lenders

What Happens When Your Title Underwriter is Defunct?

A statement in A.M.Best’s special report posted by the freelibrary reports:

Title insurer failures are more bad news for homeowners trying to sell or refinance property in the current down market; as such transactions can trigger a title search and a potential claim. Recourse for policyholders can be difficult and, at best, slow, as very few states cover title insurance under their guaranty funds.

 

With the recent bankruptcy of LandAmerica, Commonwealth Land Title, etal, I wonder what has become of the liability for their title policies? For those who have legitimate title claims written by those underwriters, including lenders in this messy foreclosure and short sale market, what happens? Clearly, the title commitments that are being closed today show many title issues, with judgments, foreclosures and under-water sales commonplace. It seems some of the title problems were missed because of poor search and examination procedures, and lessened searches during a busy market. Anyone care to speak up? 

 

Read the full report here.

Who Has to Sign the Mortgage Documents?

One of the most common sources of confusion at closing seems to be who must sign the mortgage docs. It seems to befuddle even experienced closers of title companies and title agencies. Does the Deed have to match the Mortgage and does the Mortgage have to match the Note? Many are sure that when there is a husband and wife, the closer should prepare the Warranty Deed in both names in joint tenancy, and then prepare the mortgage to exactly match the names on the Warranty Deed. They are not quite sure about signatures on the Mortgage Note, however, because lenders sometimes require others to sign the Note as well.

Truth is, in Minnesota (not necessarily all states) it takes “one to buy and all to sell,” meaning a person can buy real estate without their spouse going into title. There may be good reason for that. Say one spouse has significant financial exposure due to the business she owns. The husband may want to go into title in his name alone, so that should a bad business climate come along and the wife has judgments filed against her, the judgments will not attach to the property.

Also, far as joint tenancy – that may not be the best solution for all spouses. For example, Harry and Mabel, both elderly, have lost their spouses. A winter romance comes along and they decide to be married. They pool their funds and buy a home together. Both wish for their children to inherit their respective halves upon their death. They want to take title not as joint tenants, but as tenants in common.

However, Minnesota, as many states do, has an automatic interest of the spouse in the homestead. Now how do we know if they are living in the property as their homestead? Answer is: we don’t. Therefore, to be prudent, we ask spouses to subordinate any interest they might have, by signing the mortgage. They don’t have to be in title to sign the mortgage. But by signing the mortgage, we have cleared the potential interest.

Best Practice: ALL parties who show in title must sign all mortgages, and rule of thumb is to get their spouses to sign as well. Yes, I recognize that some real estate is unlikely to be homestead, but to be safe, get your underwriter to sign off on not getting the spouse’s signature. After all, that apartment building could also contain the apartment that your client claims as home.

As far as the Mortgage Note, it is simply a personal pledge to repay the full amount of the debt. So if son and daughter-in law, for example, need a little assistance in buying their first home, Mom and Dad may help it happen by, in effect, guaranteeing the loan. Mom and Dad sign the Mortgage Note but do not have to go into title (unless the lender demands it.)

As a disclaimer, this is NOT intended as legal advice, and those who prepare legal documents should be careful to seek legal advise to fulfill the intentions of the title holders. This is merely information from a seasoned closer and title examiner who has seen problems crop up due to misunderstanding how it the documentation works.

The Homeowner Affordability and Stability Plan

Moody’s Economy.com estimates nearly 13.8 million of the 52 million U.S. homeowners, almost 27 percent, owe more than their homes are worth after many months of declining prices. So what does the Obama plan say and how will that affect title insurers?

The Homeowner Affordability and Stability Plan anticipates slowing 7-9 million foreclosures. One part of the plan would be to refinance mortgages on primary residences insured by Freddie and Fannie whose values have sunk below the mortgage balance. The plan would make the lender responsible to lower interest rates so that a borrower’s monthly mortgage payment is no more than 38 percent of his income. The government would then pay to lower that even further, down to 31 percent of the borrower’s income for a period of five years. The rate would then progressively increase to the original respective loan rate. The program would not be available to real estate speculators, for second homes, investment properties or “flipped” houses.

