint says, many homeowners buy borrower's
title policies when they buy their homes. Those policies stay in
effect through refinances and home equity loans. "I don't believe,
when they sell the property, that there will be any problem,"
A handful of lenders use Radian Lien Protection, Quint
says, the most prominent being GreenPoint Mortgage. GreenPoint did
not return calls seeking comment. Radian is negotiating with other
lenders, Quint says.
The title industry's final objection to Radian Lien
Protection is that it's available only to borrowers with relatively
good credit scores of 570 or higher. "It's almost a form of
redlining because they're saying if you've got good credit, you
can get a loan real quick and real cheap," Winkler says.
Quint replies that only 3 percent of borrowers have
credit scores below Radian's cutoff, and that all forms of mortgage
insurance -- including Radian Lien Protection -- are priced partly
on the borrower's credit score.