The Title Insurance industry has slowed to a crawl. Most of the business at the closing table is either a foreclosure or a short sales. And with Congress’ plan to modify existing mortgages, even that pittance will be drying up.
Congress plans to modify existing mortgages to lower rates so borrowers can afford their monthly payments. How does this affect the title industry you ask? In the past, when mortgages were modified, title policies were still in the picture, because intervening liens were a concern. For example, let’s say Sam Smith wanted to modify the terms of his loan by increasing the loan amount. You were the first mortgage lender. If you modified the loan, you had to worry about what that would do to your 1st lien position. If there was a second mortgage or a tax lien on the property, changing the terms of your loan might bump you into second place or third place. The title industry therefore stepped forward with updates to the policies. we checked for intervening liens, we got subordination agreements from the secondary lien holders, we recorded lots of documentation, and endorsed the policy with matching fees for our work.
So, how is this different? Think about it. Titles on all of these troubled loans have already been insured. But this time, they likely won’t need to be insured again. The new loan modification law will generally decrease the interest rate and that will be an advantage to any secondary lien holders, putting them in a stronger position. Therefore, the modification should stand on its face, and no endorsements should be needed. So, there won’t be any need for that title review, or an endorsement to the policy, or new title insurance premium fees. Their might be a pittance for sitting down with the consumer to sign the modification agreement and record it (and with the new RESPA law, title companies won’t even be able to mark up the recording fee.)
Loan modifications are good for the consumer, and good for the economy. They help neighborhoods. They keep banks out of the painful REO business. But they provide little role for title companies. Ouch – another big ding for an already hurting industry.