Turned loose by the Gramm-Leach-Bliley Act of 1999 and changes to state laws, banks in several states are eyeing the lucrative business acting as agents for title insurance companies.
Title insurance agency is now mostly a mom-and-pop business; there are thousands of title agents across the country. But several observers said they may be washed away in a wave of consolidation.
The title industry will consolidate massively in the next three years, said Bruce Stern, vice president of business development at Madison Title Agency of Lakewood, N.J. To the extent that big banks enter the industry, the little mom-and-pop stores could get squeezed out of business or gobbled up.
Title insurers are hired by lenders to ensure that the properties they finance do not hold previous mortgages, which would hamper and complicate collection efforts in the case of a default. Title agents get 80% of the premium on insurance they sell, while retaining none of the risk, Mr. Stern said. That can come to $100,000 or more on a commercial mortgage, he said.
George Snead, the senior vice president of marketing at Investors Title Co., a national underwriter based in Chapel Hill, N.C., said banks are looking for significant sources of noninterest fee income, and we believe that the distribution of title insurance offers them that opportunity.
We are currently being approached by a number of banking organizations in many states about the most appropriate way to enter this business, Mr. Snead said.
Gary Ketcham, a senior title analyst with AM Best Co., an industry research firm in Oldwick, N.J., estimated that 6,000 agents sell the products of the five national title companies 3,000 direct agents, selling only one agencys line, and 3,000 independents selling for several of them.
New York Bankers Association officials say Gramm-Leach-Bliley helped push banks toward the business. The 1999 law requires each state to give national banks the same power as its state-chartered banks to sell or underwrite title insurance. Thirty-four states allow banks to sell title insurance, and 13 allow them to underwrite it.
Michael P. Smith, president of the New York trade group, said it tried unsuccessfully to help its members form multibank title agencies under a 1997 state law, but could not raise enough interest without nationally chartered banks.
Since last June, however, the group, with the help of Investors Title, has set up three regional agencies owned by multiple banks, Mr. Smith said. Among the 42 participating banks, half are national, including the $125 billion-asset Champlain National Bank in Willsboro and Bath National Bank.
Banking trade groups in Virginia, Tennessee, Maryland, Michigan, Pennsylvania, and West Virginia have set up similar ventures with Investors Title. The banks contribute capital to form a limited-liability title agency; Investors Title underwrites the insurance the agency sells.
Jim Biery, the president of the Pennsylvania Bankers Association in Harrisburg, said it has set up three agencies since September, involving close to 23 banks.
Ray Melcher, the president and chief executive of Leesport Bank, a $400 million-asset bank in Pennsylvania that last year entered a joint venture to sell title insurance with a local law firm, said banks everywhere around him getting into the title business.
Almost every bank of our size in southeastern Pennsylvania has done a kind of affiliation with an existing agency or built a new one as part of a consortium, he said. Even the builders and realtors have entered the business somehow.
New Jersey is an example of a state that has been quick to harmonize its laws with Gramm-Leach-Bliley by lifting previous restrictions on banks getting into the title business. In November the state Legislature passed a statutory amendment allowing commercial banks, savings banks, and savings and loan associations to get into the title business.
People like Mr. Stern, the New Jersey title agent, have had to move quickly to avoid being fed to the lions. He said banks, none of which have much experience with title insurance, will be leery of buying title agencies or forming them from scratch. He hopes to leverage his companys experience to form joint ventures, he said, and is currently working on two such ventures.
Ann vom Eigen, legislative regulatory counsel for the American Land Title Association, said she expects state-chartered banks to exert pressure on state legislatures to open up the title arena.
Her organization has alerted its members to look at their state laws and keep track of any legislation to change them, she said. A lot of states are going to have to address this, she said.