Stewart In The Studio E10 - The Value of Title Insurance: What Lenders Need to Know
Jun 13, 2024
Thomas Hoff
Ever wondered why title insurance is crucial yet so misunderstood in real estate transactions? Join us as we sit down with TJ Harrington from Stewart Lender Services to demystify this often-overlooked aspect of the industry. TJ walks us through his unique journey from working at a registry of deeds in his youth to becoming a key player at Stewart Lender Services. You’ll gain valuable insights into the complexities of title insurance, including its evolution and current challenges, as well as the common misconceptions that surround it. TJ also compares traditional title insurance to attorney opinion letters, shedding light on their respective strengths and limitations.
But that’s not all—we take a deep dive into the broader mortgage and servicing landscape, discussing the roles and responsibilities of institutional banks and independent mortgage banks (IMBs). With regulatory changes on the horizon from Washington, we emphasize the need for a collaborative approach to navigate these uncertain times. TJ shares how Stewart Lender Services offers tailored, consultative advice to help lenders strike the right balance between risk and competitiveness. Don’t miss this enlightening discussion that promises to leave you with a clearer understanding of the title industry and its vital role in real estate.
Ever wondered why title insurance is crucial yet so misunderstood in real estate transactions? Join us as we sit down with TJ Harrington from Stewart Lender Services to demystify this often-overlooked aspect of the industry. TJ walks us through his unique journey from working at a registry of deeds in his youth to becoming a key player at Stewart Lender Services. You’ll gain valuable insights into the complexities of title insurance, including its evolution and current challenges, as well as the common misconceptions that surround it. TJ also compares traditional title insurance to attorney opinion letters, shedding light on their respective strengths and limitations.
But that’s not all—we take a deep dive into the broader mortgage and servicing landscape, discussing the roles and responsibilities of institutional banks and independent mortgage banks (IMBs). With regulatory changes on the horizon from Washington, we emphasize the need for a collaborative approach to navigate these uncertain times. TJ shares how Stewart Lender Services offers tailored, consultative advice to help lenders strike the right balance between risk and competitiveness. Don’t miss this enlightening discussion that promises to leave you with a clearer understanding of the title industry and its vital role in real estate.
Speaker 1:
Welcome to the May episode of Stuart in the Studio. In this episode, we're diving into the crucial and sometimes misunderstood topic of title insurance, no matter what type of mortgage loans you originate. Listen in to learn more From the Stuart headquarters in Houston, Texas, USA. It's Stuart in the Studio, we're live in three, two, one and we're on the air. Well, hi, TJ. For those who don't know you yet, just share a little bit about your background and how you came up through the title industry.
Speaker 2:
Sure, marvin, thanks for having me here today. Nice to meet everybody, virtually. Tj Harrington with Stewart Lender Services.
Speaker 2:
I started my career when I was 15 years old working at a registry of deeds in Worcester, massachusetts. So it was one of my first jobs and I got bit by the title bug and have not left ever Clerked summers during college at the registry of deeds. I went on to law school with a focus on real estate. I came at the tail end of the foreclosure crisis so really cut my teeth doing title curia in the foreclosure space, retiring mobile homes, walking down to the window. I always joke about Betty Sue at the window, but she's a real lady.
Speaker 2:
She's in one of the counties in South Carolina where I do have my law license and figured out very early on that I loved title and loved working in the business and wanted to grow and learn more and ended up at a large national provider based in Pittsburgh, moved up to Pittsburgh with my poor lovely wife, been schlepping her around the country to do this title thing and eventually landed in Charlotte working for Bank of America and supporting LandSafe and ended up in another wonderful national title operations with appraisal credit flood with other insurance products really lender services in general.
Speaker 2:
My role at Stewart is a little bit different in that I'm in a non-legal role. Stewart's made so many really amazing acquisitions in the last five years and the idea now is to bring them to market, to have a combination of products that move the needle for our lender clients and really begin to unlock the true potential of all the acquisitions. I think as standalone companies, each company has been amazing and done very, very well, but together we're better. When we think together and bring all of our products in alignment and engage our clients in a holistic manner, that we're able to unlock value.
Speaker 1:
Title's kind of in the spotlight and a lot of people are sort of looking for change, but in a lot of different ways. So talk a little bit about some of the high points you're following and how those proposals may or may not work.