 

Benefits For the Borrowers:

This would significantly reduce monthly payments. Under the plan, not only will the borrowers amortize their loans quicker, but they will also receive an incentive for making timely payments, receiving principal balance reductions up to $1,000 each year for 5 years for good credit habits.

 

Benefits For the Lenders/Servicers

·         Servicers could receive up-front fees of $1,000 for each eligible modification meeting guidelines

·         They would also receive “pay for success” fees — awarded so long as the borrower stays current on the loan — up to $1,000 each year for three years.

·         Another incentive offers mortgage holders $500 paid to servicers, and $1,500 to mortgage holders, if they modify at-risk loans before the borrower falls behind in  payments.

·         A $10 billion quasi-insurance plan will insure lenders against falling values on modified loans, linked with declines in the home price index, as an incentive for lenders not to jump the gun on foreclosures due to fear of the continuing drop in home values.

·         Clear guidelines and rules for loan modifications for all loans owned or guaranteed by the Feds, including Ginnie, Fannie, Freddie, FHA, VA, etc. would be established

 

Congress is also considering allowing bankruptcy judges to rewrite terms of mortgages so long as the homeowners commit to make payments and stay in their homes.

So what does that mean for a title insurer? My bet is the regulations will provide that mortgage modifications will not require any type of endorsement to existing loan policies, leaving title companies with either no role in the process, or simply that of a loan modification signing agent.

 

Source: White House Press Office

 

Are You Ready for the New RESPA HUD-1

Title Companies – All those line items for: Settlement or closing fee, Abstract or title search, Title examination, Title insurance binder, Document preparation, Notary fees, Title Insurance premiums, courier fees, Admin fees, fax fees, email fees, processing fees,  are going away… Fees will be either elimninated, or at the very least, reduced to cost under the new RESPA. No longer will the common mark-ups be acceptable, nor can they be hidden from the customer in a myriad of confusing fees.

Under the new RESPA law, courier fees, admin fees, closing fees and dozens of other charges cannot be hidden in those miscellaneous line items 1102-1199 on the HUD-1.  Title companies will now have to PRINT new all-inclusive rates. These will be filled in as a single item on ONE LINE – line1101. And title companies will have to hold to that number for the lender, because the lender is responsible for overages if settlement charges do not match the HUD-1. Title Companies will also have to legitimately back-up the numbers with specific reports as to their validity, and maintain those reports, so that HUD can audit their authenticity.

While this will make comparison shopping much easier for the consumer, and will force title companies to sharpen their pencils, it will be difficult for an industry that for a long time has used marked up fees for additional revenue. It would seem that no one is anxious to go to the new HUD-1 before he has to – it will cost title companies some serious revenue!

Are you ready for the change? This is NOT simply a matter of updating your software, it means a lot of planning and preparing detailed numbers for all those items on the closing statement. Actual out of pocket costs must be averaged and lumped into a single number for line 1101. (Other lines are intended for third party providers, for example, Line 1102 is only to be used when using a non-title company third party vendor for closing.) When the new numbers are available, schedules must be printed and distributed for your lenders to use on the new GFE, and for savvy consumers to see as well.

Watch for the complete gory details in my soon to be released online course: The new GFE Based HUD-1

MERS Ruled Nominee and Not Lender in Foreclosure Actions

A Florida Circuit Court judge has ruled that MERS cannot stand as plaintiff in foreclosure cases, prompting MERS to suspend all foreclosure actions in Florida. The Circuit Court Judge ruled that MERS could not sue for foreclosures because it was the Nominee (i.e. the firm into whose name the mortgages were transferred in order to facilitate transactions, while leaving the customer as the actual owner of the mortgage) because MERS did not hold the mortgage notes that were still in the hands of the original lenders. This essentially put MERS into the status of a debt collector, instead of the lender, giving them no legal status to foreclose.

