short sales

What does Mortgage Modification mean to the Title Industry?

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.

Short Sales and Foreclosure Education

The Minnesota Home Ownership Center put out new Fact Sheets of Interest to Title Insurers, Closers, and anyone dealing with foreclosures.

 

Here is an excerpt from one fact sheet

 

“…In other words, debt forgiveness (short sale, deed-in-lieu, permanent loan

modification, etc) still counts as income and lenders are required to issue

Form 1099-C to the homeowner whose debt was forgiven. It is then the

taxpayer’s burden to tell the IRS that they qualify for an exception to paying

tax on this income. To do so, they need to fill out a special form (Form 982),…

 

A good explanation for a difficult time.

 

The Minnesota Home Ownership Center oversees a statewide network of non-profit Mortgage Support Advisors that offer free and confidential services to struggling home owners. For more information, visit hocmn.org or call 651-659-9336 (866-462-6466 outside of the metro area). 

Buy Foreclosures and Make Money???

Nobody is thrilled about all the short sales and deeds in lieu. After all, Lenders do not want to accept less than they are owed and they are concerned that buyers may be getting below-market deals at their expense. Congress, HUD, FNMA, etc. are leaning on lenders have to figure out a way to reduce foreclosures. Public pressure and perceptions are driving the change as well. The lending industry has a major black eye. And, of course, the Borrowers do not want to lose that all-important credit rating, not to mention loss of their home. The international market is pulling out from buying pools of mortgages, seeing them as an untrustworthy investment. But, right now short sales, foreclosures and deeds in lieu are a fact of life.

Lenders are speculating that they may be buried by borrowers who could pay but don’t want to pay. They are requiring borrowers to demonstrate a financial hardship, such as a job loss or illness. Looking at pay stubs, bank accounts. Rather like the reverse of reviewing the loan all over again – to see the person can’t qualify. Even then, they’re skeptical when a deal is on the table.

In addition, title insurance companies are being asked to review the deal as well. After all, while a deed in lieu of foreclosure saves the lengthy and expensive process of foreclosure, it brings in all intervening liens. That means if there are judgments because credit cards are behind and there are corresponding judgments against the borrower, or there are outstanding child support liens, medical assistance liens, State or Federal Tax Liens, or a host of others, these liens will have priority over the deed in lieu, making the transaction very sticky, and perhaps impossible.

I am seeing droves of advertisements for books and classes to “Buy Foreclosures and Make Money!” I pity the person who believes these ads and loses their shirts on a business that is over the heads of most professionals in the industry.

Info On Home Closing

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