Speaker 2:
Yeah, so I. It's a great segue, marvin. We are in a space where we're we've been ripe for disruption for some amount of time and people are saying, hey, title is expensive, title is arcane and there's some truth to it. The Socialist thing is a national title business. We're 3,300 counties nationally and it's ground up it's counties doing what they've got to do. Very few states put their boot down and say here are the standards, here what you have to do, and so you have some disparate problems. Every county is different than every other. There's risk to it from a title search side, but also there's some machinations around recording and some difficulties in getting things done. With that said, you have the powers that be looking at the cost to get consumers into housing. With the rise in housing prices, with the rise in interest rates, with the rise in cost to get consumers into housing, with the rise in housing prices, with the rise in interest rates, with the rise in cost of fulfillment for mortgage, everyone is very, very price sensitive and they're trying to say what can we do to nibble at the edges? What can we do to really make a difference? And one of the tall bars is title insurance and, speaking from the lender services side. We went through this exercise probably 10, 15 years ago when we really rolled out the centralized rates and scale production and bundle settlement fees. We have not necessarily had that same exercise on the more retail side of it but I think that we've done it very successfully in the lender services side of it. But that is a very specific fulfillment model and so what is being talked about are ways to disrupt kind of the broader industry.
Speaker 2:
So one of the first things that we talked about has been the attorney opinion letters. There's limits and concerns about what that wrapper actually covers. That backs the attorney opinion letter. There's potentially statute of limitations issues, the attorney opinion letter. There's potentially statute of limitations issues. There's the potential that down the line the wrapper around it gets declared an illegal title product written in surplus lines for those that are savvy to insurance, and so a lot of the lenders in the market say, well, that title risk is part of my reps and warrants that I make to the GSEs, to FHA, to VA and the secondary market. And ultimately AOLs didn't take off because, despite the marginal cost savings, the lending community did not feel that AOLs properly secured them from counterparty risk.
Speaker 2:
And that's the number one thing when we think about what we do in title, we protect the consumer from an owner's policy perspective. We protect the lender from a loss of priority or lien position and there's some technicalities around that. So really it's what can we do to kind of skin the cat and what can we do better? But I think there's also some significant misnomer as to what people think title insurance is, how it works and we don't do ourselves any favors. I don't think that we've ever properly explained the value of title insurance and I see the press releases from Alta and they do a really great job calling out some of the anecdotal use cases where title insurance has made a difference and been great for consumers, been great for lenders. But I think that kind of glosses over the actual boots on the ground, hands in the dirt kind of approach.
Speaker 2:
Title insurance is unlike any other insurance out there. You pay it one time at closing. It covers you for the life of your ownership of the property and it's not perspective looking, it's retrospective looking. The idea is that title insurance it's risk management and claims prevention process. It's an ounce of prevention's worth a pound of cure, our goal, and there's going to be a paper coming out, sponsored by Alta, where 90 to 95% of the premium is put towards loss prevention.
Speaker 2:
There is so much loss prevention that goes in and the claims rate that we see is a product of the hard work we put in, of the networks of underwriting councils on a state-by-state basis that monitor changes in laws that provide risk assessments.
Speaker 2:
I get daily bulletins in my inbox from underwriting councils in various states talking about new issues, particular items that have come up, changes of law, management, instructions to agents, how to handle particular risks. There's seminars and education put in, there's audits and there's monitoring of escrow accounts through Rhino that we do for every single agent with the reconciliations at the month. There's a lot of risk management that goes on, not to mention the cost of production. So I think that we see a lot of focus on the claim side and saying why are claims low relative to the premium? Not understanding that it's a loss prevention product. I joke about it that it's manufacturing with a good housekeeping seal of approval on it. And it's the underwriter saying for my direct operations and for my agents, I stand by the work that they've done and I have trained them, I've educated them, I take on giving them best advice and practice and I put my reserves behind the process and that's, I think, something that we need to speak more about the process related to title insurance.
Speaker 1:
So for the lenders who are listening to this conversation and all the complexity around title what's the takeaway? What would you tell lenders?
Speaker 2:
the takeaway is here yeah, that's a good question. There's a ton of conversations about how to make title better. There is still reps and warrants on title are not changing right now, are not changing right now and so really, from an origination standpoint, if you're a large institutional bank making mortgages, you have responsibilities to the OCC for safety and soundness. If you're an IMB and you have reps and warrants to the secondary market and that's your business right, losses from repurchases could torpedo it. I think you have to give a hard look at the innovation that's coming out, making sure it still meets your risk appetite and balance that with being competitive on fees so that you can win deals.
Speaker 2:
I think there's kind of that dynamic tension right now and you know I'd say, give me a call, I'm happy to chat it through with you. I think you know one of the things that we pride ourselves at Stewart Lender Services is being consultative partners who give right answers not the answers necessarily that pull you into our product set. I think we're really, really thoughtful about having the right answers for our client and giving them the goods and bads and helping them make the right decision. It's one of those wait and see moments and there is so much going on outside of just title in general, in the mortgage space, in the servicing space especially, there's just so much coming out of DC because of the election and so it's really hold on tight. Let's get through this the next probably six months or so until we get some clarity and we'll figure it out. But let's do it together, thank you.
