Why Mortgage Closing Costs Are So High in Texas

Bankrate’s annual survey of home-mortgage closing costs shows Texas has the second-priciest mortgage closing costs of any state. How come? Title insurance and title searches. Texas has the most expensive in the country:

. . . the insurance department sets (or “promulgates”) the rates, with heavy input from the title agencies and insurance companies. Because the state establishes the rates, title companies don’t compete for consumers by offering lower prices.

How do title insurers compete in states where regulators set prices? According to a report issued in April by the Government Accountability Office, “title agents do not market to consumers, who pay for title insurance, but to those in the position to refer consumers to particular title agents, thus creating potential conflicts of interest.” The report says the industry is rife with kickbacks and undisclosed referral fees among title agents, real-estate agents and lenders.

The study showed that title insurance in Houston (the only Texas city polled for the study) averaged $1,185.06 for a $200,000 mortgage, 68 percent higher than the national average of $707.30. Title search costs averaged $305.08, 54 percent higher than the national average of $197.71.

In his blog, report author Holden Lewis adds a personal comment:

As a native of the Lone Star State, I urge my erstwhile neighbors to ask their members of the Lege why they allow the insurance department to get bulldozed by the title insurance industry. Maybe Texas could set a reasonable objective to have the fifth-most expensive title insurance in the country? That’s doable, right? I mean, Texas doesn’t have to be No. 1 in everything. Or maybe the state could force title insurers to compete in a free market — although cartels are pretty good at making a mockery of a market.