03.30.08
Posted in Money and Finance at 8:48 pm by Jeanne
The relatively new concept of “risk-based pricing,” is now happening in the mortgage industry. The idea is that a person’s credit score plays a major factor in the interest rate charged. The better your credit rating, the lower your interest rate. This makes it important for us, as consumers, to improve our credit before seeking mortgage or other loan approval.
The good new is that the process is controlled by the US - we have power over our credit ratings! If a Lender is unwilling to lend, or the rate is too high … we can get a better rate by cleaning-up our credit.
I believe that good credit scores will be of increasing importance in obtaining favorable interest rates. It just makes sense! This means – we, as consumers need to pay attention to our credit reports! We should review the three national credit reporting agencies — Experian, Equifax and TransUnion files periodically. Discrepancies should be corrected. And, if there are negatives on a credit report, consumers should take advantage of the Fair Credit Reporting Act (FCRA) to file a dispute. Unless the credit agencies can validate the problem, they will have to remove the item. One way to increase a credit score is pay off credit cards, but leave them open— this leaves more available credit, and a longer credit card history, both of which actually increase your credit score.
To obtain a free credit report, you can go online, to the FTC Website or call (877) 322-8228. And, for those inundated by pre-approved credit cards, (which can lower you score, because credit bureaus know when a bank has pulled a credit report before making the offer) there is an opt-out service at the www.FTC.gov Web site or call 1-888-5-opt-out. (It’s similar to the do-not-call registry.) The opt-out is good for five years, and within about 30 days some of that pre-approved junk mail should cease. But beware, many of those reportedly “free credit report” sites have strings attached, and are not really free.
Permalink
03.28.08
Posted in Industry News, Money and Finance, Regulation of Insurers and Banks at 10:25 am by Jeanne
A Demotech Press Release/advertisement for the 2008 Edition of Demotech Performance of Title Insurance Companies states that the major Title Underwriters are in good financial shape. The press release says:
“Although the severity and duration of the downturn in the real estate marketplace will likely challenge smaller, privately held, regional Title underwriters, the overwhelming majority of the Title underwriters, including the publicly traded underwriters, will sustain exceptional financial stability. They have the financial resources to respond and settle meritorious claims as payments come due. Similarly, the majority will continue to possess sufficient financial strength to withstand agency defalcations that tend to accompany periods of declining Title insurance production.”
My first question is – “what constitutes meritorious claims?” The title industry has long reserved for “title problems” such as fraud, forgery, incompetent or incapacitated parties in the chain of title, etc. But now it seem to have taken on the additional liability for closing issues - not only for such things as simple errors in closing, but also for breaches of contract, fraud, conversion of funds and theft, by providing “insured closing letters” to lenders.
My second question is- “Has anyone taken into account that the policy says the title company will defend ANY claim against title,” meritorious or not. Recent costs of defense have skyrocketed. And, the quality of work done over the last few years, as has been well known and admitted to by the Underwriters, has been deplorable. A few years ago the American Land Title Assoc. claimed one in four titles had defects. They no longer talk about these ratios – too embarrassing, perhaps? After all, the title companies have been responsible for most of the problems. I would not be surprised if one in two titles were now deficient. All of these problems should be mitigated. It will be expensive. Or perhaps the Underwriters will just “insure over” problems, hoping in time they will go away.
Lastly, considering the seemingly daily uncovering of bad apple title agents and recognizing that only a hand full of national underwriters hold a 90% plus market share, when the press release says “the majority will continue to possess sufficient financial strength to withstand agency defalcations” does that mean one or more of the National Title Underwriters are suspect for not being able to survive this crisis?
Permalink
03.27.08
Posted in Industry News, Mortgage and title Fraud at 11:57 am by Jeanne
Here we go again. Another bad title Agent. So what’s new? But why does it take so long for title underwriters to jump on a problem?
