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New Mexicans pay $40 million too much a year for title insurance.

It's a burden that contributes to keeping homeownership out of reach for many New Mexico families.

Title insurance premiums are one of the most expensive costs New Mexico families face when they close on a home purchase.

Lenders require homebuyers to purchase title insurance in order to receive a mortgage because title insurance protects the lender against claims arising from disputes over the ownership of the property, such as liens and building restrictions.

Last week, Think New Mexico released a report describing three reforms that will significantly reduce homebuyers' title insurance:

Allow the market, rather than government, to set the price of title insurance.

Encourage lenders to leverage their market clout and purchase title insurance policies for homebuyers.

End title insurers' immunity from negligence liability.

New Mexico is one of only three states in which the government sets title insurance rates, in effect locking out free-market competition that would reduce rates and keep them lower.

The state's fixed-rate schedule got its start in January 1985 when New Mexico's title insurance industry won passage of a law requiring the state Superintendent of Insurance to promulgate a single rate schedule for all title insurers in New Mexico.

Fast forward 20 years and New Mexico's title insurance premiums are some of the priciest in the nation. Meanwhile, title insurance's average loss ratio, or percentage of premiums paid out in claims and administration, is the lowest among all other types of insurance at only 4.6 percent. By contrast, the average payout for property and casualty insurance (like home and auto policies), is 80.4 percent.

In 2006, title insurance companies collected more than $133 million in premiums in New Mexico. If title insurance pricing were deregulated so that the industry competed in the free market, Think New Mexico projects that prices for title insurance would drop by at least 30 percent - saving New Mexico homebuyers at least $40 million each year.

When airline and long-distance phone service prices were deregulated, prices fell 37 percent and 73 percent, respectively. We believe it is time to put money back in the pockets of homebuyers by letting the market determine the price of title insurance.

Even in a free-market system, the state must ensure that title insurers do not engage in cartel-like practices to keep their prices high. One factor contributing to this cartel structure is that the title insurance market is highly concentrated. Nationally, five title insurance underwriters make up 93 percent of the total title insurance market, according to Fitch Ratings, an insurance credit-rating bureau.

However, the cartel practices seen in other states can be avoided by leveraging the buying power of banks and mortgage brokers and having lenders, rather than homebuyers, purchase the policies that protect them. Since lenders participate in thousands of transactions each year, they have the knowledge to comparison-shop and negotiate for lower prices. They can further lower costs by purchasing policies in bulk.

Lenders will, of course, pass the costs along to the homebuyer, but lenders have a tremendous incentive to keep those costs down because lower title costs will decrease the costs of their mortgages, making them more attractive to consumers.

Finally, in addition to the excessive price for title insurance, there are serious concerns about how much protection homebuyers actually receive. Under a 1999 amendment to New Mexico's title insurance law, homebuyers cannot recover damages from title insurers if the insurer negligently fails to find or disclose problems with the title.

As a result, homebuyers are forced to pay the price if their insurer misses a glaring and costly title defect, such as a building restriction or an ownership dispute. Think New Mexico says title insurers should be required to take responsibility for their errors like other businesses. This provision of the title insurance law should be repealed.

Think New Mexico will seek to have its title insurance reform package heard during the 30-day legislative session next year. Our goal is to reform title insurance so it is treated and regulated like any other type of insurance in the state. We believe this is only fair to all the other businesses who play by the rules, and to New Mexico families who are working hard to purchase homes.

You can help by contacting Gov. Bill Richardson and your local legislators and asking them to reform the state's title insurance laws, which will help to reduce closing costs and make homeownership possible for thousands of working New Mexico families.

For more information about Think New Mexico's effort to reform title insurance, please go to Think New Mexico.

Nathan is the Executive Director of Think New Mexico, an independent public-policy think tank serving New Mexicans. It campaigned for full-day kindergarten, repeal of the food tax and lottery scholarship reforms.