I've written a couple of posts recently about the nasty business of "offshoring" skilled domestic jobs to points around the globe. The comment threads on each clearly portrayed a sense of interest and concern. One reader surmised, at first, that I might be a "liberal nut job." He changed his mind, but I have to add that I've never been called liberal before. What do you think?
Another reader asked "should patriotism be the only reason to hire local labor?" Face it, each person's perspective is unique and based on experiences. We're entitled to our own opinions. From an economic perspective, it seems reasonable to promote, and preserve, employment opportunities on U.S. soil. Doesn't it?
Prior Posts:
In advance: I apologize for the length of this post. I want to know your thoughts on the business model discussed. Am I being ridiculous, a "liberal nut job?" Or does this post raise concerns that are a little closer to home, and office, than you would like?
It was a question raised by my friend from Grand Rapids, Lola Audu, that's the topic of this post. Lola asked: Title searches done from India...are purchase agreements next? Are they?
My fixation with the social implications of "offshoring" was initiated by an article, published in an Indian publication, titled "Winning the title bout in style." A long story short, American title insurers are "outsourcing" title searches to India and it bothers me. There's more. The first paragraph of the article strangely, and awkwardly, includes the phrase "including legal work." I've wondered at great length about the use of that particular phrase because it's clearly out of context considering the rest of the article. It has to refer to something conceptually different than title work that the reporter intended to discuss, but didn't. We no longer rely on legal minds to prepare closing documents, they're standardized to the point of being moronic. Title attorneys work primarily in claims settlement and occasionally go to court to cure title defects. Both capacities require a local presence.
My primary question:
- Why would title insurers "offshore" legal work to India?
A nagging question that won't leave my mind:
- Are Indians with legal training being positioned to inexpensively draft contracts for the buyers and sellers, of domestic homes, who have reached a verbal agreement on their own, or with limited assistance locally?
On Title-opoly, I sometimes explore different business models that might emerge in the near future. On January 24, of this year, I published a post titled "Whispers" that sparked a great deal of controversy and debate within the title industry. People still approach me to debate (argue) the topics discussed. I hope that you read the post and pay close attention to Pat Kitano's insightful comment.
In "Whispers", I suggest an untimely demise of the traditional team comprised of real estate agent, loan officer, and title agent. After a period of transitioning, the old team would be replaced by the new trinity of superior technology, title insurer, and national lender.
From "Whispers":
Title insurers, through their actions, have demonstrated an intent to dominate real estate markets. Title abstracting has been unnecessarily extinguished as a domestic profession by ruthless title insurers. I believe that small to mid-sized title companies will be the next group to quietly disappear. Title insurers have every reason to target the lucrative commissions currently controlled by real estate brokerages. It's the next logical stop in their historical progression.
Title insurers, only fifteen years ago, derived profits through the sale of title insurance by their contract agents, local title companies. The average commission split, then and now, being 80/20. Local title companies keep 80 percent of the title insurance premium collected while remitting 20 percent to the insurer. Title premiums dwindled as lenders lost confidence in the product and looked for alternatives or chose to self-insure when allowed by federal, or state, guidelines. Title insurers began competing directly with their agents for business. Regulators have recognized that title insurance is grotesquely overpriced and are actively seeking legislation to reduce it's costs to consumers. In the foreseeable future, buyer's will pay a small fraction of what they pay today for an owner's policy. That's a fact. As revenues start to decrease, I predict that title insurers will look to the commissions derived from real estate sales. Why wouldn't they?
Title insurers have secretly become the most powerful entities in the real estate industry. They, meaning the top five insurers, as a group or individually, have the financial resources, political influence, and business acumen to aggressively pursue any path of their choosing. You probably don't want to know how much money First American and Fidelity Title, the two largest players in the industry, made last year. Theres nothing to compare, it's in the tens of billions of dollars cumulatively. They, along with Stewart Title, are sleeping giants. Don't try to tell me that real estate markets are local, they might appear to be, but they're not. Stewart Title is relatively small in overall size compared to the others. I include Stewart because it has a distinct technological advantage and is an exceptionally well managed company and consumer directed. These oligopolistic monsters won't be happy making a couple of hundred dollars per transaction with residential sales commissions remaining as high as they are. Theoretically, oligopolies won't leave money sitting on a table if they have the ability to capture it. What's all this mean?
Title insurers, by nature, are secretive and cunning. They seek total domination, but don't want to attract the attention of regulators and consumer advocates by appearing monopolistic. I predict that one, or more, underwriter(s) will launch a national chain of discount real estate brokerages. The "brick and mortar" will softly appear in secondary residential markets, metropolitan suburbs, before being boldly integrated into the mainstream. Virtual technology, advanced far beyond anything we've seen employed in this industry to date, or even imagined, will be employed from day one. Public claims of savings for consumers will be made to appease the collective conscience, while title underwriters are enriched all the while. Underwriters are planning to prepare residential sales agreements in Bangalore, India as Lola suggested. Why else would they assume the expense of establishing legal processing capabilities there? If you perceive the situation differently after reading this post, please let me know.
I'm not suggesting that underwriters will be successful with their new business model. I'm saying that they're blinded enough by greed to try anything for profits ,and influence, thoughtlessly destroying the current industry model during their selfish pursuits.
The National Association of Realtors will have no political, or legal, leverage to lobby against the competitive onslaught by underwriters as it did with federally chartered banks. Brokerages have a long tradition of sharing in the profits of title operations by joint venturing with title companies. How can the NAR cry "foul play" when title insurers turn the table and grab for lucrative sales commissions?
For an incredibly informative blog focused on oligopolistic behavior and markets see Oligopoly Watch. I recommend the site very highly.
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