Cutting Premiums, Other Closing Costs for Buyers

WASHINGTON —  An ambitious--and controversial--effort is about to get underway nationwide to slash homeowners’ title insurance premiums, appraisal fees and other closing costs when they refinance their mortgages or take out a home equity loan.

In title-related expenses alone, the new service promises to cut fees by 50% or more, lowering charges from an average $650 to $700 to below $300 at settlement. On appraisals, the cost reduction will be even greater: an average $50 charge for a refi appraisal, instead of the traditional $300 to $400.

Under the new system, scheduled to start in September and October in many parts of the country, you won’t depend on a title or escrow agency or go to a lawyer’s office for your settlement. Instead, you’ll pick the time, date and place for settlement--at your home, office, a restaurant or vacation spot. The day before closing, you’ll be able to go to a secure Web site, examine your settlement documents online and ask whatever questions you may have about line items.

Then, on the day of settlement, a notary public will come to you with all the closing documents for final signatures. Sound different from your last closing? You bet.

The key to this radical, forthcoming change in settlements is a new financial product designed to reduce the costs of title-related services in home real estate. It goes by the name Radian Lien Protection. Its developer is Radian Guaranty Inc., the country’s fourth-largest mortgage insurer, with 3,500 lenders as regular customers. Radian Lien Protection is intended to cover lenders against mortgage defaults, as does traditional mortgage insurance, but carries an additional layer of coverage against losses caused by “undisclosed liens” on the property.

The latter protection traditionally has been the sole province of title insurance. After a search of public records, a title insurer covers the lender--and for an additional fee, the homeowner--against title-related claims. Claims can arise from unrecorded liens, challenges to ownership by relatives or heirs and other circumstances.

Unlike traditional coverage, the Radian plan involves no physical search of the “chain of title” at the county courthouse. That, in part, is why the new coverage is restricted to refinancings and home equity loans. In the latter case, the lender is in a “junior” position on the title anyway; the first mortgage lender has first claim to the property. In most refinancings, a title search and insurance policy probably were done not many years before.

Radian President Roy J. Kasmar says in these two situations “we believe the losses [because of undisclosed liens] are very low.” As a result, Radian believes it can, at low cost, graft additional coverage against undisclosed liens onto mortgage insurance that covers entire “pools” of lenders’ loans.

At the consumer level, the delivery of the new, cut-rate title coverage will come through an online package of services offered by participating lenders. The package will include cut-rate appraisals, credit reports and scores, lower documentation charges, closings by notaries and access to the final closing documents online the day before settlement.

The source of the service package will be Radian’s wholly owned subsidiary, ExpressClose.com. ExpressClose already offers service packages to lenders online and has quietly built up a network of more than 6,000 notary publics around the country, who are trained to handle settlements on a “carry-out” basis.

“We even did one closing at Disneyland,” said Kasmar, although homes and offices are consumers’ predominant preferences. ExpressClose’s appraisals are low-cost because they are virtually all “automated valuations,” based on online appraisal and home sale price databases.

The implications of Radian’s new concept are huge: Why pay $800 for title services if you can get what your lender needs for $275? Why pay $400 for an appraisal if your lender is satisfied with an automated valuation for $50?

The impacts of Radian’s plans haven’t been lost on the title insurance industry. Challenges to an earlier version of the program, marketed by ExpressClose rather than Radian, have arisen in some states. The argument against the concept is that only state-regulated title insurers can write title policies, and ExpressClose isn’t even an insurance company.

But Radian Guaranty is an insurance company, licensed to do business nationwide, and defines its new product as a form of mortgage-risk insurance, not title insurance. Kasmar says he expects opposition from traditional title underwriters, but is ready to defend his company’s right to innovate.

The upshot for you? First, remember the new product’s limitations--it’s just for refinancings and equity loans. Second, it comes with minimum credit standards; you’ve got to have at least a 570 FICO (Fair, Isaac & Co.) score.

But if you fit those limitations, ask lenders about the new, online, low-cost settlement package. It might just save you money, and shake up the status quo.