Fitch Warns of Title/Kickback Probes

A recent report that the Colorado Department of Insurance may sanction nine title insurance companies for allegedly paying kickbacks to homebuilders in exchange for guaranteed business could have significant implications for the U.S. title insurance industry, according to Fitch Ratings.Fitch said it believes similar inquiries are under way in Washington and California about title insurance companies' reinsurance arrangements with "settlement producers," that is, people who are in a position to influence the selection of a title insurer. "In these reinsurance arrangements, a title insurer cedes a portion of title insurance premiums to a captive reinsurer that is at least partially owned by the settlement producer who is the source of the business," the rating agency said. "Fitch believes these inquiries are focused on two primary issues: whether there is any true risk transfer related to the reinsurance agreement, or whether the reinsurance premiums paid to captive reinsurers are in excess of the market rate for the risk being assumed." Under the Real Estate Settlement Procedures Act and many state statutes, it is illegal to pay referral fees to obtain title insurance business, Fitch said. The rating agency can be found online at http://www.fitchratings.com.