discounts - reissue and substitution rates

I just got off the phone with a mortgage broker called "Ideal something or other", closing a refinance transaction tomorrow, who is working with a title insurance agency who refuses to give his customer the reissue rate or substitution rate unless the customer proves that they bought an owner title insurance policy. I think the name of the title insurance agency is "Independence something or other."

Wow, I feel sorry for all the customers dealing with that "Independence something or other." How much money are they being overcharged? The regulations were revised back in August of 2005 - I'm pretty sure - and that means this "Independence something or other" has been overcharging for over a year now.

If you are a consumer reading this blog, please be advised that title insurers in Pennsylvania MUST give you the discount if they find evidence in your title search (within the applicable discount time-frame) of a deed to a bona fide purchaser for value, or an unsatisfied mortgage to an institutional lender. They have to ASSUME based upon this evidence that a title insurance policy was purchased. You are under no obligation to provide a copy of a policy or a HUD settlement statement as evidence.

Now if the title search does not show either of those instruments and you still feel you are entitled to a discount, then of course the title insurer is permitted to require additional documentation.

This "Independence something or other" also told the mortgage broker and the consumer that they are not entitled to a substitution rate if the loan amount is different or substantially larger than the mortgage they are paying off. That's a bunch of hooey.

Our rates manual clearly states that the consumer is entitled to a reissue rate if we find evidence of a prior policy - as stated above - within the last 10 years. We give 10% off the basic rate automatically, period.

Refinance consumers are given the substitution rate which is either 70% or 80% [70% 1-2 years, 80% 3-4 years] of reissue automatically if we find an unsatisfied mortgage of record during the last 4 years.

The mortgage broker, "Ideal something or other" said we had closed a mortgage transaction for these folks in November of 2004. He didn't give me their loan amount so I can't be specific on the discount but let's just say they are closing a $100,000 mortgage tomorrow. Let's compare costs:

"Independence something or other" will charge a basic rate of $858.75 unless the consumer provides a copy of their title policy or HUD settlement statement. They also said they will only give a reissue rate - not substitution - so at best these folks will get a reissue rate of $772.88.

If they had gone to any legitimate (using PA regulated rates) title insurer, they would only be paying a substitution rate of $618.30.

If they had come back to our office they would also have been able to use their $75 off coupon they got with their title insurance policy on the last transaction.

But alas, they decided to use Mr. "Ideal something or other" mortgage broker who likely referred them to Ms. "Independence something or other" title insurance agent.

Once again we get to say, please shop around before selecting your title insurance agent and YES you do have a choice - even when refinancing.

an old mortgage underwriter talks about "new fangled" risk assessment

When I made the transition from loan originator to mortgage underwriter, I made some costly mistakes. They weren't costly to me personally - they were costly to my customers. You see, given the reins of the power to approve mortgages, I took risk. I approved some folks with higher ratios and with sad credit stories. These were the types of cases on whose behalf I had argued as a loan originator. Now I had the power to say yes and I did. Guess what? I saw a few of those families go into foreclosure the first year. I felt bad and I learned my lesson. A responsible mortgage underwriter has the responsibility to use prudent risk assessment and understand that giving people what they want may not be the best path. It was a lesson in professional tough love and I haven't forgotten it.

Nowadays when I observe mortgage lending from a small distance, as a title insurance agent, and I see lenders taking outrageous (to me) risks, I know the circle will turn and the losses will be costly. I don't say anything because it's not my place. It's up to today's underwriters to assess the level of risk, but consumers DO have a choice and so for the record.....please consider being just a bit more conservative. This article discussing sub-prime lending may help you to understand that foreclosure is real. When it happens, you lose everything you have put into the house and more. There is emotional trauma. Sometimes the difference between safe homeownership and foreclosure is just buying a more modest house.

There are many responsible mortgage lenders who consider the risk and don't push people into bad decisions. Unfortunately, there are also predators who churn refinances - especially with homeowners who have an addiction to credit cards. They churn and refinance and churn and refinance until there's no more gravy then they leave the homeowner in the lurch soon to face foreclosure.

So, keep your head. Deal with reputable mortgage lenders and be happy.

If you don't believe people get arrested for "pretend" fraud

read this Fannie Mae report.

"pretend" "fake" "silent" seller second mortgages?????

I am truly trying to get some title work done today, so I will be back later to expound on this issue, but for now here's an interesting post.


OK - Here I am , back to expound. ;)

Let me divide “pretend”, “fake”, “silent” seller second mortgages into four categories:

Seller lures buyer into collusion to defraud the first mortgage lender.

