With new legislation around the Real Estate Settlement Procedures Act slated to take effect Jan. 1, 2010, many in the industry have concerns about how these changes will impact their daily work routine. More accountability, full disclosures -- the new RESPA rule has placed a lot of lenders in particular on the hook.
A few weeks back Todd Ewing spoke with The Title Report editor Jennifer Kovacs about Federal Title's approach to the changes.
"There's a hard push with the RESPA reforms toward what we've been doing all along, which is full disclosure. Mortgage lenders are not just going to expect it, they're going to demand all title companies provide a guaranteed quote for their services," Ewing said.
Below is the article in full:
Title company's unique anti-AfBA business model pays off
About nine years ago, Federal Title & Escrow Co., which serves the Washington, D.C. metro market, decided it was time to quit a bad habit.
“We kicked the [affiliated business arrangement] joint venture addiction and replaced that relationship with a pro-consumer model that we now call the REAL Credit program,” Todd Ewing, Federal Title president, told The Title Report.
It was after about five years in business that the company put everything on the line for what felt right.
“If anyone is really honest about it, the affiliated business arrangements (AfBAs) are not consumer friendly, they’re just not. You got too many hands in the pie. So the consumer ends up losing,” Ewing said.
Federal Title’s REAL Credit program is simple: If title work is ordered through the company’s Web site, the consumer receives a credit that reduces the overall cost. Just like AfBAs, which caused the company to lose a good chunk of its revenue to the referral source, this program comes at a loss to Federal Title — but one not linked to a conflict of interest.
“Our REAL Credit represents in dollars what we used to pay over to our AfBA joint venture referral partners, only now we just pay it over to the homebuyer,” Ewing said. “I don’t want to be beholden to the interest of the referral source. I’d rather be beholden to the interest of the consumer. So we developed the concept, and it’s worked really well.”
The model
While not involved in any joint ventures, Federal Title does still rely on its referral sources. The company has a network of real estate agents and lenders who can also take advantage of the pro-consumer platform.
For example, when a real estate agent goes online to order services through Federal Title, an automated e-mail is sent to the homebuyers that tells them their agent just saved them $1,200 for ordering online, which then puts the agent in a great light.
“That goes a long way,” Ewing said.
In the first three years of the program, Federal Title saw a 50-percent increase in transaction volume and since has continued to grow its referral base.
“What happened is real estate agents realized that they wanted to extract themselves from that conflict of interest potential [with AfBAs]. And if they can look good and we can look good, then they’re going to come. And we’re obviously providing a cost-savings proposition to the homeowners,” Ewing said.
In fact, as word has spread about the credit, it’s not just industry partners who are referring business to Federal Title — consumers are discovering the company on their own.
Cost savings
Federal Title is able to stay above water and still offer the credit thanks to the increase in transaction volume that it’s seen over the years. However, the key to the program is that services must be ordered online.
The automated system is one that’s allowed Federal Title to see a significant savings.
The process starts with a transparent, instant online quote available from the company’s Web site. Federal Title was the first title company to provide the service in 2002, thanks to its proprietary software.
“A lot of our competition just couldn’t believe we were doing it. They were fearful. They were, like, ‘Why would you do that? Why would you guarantee that? You don’t know, things could change [from the quote].’ Well, we were willing to do it. Very few things change, frankly, and we ask the right questions,” Ewing said.
The user gets a guaranteed quote from the Web site on a modified HUD-1 form that shows the costs for title insurance, settlement fees, government recording charges, etc., Ewing said.
Then the person seeking the quote is able to order services online from there. Through asking detailed questions, Federal Title is able to limit its liability at the same time it cuts down on mistakes and automatically populates forms a title agent would normally need to process.
“All of that results in a cost-savings to us,” Ewing said.
Federal Title processes about 3,000 transactions a year, and the average savings to consumers through the REAL Credit program is $750. “It adds up, doesn’t it?” he said.
Federal Title has tried streamlining processes even further in the past, through outsourcing title work and surveys, but Ewing said the company has decided to bring all of its services back in-house and rely on its technology instead.
“None of it has really panned out for us. There’s nothing better than a home-grown title report. I don’t see that changing anytime soon,” he said.
Technological focus
Federal Title offers a variety of services, from deed transfers to a 1031 exchange to wills and estate planning, but Ewing said the majority of its business remains traditional real estate closings.
And while the bulk of that business is ordered online, Ewing said there’s always been some who would rather fax over the necessary forms. “We still have a few of those, but after nine years, given the changes in technology, I think people are adapting,” he said.
The industry, too, is adapting to the business model Federal Title has taken on, something Ewing said is apparent in the RESPA final rule and its goal of transparency in real estate closings.
“There’s a hard push with the RESPA reforms toward what we’ve been doing all along, which is full disclosure. Mortgage lenders are not just going to expect it, they’re going to demand all title companies provide a guaranteed quote for their services,” he said.
Ewing added that he expects lenders also to begin seeking instant, electronic quotes for title work that doesn’t throw off any specified tolerances, as dictated by the RESPA final rule and the Truth in Lending Act. “Who wants to call up and ask for numbers?” he said.
Federal Title also is using its technology platform as a vital part of its expansion efforts. The company recently partnered with a law firm in Coral Gables, Fla., to offer its expertise in marketing as well as technology to grow the company in that region. Federal Title is also seeking like-minded partners for opportunities on the East Coast, potentially in North and South Carolina and Georgia, Ewing said.
However, Federal Title is also using the technology arena to grow its footprint at home. The company is focused on developing its Web site’s blog to reach consumers who are technologically savvy and use the Internet to investigate the home buying process before jumping in.
“With the blogging atmosphere and everything that is available to the average consumer and the consumer’s appetite for that, we see a great opportunity not to be beholden to our traditional referral system. So that’s exciting for us,” Ewing said.
Issue Date: October 19, 2009
Questions/comments? E-mail Jennifer Kovacs at jkovacs@octoberresearch.com.
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