In this particular case, a complaint has finally been filed by Old Republic Title against Independent Title Agency LLC in Lakeland, FL. Erica Daniels, 29, the owner was arrested March 14th by the Florida Department of Financial Services’ Fraud Division. Daniels, who is a baseball league mother and former Lakeland real estate agent has been charged with stealing more than $660,000 in client escrow funds that investigators say she used for personal gain.
Indications of money laundering and fraud were initially discovered during a routine audit of the company’s financial records in January 2006, according to an affidavit filed. While Old Republic continually pressed Daniels to update her escrow account reconciliations and submit them to the company, she refused and avoided contact with company officials.
“As a result of the follow-up audits, “severe escrow problems related to theft were discovered,” says the report. Again, numerous attempts to contact Daniels were made but she continued to avoid contact with Old Republic. Old Republic has now sued Daniels, her husband, Michael Daniels and Independent Title Agency, LLC alleging breach of contract, fraud, conversion of funds and theft. The company is seeking $700,000.
On March 14, 2008 she was finally charged with two counts of fraud and conversion of escrow monies; scheming to defraud; money laundering; and grand theft. She posted $110,000 bail and was released from the Polk County Jail the same day of her arrest.
Among the allegations in the lawsuit are that the couple used escrow funds to purchase three real estate properties, add an in-ground swimming pool to their home, purchase a BMW, a Hummer, a Ford pickup, a personal water craft and a travel trailer.
Can anyone figure out why it takes more than two years after finding serious financial problems to pull the plug on a bad agent?
Permalink
03.24.08
Posted in Education at 4:46 pm by Jeanne
HUD has once again put out, and and is asking for comments on a
“Proposed Rule: To Simplify and Improve the Process of Obtaining Mortgages and Reduce Consumer Settlement Costs.”
The proposed rule primarily deals with the Good Faith estimate. HUD states that the RESPA’s original disclosure requirements are no longer adequate. It estimates that the proposed rules will reduce settlement costs by $6.5 billion to $8.4 billion annually - with an average savings of $518 to $670 per transaction. That seems like a very aggressive and unrealistic estimate to me. Their argument is that effective advanced disclosure of settlement costs will allow people to shop around for a better arrangement and will result in substantial savings.
There could be some truth in that, I am nor sure. But here are a few of my comments on the GFE.. Some of which I know will be unpopular.
First of all, Layout of Info
Let’s not re-invent the wheel. The HUD-1 closing statement is very well-organized and is familiar to everyone in Real Estate. Each section represents a different party who gets paid. The 700 section is for Real Estate Agents; the 800-1000 section is for Lenders; the 1100 section is for Title Company or settlement agent; 1200’s for Government fees, etc. A GFE should mirror the charges to make it easier and clearer for a consumer to shop around for each party.
There should be a penalty if Fees on the GFE are bogus.
Since a goal of RESPA is to help the consumer shop around, the GFE needs to be guaranteed for a certain period of time – perhaps 10 days. Obviously the rate is subject to change until locked, but the charges are supposed to remain the same. GFE fees should also be available in a standard format, showing all fees that will be collected and paid from Title Companies, Real Estate Agencies, etc.
Mark-ups need to be made illegal! When a title company pays $9 for a courier fee and charges the customer $40. it is called a “mark-up.” The fee shown on the closing statement hides a significant amount of money actually being paid to the lender, title company, etc. Mark-ups should be required to be broken down and shown on the HUD-1 as they are actually paid. In the example above, the HUD-1 should state courier fee to Courier Service X $9, and Service charge for courier to ABC Title $31. This is a huge cost to the consumer. Unidentified “administrative fees”, “copy fees,” “recording Service Charges,” “Tax Service fees” and dozens of other misc. overcharges are routinely hidden within other legitimate fees on the HUD-1. These are “junk fees,” and should be made illegal!
Identify core info from the Mortgage Note and Deed on the GFE. Particularly pre-payment penalties, maximum rate a loan can go to along with the corresponding P&I payment.