Buyer lures seller into collusion to defraud the first mortgage lender.

Real estate agent lures both parties into collusion to defraud the first mortgage lender.

Mortgage loan broker or originator lures parties into collusion to defraud the first mortgage lender.

Notice a pattern here?

It’s always fraud.

The victim is always the first mortgage lender, though other parties may be harmed.

It's interesting that the person who comes up with the idea usually knows they are doing wrong. Some know it's fraud and don’t care, others at least know they are breaking rules. The sales pitch makes light of the matter, makes it seem like it’s no big deal – you know the “everybody does it” routine.

Don’t buy into that scenario. Refuse the deal and walk away. You do not want to face prosecution.

Let's talk about two real life cases I experienced in which people were instructed to defraud the first mortgage lender.

The first happened while I was a loan originator in 1980. I had just changed employers, taken on a new territory and if you remember that year, interest rates were in the double digits. The closing of the steel mills in the Pittsburgh area devastated our local economy and mortgage applications were few and far between. My product was FHA/VA mortgages. Before the layoffs started the mortgage origination staff was kept busy riding around town taking pictures of houses in default. It was tough and real estate agents and loan originators were desperate.

As I said I was assigned a new territory and started to solicit business from a group of real estate agents I had not previously worked with. One nice lady hooked up with me and started to send regular referrals. My boss was pleased. I had a few other sources of business, but she was the most reliable. People loved her and she sold a lot of houses.

It didn’t take more than a couple of months for me to get the vibe that something just wasn’t right. I started paying closer attention and realized that she was putting deals together with fake hand money and fake gifts – all money coming from the sellers. I’m sure the sellers were happy to sell their homes and the buyers happy to buy, but I stepped out of the picture. I didn’t accuse her openly, but I made no further contact. The following year I read about her arrest by the FBI. The FHA looks for patterns in foreclosures and they found her name on one too many. She was taken from her house in curlers.

The second example took place in 1999 when I was contacted by a vivacious sub-prime mortgage loan originator named Samantha. I never met Samantha but her personality screamed through the phone and all her customers loved her. This time the fraud was harder to see because it came all wrapped up with the first mortgage lender’s approval.

Samantha worked for one of the big mortgage lenders and they were approving sub-prime first mortgages with seller seconds. Their closing instructions included the terms and they instructed us to prepare the second mortgage. All fine and good except Samantha had instructed the parties – seller, buyer, and real estate agent – that the buyer really didn’t have to pay the money back. They had all agreed to artificially raise the sale price to cover the second. Everybody was happy except me. Even though I was just the title insurance agent in the transaction, my old mortgage loan underwriter cells were screaming FRAUD FRAUD FRAUD!

I contacted the mortgage processing/closing center and confirmed that they understood the terms and had no problem. Since I had my instructions in writing, I prepared to close. Just before closing Samantha called and instructed me to prepare a satisfaction for the second mortgage and told me to record it immediately. I called the mortgage processing/closing center and that’s when I realized the entire department was colluding to defraud their own employer. The written instructions from the underwriting department clearly approved terms of a seller second mortgage – a REAL seller second. I am certain that the underwriting terms had been negotiated into the price for a security pool and the underlying investors had rated the risk of the pool accordingly. Here we had a situation in which a leading mortgage lender had consciously decided to offer a high risk loan to sub-prime borrowers and their own employees, engaged in subterfuge, were escalating that risk into the stratosphere.

I refused to prepare the satisfaction and advised all parties that the terms of the mortgage called for a real seller second. Samantha advised the buyer to just close and deal with it later. Well, the seller died before a satisfaction was ever recorded and the last I heard from the buyer, they couldn’t get the estate to deal with it. The buyers were stuck. They couldn’t refinance or sell.

We had received numerous title orders from Samantha at the same time and were having the same experience on them all and in addition I found out she had counseled the some of the parties to create fake hand money. I contacted her boss and told him we did not want to close anymore of her transactions. They reimbursed us for the search costs. Samantha doesn’t work there anymore and I haven’t heard of her since.

These are just a couple of cases. I could go on and on and on. We say no to fraud all the time - it's a regular part of the job. Be strong. You can say no , too. None of us look good in stripes. ;)

Mechanics Lien Law Changes Start Soon!

I'll be back on to finish this post but for now, please read this memo.

Okay, I’m back. The memo is fairly clear and so I just want to add these comments:

Construction mortgage lenders in Pennsylvania PLEASE have your legal counsel look into the new guidelines. You MUST make sure your construction mortgage instruments are the right ones to take advantage of the protection offered under the new law.

