The Reagan administration yesterday asked Congress to allow real estate brokers to receive "kickback" fees for referring homebuyers to title insurance companies, a boost to the real estate industry that opponents say will come at the expense of the homebuying public.
The administration also plans to change regulations to let brokers themselves go into the potentially lucrative title insurance business without restrictions, including steering clients to their own firms, as one means of helping the brokers make money during troubled times.
Opponents of the proposals say it would merely provide a bonanza for real estate companies by taking business from independent title insurers and money from the homebuying consumer, without doing anything for the devastated housing market.
The legislative proposal, part of the administration's housing authorization package for this year, would repeal anti-kickback provisions of the Real Estate Settlement Procedures Act, passed in 1974 in an attempt to increase competition and lower settlement costs to consumers.
Before 1974, insurers routinely paid fees to brokers for referrals, a practice that Congress decided led to anticompetitive practices. The title industry says that if these kickbacks were permitted again, the higher charges would be passed on to consumers.
The official explanation of the housing bill by the Department of Housing and urban Development states that repeal is warranted because "the abuses associated with direct cash payments or kickbacks do not occur so frequently on a nationwide basis as to warrant a federal criminal statute and penalty."
Title insurers agree that abuses now are rare--because of the antikickback law.
In a speech Monday to the National Association of Realtors, which would get the main benefit of the proposals, President Reagan said he wanted to free brokers from limitations in services they can provide to homebuyers. A White House fact sheet said that the prohibition against brokers establishing title insurance subsidiaries inhibits private-sector competition.
But independent insurers say the brokers have a monopoly on access to the homebuyer, who often is unaware of his options, and that independents would merely be cut out of the market. This view was also taken by the Justice Department in a report on the issue in 1977.
"This is just a strong-arm effort to aid the administration's friends in the NAR," said a top staff aide on the House Banking subcommittee on housing. "It's not going to help out the housing industry, it won't sell any houses." The proposal will be a controversial one and could lead to "a nasty fight" in the subcommittee, he added.
"We're shocked and dismayed at the administration," said Mark Winter, vice president for government relations for the American Land Title Association, which represents independent title insurers. "This administration has always talked about a free marketplace . . . but this would mean less competition and higher prices to the consumer without stimulating the housing market."
The title insurance market is particularly susceptible to anticompetitive practices because so few homebuyers know enough about it to shop around for the lowest prices.
The title insurance industry last year took in $1.25 billion in premiums from homebuyers. Title insurance, which often is required by a lender, involves a one-time fee of usually a few hundred dollars at settlement. The insurance guarantees that the title is clear or that if a dispute arises the buyer and lender will not lose their investment because the insurer would pay the claim.
Meanwhile, Housing Secretary Samuel R. Pierce Jr. went before the Senate Banking subcommittee on housing to present the administration's fiscal 1983 legislative proposals and was challenged by committee members to come up with something as effective in aiding the housing industry as the mortgage interest rate subsidies being pushed by most panel members.
Sen. William Proxmire (D-Wis.), for example, said he had serious qualms about the interest subsidy idea but that he might support it anyway because it is the best anyone has come up with so far to aid the homebuilding industry.