Read more detail here at  MSFraud.org.

RESPA – On Again, Off Again… Another Lawsuit Filed

According to Builder Online, HUD has delayed the implementation of RESPA that was to go into effect on Jan. 16th by 90 days. HUD agreed to the delay to assemble info it needs to defend against another lawsuit , this one brought  on by he National Association of Home Builders (NAHB) and other plaintiffs, including 13 large builders and their affiliated lenders and title companies.

HUD’s published final rule eliminates builders from offering home buyers incentives if the buyers are linked into using an affiliated title company, mortgage company, or other affiliated service provider. The NAHB suggests that dismantling these affiliations will not help the consumer and will additionally lead to job losses.  

HUD is also dealing with a lawsuit filed by the Mortgage Brokers Association (MBA) in December that is trying to block a rule requiring lenders and mortgage brokers to provide buyers with a “good faith estimate” that discloses loan terms and yield-spread premiums on the HUD-1 settlement statement.

Surprisingly, at this time, there seems to be no interest by the American Land Title Association (ALTA) to commence a lawsuit against the very unpopular required disclosure on the HUD-1 of the premium split between title agencies (that receive the vast majority of the premium) and title underwriters (who receive very little.) HUD has required the disclosure based on recommendations from the Government Accountability Office that has been critical of the industry practice.

Title Professionals – Are You Sleeping at Night

I was at the Louisiana Land Title Association conference yesterday.  There was a common theme among dozens of title insurance, abstracters and title attorneys I talked to.  The business has changed.  The standard of thorough title searching and fixing title problems before closing so that there are few claims is gone. One abstractor in particular told me he was getting out of the abstracting business.  It was no longer the kind of work he wanted to do.  He told me that over a period of 20 years he was proud to have had only one claim.  Someone in his office had missed a Federal tax Lien.  Yes, it was bound to happen, as he had done a significant volume of business over many years.  When the tax Lien was brought to his attention, he dealt with a like a man, and paid it.  He contacted the Sellers who owed the money.  The Sellers acknowledged that they did in fact owe the money.  He worked out a deal with the Sellers to make monthly payments until it was paid in full.  The abstractor never submitted a claim for that, or for anything else.  He was proud of his thorough search work and the way he did his business.  “But no one wants that kind of search any more” he sadly commented.

 For 100 years, title insurance and abstracting has been a proud business.  Title Insurers and abstracters have been proud of their record.  They thoroughly searched title, fixed problems, and had few claims.  But somewhere, in the recent past, when times were booming, houses were going up in value every day, and credit was easy to get, everybody wanted a piece of the action.  And the title business changed.  The traditional ways of doing business were no longer.  The care and attention given to detail went by the wayside.  Somehow, it became more important to do a large volume of business.  Be the biggest, not the best.  Everybody wanted market share.  Every title underwriter was looking for a title agent who could bring in more business.  And due to the volume of refis and sales, business, everybody flourished.  And suddenly everybody wanted to get into the title business.  Title insurance suddenly was seen as a lucrative sideline for real estate agents, mortgage companies, and even builders.  After all, if you could control the business, why not make an easy buck on the side.  You could pull down 80% or more of the premium, and lots of miscellaneous fees.  And the underwriters saw these new agents as an increase in market share, and thought it was good.

Now the majority of this premium had always gone to the old title agents who did the exacting, grunt, search and exam work- the detail guys, after all, they were the ones who identify the problems, solve the problems, and kept the title clean and the claims low.  They had been with their underwriters for years.  These were the long-term mom and pop shops.  Professionals with a long-term stake in the business.  Often second and third generation.  Professionals who were committed to doing an excellent job for people in their community.  Professionals who believed in the quality of their work, and the product they produced.  Giving a thorough title search helped them sleep at night, after all, these were their families and their neighbors, and they owed them the best they could possibly do.  Nobody was going to lose a house on their watch. If an agent had a claim, he might just pay the claim, he might put in a claim under his E and O, or if a huge authentic claim (being one totally outside their control, like a forged document) they might submit a claim to their underwriter.  Too many claims and they knew they would lose their underwriter.