Construction permanent mortgage lenders, beware, your mortgage instruments may not afford this protection – especially against third tier contractors, so-called sub-sub-contractors. PLEASE talk with your legal counsel.

So far our underwriters tell us Owner Title Insurance will NOT protect against mechanics liens. New construction homebuyers must take whatever measures they can to make sure all sub-contractors and sub-sub-contractors are paid in full. On a case-by-case basis, title underwriters will consider insuring the owner but expect indemnification agreements and perhaps a higher premium.

Everyone needs to have some more experience with the new law. Over time the guidelines will be refined and as that happens we’ll let you know.

I respectfully disagree with Terrance R. Monnie.

Read this follow-up to a prior post.

I disagree on two points.

While every state is different, I can’t imagine that Ohio has no instances in which unfiled lienable items are valid clouds on title. The nuances of knowing which potential unfiled risks may affect title and where to find them make the title examination process tough. You must have an expert title examiner review title and make the call. This is precisely the reason why a courthouse dump of raw data is only a small part of the examination.

I need to make this perfectly clear because much of the media hoo-hah about title insurance touts cheap $25 electronic courthouse searches as acceptable substitutes for a real title examination.

The case in question involves a municipal assessment and whether or not it was a valid lien against the property. In Pennsylvania, municipalities have three or five years to file a lien at the courthouse, depending on the nature of the service. During that interim “grace” period, the amounts owed are considered lienable and must be paid to clear title even though there is no lien filed at the courthouse. I presume Ohio has a similar system. If not, the municipalities would have to immediately file liens each and every time a charge was incurred and that would be ludicrous.

So the crux of the matter rests with whether or not the assessment paid by the Crookers was a valid lien, filed or unfiled. The fact that the window of time for filing had expired, giving the municipality no legal right to place a lien against the property, caused the denial of the title insurance claim. If the claim had been made before the expiration of the filing “grace” period, the assessment would have been deemed lienable and the title insurance would have covered it. So when Mr. Monnie says, “the important thing for the public to understand is that title insurance covers only those items contained in the public record” - I disagree. Title insurance covers both filed and unfiled items. If you rely on a search of the public records alone to ascertain the status of title to real estate, you don't understand the risks and are likely not a title insurance pro.

I also have to take issue with this statement: “If the sellers had a real estate attorney representing them at closing, Monnie agrees the closing would have been put on hold until the title insurance underwriter was contacted and a claim made on that policy.” Maybe, maybe not. The Crooker’s case is not that unusual and frankly, in my personal experience, insured sellers more often than not pay first, then contact the title insurance company on the advice of an attorney. Not every attorney understands title insurance. Not every attorney is an expert title examiner. So the moral of the story still stands.

MORAL OF THE STORY: Sellers faced with title clearance conditions should immediately contact their title insurer for resolution. Allow them to do their job and defend your title.

Builders put pressure on buyers to use their title company.

Here's an example. I couldn't figure out how to register to comment on this post, so here are my two cents. ;)

I agree that the loan offered by Wells Fargo is not unusual in today's market and I wouldn't consider it predatory lending. Most predatory lending occurs in a brokered transaction. The focus of predatory practices is in the total fees earned per transaction and the total is regulated. We've seen transactions re-structured just before closing because the mortgage lender determined that the mortgage broker was earning more than permitted under federal law.

You are right to be cautious about overextending yourself. I have been in the business for a long time and as a former mortgage loan underwriter, I am surprised at the level of risk both consumers and lenders are assuming. Unless you truly want to be "house poor", the good old fashioned 28/36 ratios are where most families will thrive.

Spec homes are high risk commerical mortgage lending. Builders and mortgage lenders do NOT engage in such speculation to keep workers busy. Far from it. They have gambled that they will be able to move the houses at profit.

The two issues in the post that DO concern me are the deposit retained by the builder and the attempt to force use of affiliated businesses.

The builder may have a legitimate right to retain the deposit. I would pursue the matter until that's determined one way or the other. Of course, if $1000 isn't worth your time, don't bother.

RESPA expressly prohibits required use of affiliated business arrangements - ABAs. The builder should have disclosed the relationships in writing in a special RESPA disclosure and BACKED OFF when you chose to go somewhere else.

Shopping for price and service are the powers - significant powers - held in the hands of consumers. Think for yourself. Keep your head. Real estate transactions involve a lot of money and emotion. That's a heady mix. Yes, buyer beware, but don't give up. There are plenty of honest builders, mortgage lenders, and title insurance agents who will help you find your new home.

