New Fees Designed to Thwart Ohio Mortgage Fraud
Ohio home buyers will pay new fees in 2007 to ensure that title agents aren’t going to commit fraud, according to the Columbus Dispatch.
A little-known provision of a predatory-lending bill that goes into effect today requires title companies to charge a mortgage lender $35 in fees for insured closing protection. It’s insurance that benefits lenders in case title-company employees walk off with their money.
The fee insures only the mortgage company; buyers and sellers must pay $15 and $50, respectively, to insure themselves.
The mortgage lender insurance fee certainly will be passed on to buyers, said Bruce Calabrese, president of Equitable Mortgage.
“It’s insurance that tells you during the title search that the title company has insurance,” he said. “It’s really absurd.”
But the Ohio Department of Insurance pushed for the fees because of the increasing number of title agents who embezzle money. One provider of Ohio mortgages saw its chief executive sentenced to nine years in prison in 2005 after bilking consumers out of at least $5 million.
The regulation is Senate Bill 185, the lending law passed in May that is supposed to punish bad actors in the home loan industry. Dan Tierney, the insurance department’s legislative liaison, said the purpose is to assure that there is some kind of coverage available to buyers and sellers.
“It was very important to the department that this be an offering, not a mandated coverage. If a consumer is concerned about his increasing cost of the transaction being a deal breaker, they can always decline coverage,” Tierney said.
Experts think Ohio mortgage lenders will want to buy the coverage, forcing buyers to pay the $35 fee. The fees will go to underwriters, the companies that stand behind title agents.
Sharon Adams, owner of Service Title Agency in Dublin, said that while it’s true underwriters have been “taking big hits” because of fraud, it’s not going to be easy to tell buyers they have to pay to insure lenders against the threat of mortgage fraud.
“It just doesn’t sound consumer-friendly,” she said. “It might give them additional protection, which is a good thing, but I’d like to think they shouldn’t need it or wouldn’t have to pay for it.”
Others in the industry say mandating the optional title insurance is unnecessary because in some cases assurances against mortgage fraud already are in place.
Adams said the state should be focusing on catching the criminals in the industry instead of charging fees for protection on each home mortgage.
“I just think we’re over-regulating,” she said. “All we need to be doing is prosecuting the bad guys. I didn’t mind House Bill 185 as long as it didn’t drive up the cost to consumers. But it will.”
January 6th, 2007 at 3:30 pm
We’ve had case specific Closing Services Letters in Pennsylvania for a few years now and the cost is $35. I have to presume that the Ohio letters afford the same protection to mortgage lenders as ours - guarantee that the title insurance agent will follow the mortgage lender’s written instructions and will not steal their money.
Yes, state insurance departments and title insurance underwriters could be doing a much better job monitoring title insurance agents, but even with diligent audits, it’s hard to spot an embezzler until it’s too late.
The bad acts covered by these Closing Services Letters are outside of the coverage provided by the loan policy. Often the bad act takes place before the policy is even issued so for clarity, it gives mortgage lenders something to hang their hat on.
What’s so surprising about fees being passed onto consumers? Who else should pay for it? After the super-fund lawsuits, lenders decided they wanted coverage for environmental liens. Consumers have been paying for the extra endorsement ever since. Can anybody tell me any instance of a claim covered by this endorsement? In Pennsylvania, it costs $50 and everyone pays, no questions asked. I can give you dozens of examples of situations covered by Closing Services Letters. They work and believe me the bad guys will still be prosecuted because the title company will seek restitution from the embezzler and that’s a good thing.