Top-Level Takeaways
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A title insurance CUSO at California Credit Union posts its own insurance rates, which saves members hundreds of dollars.
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Title insurance on refinances has been big business, but rising interest rates have led to a spike in HELOC activity.
Frank Berriz had owned his own California-based underwritten title company (UTC) for more than 20 years when California Credit Union ($3.0B, Glendale, CA) asked him in April of 2015 to become the president and CEO of the wholly owned CUSO the institution was launching.
CU QUICK FACTS
California Credit Union
Data as of 06.30.17
HQ: Glendale, CA
ASSETS: $3.0B
MEMBERS: 162,912
BRANCHES: 25
12-MO SHARE GROWTH: 102.2%
12-MO LOAN GROWTH: 88.7%
ROA: 0.33%
Berriz, who considered the credit union a good client, was unaware the credit union had pursued a title insurance license and was surprised it was launching a direct title insurer and not a UTC. Still, as one of his partners sought to retire, the timing was right for Berriz to help the credit union build this CUSO.
The norm for startups in this space is as a UTC that issues the policies of major insurance entities, Berriz says. In essence, a UTC operates as an agent. When a direct title insurer closes on a transaction, it issues its own policies.
Low Overhead. Low Rates.
California Credit Union created the CUSO, California Members Title Insurance Company, in response to member feedback. Members reported other settlement services lacked respect and charged too much. The credit union felt it could do better.
We felt we could reduce members’ cost and provide the type of service they are accustomed to, Berriz says.
The CUSO, which began operations in October 2015, offers full settlement services including title insurance and escrow for sale, refinance, commercial, and institutional transactions. The CUSO is licensed to operate throughout California but mainly serves California Credit Union and other credit unions in Southern California. Currently, 45% of the CUSOs business comes from California Credit Union. ContentMiddleAd
The CUSO offers cost savings in two ways. The first is through an owner’s policy that covers the borrower. The second is through a concurrent lender’s policy that covers the lender.
For example, if a home’s purchase price is $400,000 and the loan amount is $350,000, the CUSO’s website says its policies would total $1,008 and $383, respectively. While it’s difficult to quantify the savings as all title insurers have different posted rates, Berriz estimates credit union members up to nearly $500 per transaction compared to other major direct insurers.
DID YOU KNOW?
A 2009 California bill makes it unlawful for any title insurer, underwritten title company or controlled escrow company to pay, directly or indirectly, any commission, compensation, or other consideration to any person as an inducement for the placement or referral of title business.
According to Frank Berriz, president and chief executive of California Members Title Insurance Company, that means pens, pads, and swag with a permanent logo are ok. Financial benefits are not.
The CUSO bases its rates on the purchase or refinance amount and is able to offer low rates because it keeps expenses low. For example, the CUSO has no sales staff and relies on word-of-mouth to increase awareness.
A Strong Start
Title and escrow service can be complicated, and whereas members can shop for the service, most don’t. Instead, they often rely on a referral from their real estate agent.
Real estate agents have title and escrow companies they prefer working with, Berriz says.
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The CUSO has a relationship with California Credit Union, but it needs to differentiate itself to gain the attention and trust of local realtors. That why the locally owned and operated shop plays up its personalized service.
Many national insurers outsource their title services to reduce costs, Berriz says. California Members Title Insurance Company does not.
We felt we could reduce members’ cost and provide the type of service they are accustomed to.
We do everything on our own with our on-site staff, the chief executive says.
And right now, business is good.
The CUSO has processed more than 7,000 transactions since October 2015, mostly in refinances. And while it’s hard for Berriz to estimate total cost savings provided by the CUSO, several hundred dollars saved across thousands of transactions is no small change.
The potential rate increase has slowed refi activity in recent months; however, according to Berriz, HELOCs have now exploded as a way for homeowners to tap into equity.
Despite a changing mortgage environment and challenges from a lack of a sales staff, the first 20 months at the CUSO have been both rewarding and successful, Berriz says.
And members have responded positively. They’ve been complimentary and appreciative of the CUSO’s staff and services, Berriz says. The CUSO will build on these response in the months to come.
It’s been a very good start, he says.