As far as simplifying the mortgage and closing – ouch. How do your simplify hundreds of pages documents, including 25 page mortgages? I am not sure it can be done. I loved Robert Franco’s comments on Source of Title:
“I also got a kick out of HUD’s proposed rule for a “closing script.” The rule would ensure that at settlement, borrowers are aware of final loan terms and settlement costs, by reading and providing a copy of a “closing script” to borrowers. I think HUD is giving borrower much more credit than is due. Most don’t care about anything but the payment! I don’t know how many times I have repeatedly pointed out insane interest rates, ridiculous prepayment penalties, multiple junk fees, and harsh default provisions to borrowers. I have done everything short of beat them with a mop handle and chase them out of my office before they sign! They don’t care! When I’m done, they say “What’s my payment?” And, they sign as fast as they can without reading any of it for themselves.”
Sad, but true, for many consumers. Will new RESPA Rules and a new GFE make a difference? Hard to say.
Permalink
03.23.08
Posted in Education, Industry News at 9:23 pm by Jeanne
According to a San Diego Business Journal article, a California insurance underwriter has created a new policy to insure against loss resulting from rezoning or condemnations through eminent domain. The policy is backed by certain underwriters at Lloyd’s of London.
The insurance is being developed in response to the U.S. Supreme Court decision KELO vs. New London, CT, an eminent domain case where the U.S. Supreme Court decided that it should be left to the discretion of the respective State as to whether local governments had the right to take private lands for either public use or private use. The case caused an uproar nationwide, followed by virtually all states reviewing their eminent domain statutes.
For under $300 per year, the policy will provide up to $200,000 loss of market value when the home is sold, plus up to $50,000 to relieve the expense of moving as a result of eminent domain. The Group hopes to market the policy through residential real estate and insurance industries, similar to buying property and casualty insurance or a homeowner’s warranty. A significant fee for an unlikely expense, I suspect. However, if lenders can be sold on the idea that there is a significant risk, it may become just another closing fee.
Permalink
03.20.08
Posted in Education, Industry News, Licensing, Money and Finance at 2:23 pm by Jeanne
Yesterday, My Fox News in Minnesota, reported a MN Commerce Department raid, where officials found thousands of mortgage closings that were never completed at two additional title companies - Title Source Mortgage Company and Home Sweet Home Equity. The raid showed that “more than 3,000 homes nationwide” were affected. The Commerce Department revoked the license of the companies, whose owners allegedly spent some of the money for a suite at the Minnesota Vikings games, and $20,000 in political contributions.
I am not sure what all that means, but I would estimate that once again, the title insurance underwriter(s) will be up to their proverbial necks with trouble from owners, lenders and the secondary market, because:
• Thousands of homeowners have unfiled deeds. Of record, they have no title to their houses. They will be hard pressed to sell their homes, refinance, etc.
• Unwarranted Foreclosures will be forced. Money collected to pay off mortgages was likely not sent to the appropriate lender, causing these houses to be forced into foreclosure, through no fault of the owners.
• Unpaid monetary items on each closing will be a huge problem. Taxes, assessments, homeowner association dues, child support liens, mechanic’s liens, and other title issues, while collected at these closings, will remain unpaid on these homes until the title mess is cleaned up on each home. Penalties and interest accrue on many of these daily.
• Likely hundreds of lenders have unsecured mortgage loans on these 3,000 properties, because the mortgages have not been recorded at the respective county. These lenders will have loans unsalable on the secondary market, because no mortgage notes and collateral packages have been provided to the end lender. And, at a mere $260,000 per transaction, that would be about $780,000,000. worth of headaches on this one title agent.
I have long been outspoken in my concerns about the quality of title work, and signing of inept and unethical title agents, but hand in hand goes the similar responsibility about the quality and integrity of closing the transaction. Title Agents need to be both knowledgeable and ethical. Title agents handle Billions of dollars each year of the public’s money. The licensing and oversight of Title Agents is obviously not being appropriately handled by the five national title underwriters.
It seems to be time for state legislatures to step in. Why not fund State oversight of title companies by assessing significant enough penalties to really make them do the right thing. Title companies need oversight of funds, regular education and continuing education in laws and ethics, and they need a big stick to make it happen.
Permalink
« Previous entries