Forbes Magazine reported back in a November 2006 cover story that First American Title was selling more than $5.8 billion dollars a year for title insurance in a story called, “America’s Richest Insurance Racket”  Read the full story here: http://www.forbes.com/forbes/2006/1113/148.html

Reporter Scott Woolley extensively interviewed Parker Kennedy, head of First American.  Forbes noted that thanks to computerized record-keeping, the cost of searching for a home’s ownership records online has fallen to as low as $25. The average cost for claims on title insurance policies was running approximately $74 per policy. Although Forbes concluded that everyone should agree that this is a pretty lucrative business, and title companies are fat and thriving, First American’s Parker Kennedy claimed that “Nobody is cutting a fat hog,” whatever that means.

So why is this relevant to the off shoring of jobs?  According to Forbes, Kennedy attributes his profit margins to several things including the efforts his company has made to deploy technology and move jobs offshore.  Forbes noted that in 5 years, First American closed 48 out of 50 offices in California replacing people and paper with databases and offshore data entry clerks.

Kennedy says, “In the old days, if you wanted to double your business you had to double your people. Now you can double your business and increase your staff maybe 10%.”

The Forbes article suggests that off shoring of jobs has been part of First American’s long term business strategy aimed at adding to the huge profit margins they enjoy.

Given these kinds of profits, do you think it is really necessary for them to continue their policy of sending jobs offshore?

We’d love to hear your thoughts.


Following Up on Freddie Mac: What Has Happened?

Well it has been 4 months since we last looked in on Freddie Mac and the relationship it has with First American.

At that time we had a lot of response from legislators, both state and federal, asking Freddie Mac for an explanation on this anticompetitive and potentially non RESPA compliant business relationship they have with First American disclosures.

Freddie Mac responded to all of these inquiries by issuing a statement saying they did not have an exclusive relationship with First American disclosures.

Please note, this statement was a direct contradiction of the memo Freddie had previously sent out under the banner of its Homesteps division directing real estate agents that First American disclosure reports were required for Freddie’s REO properties. Freddie went on to say they had sent out RFPs to a number of disclosure companies in California at the beginning of 2009 and no one who met their standards responded except First American.

In talking to a number of other disclosure companies in California I discovered that the only ones which received the initial RFPs from Freddie Mac were several regional disclosure companies who would have not met Freddie’s criteria to become a supplier of disclosure reports. Somehow the disclosure companies which would have qualified never received an RFP.

How convenient for First American.

It seemed that Freddie had decided to relent early this fall due to pressure it received from legislators and reissued the RFP to all the disclosure companies that did not receive one originally.

So we’d assume that everything is being fairly handled, right? Well, maybe not quite.

From what I can tell in my research, it now seems Freddie sent out a much more complex, completely different RFP to First American’s competitors than it originally sent out in the beginning of 2009. On top of that they put a 48-hour deadline on the companies to return the RFP to them in order to be considered for supplying reports. On the surface it would appear that Freddie wanted to resolve this issue quickly and fairly.

Here we are now at the end of the year, and months have gone by since the 48-hour deadline.

The problem?  I am still getting feedback from the disclosure companies who completed and submitted these RFPs saying that they never heard back from Freddie Mac, despite submitting their RFP responses within the 48 hour deadline.

One company told me that their inquires into Freddie Mac about the status of  their RFP were met with a cool response, “Freddie Mac is too busy to deal with the RFPs at this time, maybe later.”

I am sorry to report that despite all the initial responses by Freddie Mac, in fact, nothing has changed.   Freddie Mac and First American are continuing on with their questionable, seemingly exclusive, business relationship and those firms who submitted RFPs are being stalled.

Have you seen anything like this in your marketplace?  Are you being stalled by Freddie Mac?  If so, let me know, I would love to speak with you!

Further Discussions Regarding Recent HUD Changes

Dear Readers,

Thank you so much for all the feedback we received on our recent post  regarding HUD adding NHD reports to the list of official settlement services. I received many good comments and wanted to clarify some points that were raised.

  1. We know that a majority of escrow officers handle the accounting of the NHD reports on the HUD-1 correctly. The problem, according to the NHD companies I have interviewed, is not the 80% of escrow officers who account for these services the right way, but the 20% who do not.  You would be surprised at the number of residential real estate transactions that actually close without an NHD report, resulting in panicked real estate agents calling NHD companies to get reports after the fact to ensure their files are complete. You can imagine the legal problems that could arise from that practice. With the NHD reports required to be on the HUD-1 these types of unfortunate mistakes and many others will be greatly reduced.
  2. It is true that in your average residential real estate transaction the seller pays for the NHD report. It is also the case that the buyer typically receives just their side of the HUD-1 showing what they paid for in the transaction. However the complete HUD-1 is the official record of how all monies, both credits and debits, were handled in the transaction. While there are ways to handle miscellaneous expenditures in a transaction, settlement services by law, should only be accounted for on the HUD-1. This is the reason why NHD reports are required to be on the HUD-1 regardless of the buyer’s interest.