But the new agents were not familiar with the exacting, grunt, search and exam work.  They did not sign up for this.  They were in the business to build houses, lend money, and sell real estate.  And they wanted a quick turnaround time.  Rationalizing that everyone was putting on a second and third mortgage at the time, that most houses were sold every seven years, and that the titles were examined regularly, it was determined a complete search would not be necessary.  Now who made this determination is unclear.  But along came the short search.  Just looking back a deed or two.  The short search allowed a quicker turnaround time, allowing more business with less staff, making it cheaper to produce.  And the underwriter saw only the increase in premium and increase in market share and thought it was good.

With so many new agents promising to bring in large amounts of business, title underwriters began to compete for that business based on larger premiums splits.  If 80% wasn’t good enough said a big potential agent, premiums went to 85%.  If 85% was a good enough said another, the premium when to 90% for the agent and 10% for the underwriter, and so it went.  And the agents signed with many underwriters.  After all, if one underwriter didn’t work out, switch to another.  Dime a dozen.  And the underwriters greedily ate up any builders, lenders, real estate agents or anyone else who could bring in business. Its a REALLY good deal when you get all that money and don’t even have to do the work!

And the old time title agents saw how fast these new agents were putting out title work.  They saw that they needed to speed up the process to compete.  The short search sounded pretty good.  And the title underwriters, in order to keep everyone happy, agreed.  And so now everyone was doing a short search.  And so the concept of thoroughly searching title, fixing problems and few claims went out the window.  And claims were born.

 

Now, somehow the thought that insurance being written by these new agents as a sideline, when the business was self serving wasn’t acknowledged.  Now you ask, “How could that be?  Does it make sense that builders should be insuring their own titles and guaranteeing over their own mechanics liens?” I don’t have an answer to that.  But, everyone moved the higher risk to the title underwriters.  And the underwriters, in order to compete, allowed it to happen The lenders were happy to control the money and the title.  The builders had a profitable, new sideline and so did the real estate agents.  Title insurance was seen as a profitable sideline, and a convenient one of that, as you could control both the speed of the transaction and handle the massive amounts of money involved in closing the transaction.  Now I’m not saying this is true for every builder, lender or real estate agent, but it happened- a lot.

 However, Title actuaries seemed to be left out of the loop on this, they went on as usual and continued collecting the same title premiums, with the lower title splits, and attempted to shrewdly invest the remaining premium for that rare occasion it might be needed to pay a claim.  Somehow it seems no one was thinking about the ramifications of the new way of doing business – the significant increase in risk because title problems were not being thoroughly researched, let alone fixed, or that more dollars might be needed in reserves to pay more claims.  Title premiums charged to the consumer remained about the same, having had few changes from year to year, or in some cases from decade to decade.  And so here we are today.  High claims and low reserves.  We’re in a fix.  Will the pendulum swing?  In order to be solvent do we need to go back to the traditional ways of doing business –thoroughly searching title, fixing problems, and having few claims?  Or more importantly, in order to sleep at night, do we, as ethical title professionals need to be more thorough in our work, so that none of our friends, family, or clients lose their house on our watch.

 

 

What are Title Companies doing about the FACT Act

Lenders needing to comply with the Fair and Accurate Credit Transactions Act (FACT Act) have been given a six-month reprieve, until May 1, 2009.  What does that mean to title companies and closers?

