Calling it a bad deal for Americans, a consumer group has asked the Department of Justice (DOJ) to block Fidelity National Financial’s (FNF) buyout of Stewart Information Services Corp.
In a letter to Assistant Attorney General Makan Delrahim, the Consumer Federation of America (CFA) said the elimination of one of the Big Four title insurance underwriters would place too much control of the market in too few hands. A Fidelity spokeswoman said the company had no comment on CFA’s letter.
“Fidelity is the largest insurer of title insurance in the nation and Stewart is the fourth largest,” CFA’s Director of Insurance J. Robert Hunter said in the organization’s letter to the DOJ. “The combined entity would control almost half of the title insurance market and make an over-concentrated, excessively priced market even more expensive and abusive to American home buyers.”
In announcing its merger agreement with Stewart, Fidelity said it would divest assets or businesses for which revenues exceed $75 million up to a cap of $225 million in order to receive required regulatory approvals. Fidelity has proposed paying $50 per share of Stewart common stock. However, that price would adjust according to how much Fidelity would be required to divest.
According to the American Land Title Association’s latest Market Share Analysis, Fidelity current has a 33.3 percent share of the market, First American has 26.2 percent, Old Republic’s 15 percent, and Stewart has a 10.8 percent share of the market.
Hunter, a former federal insurance administrator and Texas Insurance Commissioner, said the DOJ’s Horizontal Merger Guidelines indicate Fidelity’s acquisition of Stewart would increase its market concentration by more than 750 points.
“Title insurance is not only a highly concentrated market, it is beset by the practice of ‘reverse competition,’ wherein title insurers ignore the consumers who buy their products and, instead, market to real estate professionals – real estate agents, mortgage lenders, mortgage brokers, attorneys, homebuilders – who can often steer consumers to a particular title agent or title insurer,” CFA stated.
“The insurers, in turn, often richly compensates the professional for the referral. Huge kickbacks, expensive gifts, and other inducements from the insurers to real estate professionals raise the price of title insurance to absurdly high levels,”
According to CFA, a $500,000 title policy sells for approximately $2,700 in New York and $110 in Iowa. CFA sent a copy of its letters to state insurance commissioners across the country urging them to review the merger, reverse competition and “abusive pricing.”