Again, I want to thank all of you for your comments and keep them coming!  I would love to hear from all my readers.  And please continue to follow along with me as I explore different issues facing buyers and sellers in the real estate industry at http://www.re-insider.com.

Attention! New Additions to What HUD Considers Settlement Service Mean Changes In Escrow Procedures

As I have mentioned many times, my goal at RE-Insider is to keep real estate buyers and, well, the real estate community at large informed on events which impact consumers purchasing houses in the California marketplace.   To follow my investigations or to submit your own ideas for investigations visit me at www.re-insider.com.

HUD recently made additions to the list of official settlement services, covered by RESPA, according to Barton Shapiro, HUD Deputy Director of RESPA and land sales, to now include services such as natural hazard disclosure reports.

Now that natural hazard disclosure statements are included on the list of official settlement services:

  1. The cost of natural hazard disclosure must be included on  HUD1 forms
  2. Natural Hazard Disclosure statements must be paid for before escrow closes

We at RE-Insider.com are thrilled about this news.  We have long felt that HUD rules often left open loopholes that could be exploited to take advantage of the buyer, especially in the lack of clarity around the naming of settlement services.  By closing this inadvertent loophole, HUD strengthens its role as protector of the consumer.

I highly recommend you take a look at the copy of the HUD memo clarifying settlement services:  http://www.docstoc.com/docs/8964248/HUD-Response-To-Outreach-(EXCERPT)

A Tale of Two Banks: Chase & Wells Fargo

Some real estate agents and buyers are being given the run around by folks representing REO bank-owned sellers. To quote from Aretha Franklin, “Who’s zooming who?”

We continue to receive complaints by numerous agents telling us that they are being directed to specific settlement service providers as ordered by banks.  So we decided to do a little outreach of our own.  We emailed several major banks and asked about their relationship with settlement services.

Interestingly, Chase’s VP of Media Relations replied, “Thank you for your email and consideration.  However, at this time I must decline your inquiry.” Why would anyone decline this inquiry, could they have something to hide?

But not everyone is so off-putting.  Kudos go to Wells Fargo, who tells us, “Wells Fargo does not direct which settlement services provider a buyer must use.”

This is exactly the way we want banks to handle settlement services. We wish every bank could make the same highly ethical and commendable statement as Wells Fargo.

READERS: ACT NOW! Amended AB957 is NOT the Buyer’s Choice

Dear Readers,

Sometimes bad legislation happens. I’m very disappointed to tell you that AB 957 is now anything BUT the Buyer’s Choice Act. In fact, the current version of AB 957 is so bad, we would actually be better off without it rather than to pass AB 957 with the amendments that have been recently added.

Once again, I need your help. Help me stop this bad legislation which will hurt real estate professionals and consumers in our state.

The latest version of AB 957 has appeared with amendments that actually make it easier for the banks to divert services to their big title business partners. The new language says that banks can include a document to the prospective buyer that states they, the banks, have title and escrow services they want to use and to please sign if you agree to use their services. It is not clear if this document appears before or after an offer is accepted. Let me ask you, what buyer is going to decline the bank’s services if they think their offer’s acceptance is at stake?

I have attached the link below for your review.

We at Re-Insider.com are opposed to AB 957 due to its recent amendments, I think once you read them, you will be as well.

So what can you do about this? PLEASE contact your California Senators in your respective voting areas today and tell them that you oppose AB 957 as amended because it will help to put too many independent professionals out of business and out of work. Further it will damage the trust and integrity that every buyer and seller has with their agent and broker.


Click here for a list of the Senators in your respective areas:

Please call ASAP – TODAY because this bill could go to the Senate as soon as Monday morning.

Thank you,

Serena Ehrlich

Congressman Jim Costa Questions Freddie Mac’s Recent Partnership with First American Natural Hazard

Dear Readers,

As you know, I recently wrote an open letter to Freddie Mac’s CEO regarding their recent exclusive partnership with First American Natural Hazard. My concern has always been that arrangements like this are designed to cut out the smaller independent providers and to create situations like the monopoly currently being enjoyed by the two big title companies in CA real estate REO transactions. Well, I am not the only one who feels this way.

CA Congressman Jim Costa (D-Fresno) recently wrote his own open letter to Freddie Mac (click here to view) that includes several questions that we would love to see answered, including:

Did Freddie Mac consider the impact this might have on other independent NHD Report providers? What measures have been taken to ensure that this special deal does not negatively affect California consumers? What benefits does Freddie Mac gain by dealing with First American Natural Hazard Disclosures?

Freddie Mac will have to answer these questions and many others as people both on Capitol Hill and throughout the CA marketplace realize the enormity of the ramifications of agreements such as the one between Freddie Mac and First American Natural Hazard.  Especially in light of the fact that it is our own tax dollars paying to support companies like Freddie Mac who so quickly turn around and engage in practices that ultimately harm CA tax payers .

We will continue to request that Freddie Mac opens the Natural Hazard Reports market to fair and open competition leaving the decision where it is supposed to be, with California home buyers and their real estate agents.

In the meantime, a huge thank you to Rep Jim Costa (D-Fresno) for his efforts!