While lenders are directly responsible for compliance with the FACT Act, title companies are also affected, because the FTC requires that lenders use “appropriate and effective” review of companies they use as service providers, such as title companies who have private information given to them by the lender. The Lender is responsible to see that title companies and and closers due diligence in handling that private information. Therefore title companies and closers who virtually always and have access to private information such as social security numbers, and other loan information provided by the lender, will likely be requested to sign a statement that they have the ability to detect specific red flags relevant to their closing activity and handling of private information.  They may also have to sign off that they will report those red flag items to the lender and to take steps to prevent or lessen the likelihood of identity theft.  So don’t be surprised if you are contacted by a lender asking for proof of compliance. 

While mortgage companies are required to have a specific identity theft prevention program in place under the FACT Act, compliance by the companies they use as service providers (i.e. title companies) are the responsibility of the lender providing the information.  The red flag guidelines suggest that the lender may “require the service provider by contract to have policies and procedures to detect relevant red flags that may arise in the performance of the service providers activities; and either report the red flags to the financial institution or creditor, or to take appropriate steps to prevent or mitigate identity theft.”

So what should title companies and closers be prepared to do?  If you are performing services for lenders and handling private information, educate your staff.  Know the red flags.  If you haven’t received a request yet, designate a person to be in charge of that area to review incoming FACT Act Service Agreements, and use due diligence by having staff who handle private information take classes about the FACT Act and the red flags set forth under the act. More detailed information can be found HERE at the FTC SITE

Thorny Issue In Deed

Monday, November 17, 2008

By CARL ROTENBERG

Times Herald Staff

 

NORRISTOWN — The “Uniform Municipal Deed Registration Act,” which takes effect on Dec. 8, basically pits the officials of 29 Pennsylvania townships and municipalities against the real estate title insurance industry, the lawyers who preside over residential “settlements” of sales and even county officials who are required to “record” a deed after the sale.  

 

This article demonstrates the ongoing battle between city, county and private sectors, all with the very best interests of the public, but each looking at issues from only their respective viewpoint. The same battle has been forged elsewhere, and undoubtedly will be again, but looking at the BIG picture, the documents must go of record immediately after closing, or lenders will not lend, and the lack of money available for sales will be a much bigger problem for the city than some  repairs. Read Times Herald full article by clicking here and post your thoughts.

Whats Good about the Good Faith Estimate?

I’m sure that much will be much written about the new good faith estimate. Personally, I think the RESPA folks did an excellent job. It’s not easy to reform in 1974 law, especially one has been abused so significantly in the last few years. But for those of us in the Title Insurance and Closing Industries who have dealt with a HUD-1 for many years, a mandatory,uniform GFE makes sense. Its outline matches nicely with the RESPA HUD-1 closing statement. I  especially like the “Summary of your loan” section, where it outlines the terms of the deal giving the initial loan amount, long-term, initial interest rate, if the rate can rise, prepayment penalties and whether or not the loan has a balloon. This is the gist of the deal. And I like the fact that it covers escrow accounts.

 

 As a longtime closer, the standard GFE makes sense to me. The obvious omission, I know, is that the annual percentage rate (APR) is not shown. I know many think that is a huge problem, but I disagree. It is a very difficult task to explain to people in any sort of terms that are relevant to them, what an APR is. After all, in the real world, few people keep their house, let alone their loan for a full 30 years. So to them,  that enormous dollar amount that you have to explain, saying how much they could potentially spend for the home over a period of 30 years including the original price, 30 years worth of interest, and various and sundry closing costs, is totally irrelevant to them. In reality, even for those of us killed in the industry, the good faith estimate is not an easy form. And I’m not sure that the consumer, even a very savvy one, will make good use of the form by obtaining and comparing it among several lenders. Americans tend to be rather lazy in that matter. Even though getting the right mortgage is the most important purchase of your life, (certainly more important that the price of the house) the task feels somewhat less exciting than watching paint dry on a wall.

 

But overall, I like the form and I think they did a good job. Now all we have to do is re- program all of those computers and regroup to explain the changes.

 

Info On Home Closing

Home Closing 101: An Educational Initiative of the American Land Title Association