Homebuyer Guide - Before You Start, Assess Your Situation

PAYING CASH – If you are buying your new home without a mortgage, call The Closing Specialists® at 888-680-5177 first for an idea of transaction costs. If the property is not in our service area, call a few title insurance agents in your market. Shop around until you are sure you understand the customary transaction costs and who typically pays for them, buyer or seller. You'll want to have this basic information in hand before you negotiate your purchase contract.

GETTING A MORTGAGE – The mortgage process will be a lot easier if you approach it with a plan.

How much cash do you have available for the transaction? Make copies of your bank or investment account statements. If you are receiving financial help from a relative, make some notes. Your lender will need to verify gift donor information.

Make a list of debts you owe including account number, monthly payment, and balance owed. If you think you may need to reduce your debt to get a mortgage, wait until you choose your mortgage lender. If you need to reduce debt, your lender will advise you which accounts to pay off in order to qualify.

Realistically calculate your gross monthly income. Make a copy of your most recent pay stub and the W2 form for last year. If you are self-employed, make a copy of your tax returns for the last two years. Any other source of income should be noted such as child support or social security.

Get a copy of your credit report to avoid surprises. You can skip this step if you want because your lender will order one anyway. If you find a less than perfect report, don't give up. Perfection is in the eye of the beholder and you may find a lender willing to work with you.

Now you are ready to start talking with mortgage lenders. Notice I didn't say start looking at houses? That's right. If you don't have cash to purchase, your buying ability is in the hands of mortgage lenders. Without a mortgage pre-approval, you are flying blind.

Consider the embarrassment and heartache you might feel if after having searched for your dream home and signed a contract, you didn't qualify for a mortgage. Worse, every time you look at a more affordable house, you or your spouse will be mentally comparing it to the one you really wanted and satisfaction may be hard to find.

Take your time, plan, and consider your options, one step at a time.

A seller, a municipal assessment, and a title insurance claim denial

Take a minute to read this article.

You have to read it carefully to get to the real truth because I see three mistakes, but none by the title insurer.

FIRST MISTAKE: Municipal authority failure to file a lien pursuant to statute.

SECOND MISTAKE: Closing attorney or agent raising the municipal assessment as a condition of sale presumably without considering validity of the lien.

THIRD MISTAKE: The sellers [insured homeowners] assumed the lien was valid, paid it, then contacted their title insurance company to make a claim.

If the lien had been valid, the title insurance policy would have covered it. Had the sellers contacted their title insurance company upon notification of the problem, rather than simply paying the assessment, the title insurer would have defended the sellers and enlightened the closing attorney or agent and the municipality.

When examining title prior to issuance of a title insurance policy, municipal accounts are reviewed and delinquencies or assessments are paid if deemed lienable. Balances that have matured beyond the statutory limit for lienability are not paid. In those cases we contact the municipality, explain why we are not considering the balance lienable, and if they don't understand, refer them to their legal counsel.

MORAL OF THE STORY: Sellers faced with title clearance conditions should immediately contact their title insurer for resolution. Allow them to do their job and defend your title.

Act 52 of 2006 Mechanics' Lien Law Changes in PA

Mechanics’ Lien law changes taking effect with any contracts entered into on or after January 1, 2007. Mortgage lenders and builders should seek legal advice now on how these changes will impact their business practices.

Here are a few of the changes:

1. The filing period has been extended from 4 to 6 months.
2. Another tier of potential claimants has been added – those contracted by sub-contractors.
3. The protection of properly filed No Lien Agreements has been significantly diminished.
4. Good news for lenders in that mechanics’ liens will be subordinate to certain types of mortgages. Lenders should pay close attention to the definitions in the act.

As title insurance underwriters struggle to create new guidelines, they expect a wave of claims. For now and until the industry has some experience under its belt with the new law, owner policies will likely NOT COVER mechanic’s liens.

We’ll keep you posted as new information is available. For now, good old-fashioned methods should be relied on. Do not start construction – no delivery of materials or breaking of ground – until the mortgage instrument is on record.

Impressive Real Estate Agents Read Title Insurance Commitment and Lose Sale to Protect the Buyer!

Great post. I’m impressed. I don’t think I have ever met a real estate agent here in Pennsylvania who routinely reviews title insurance commitments. In fact, I would guess most PA real estate agents have never read one. I’ll take that one step further and say that most PA title insurance agents don’t even mail a copy to the buyer for review before closing.

The other important point in your story is the visual notice of the easement on the survey. In PA, we don’t have survey standards and so even if the buyer decides to purchase a survey – which is rare – there's a high probability that easements won’t be drawn on the map.

Any consumer reading this post should take heed. Shop for a real estate agent like Kris or Steve Berg who is capable and cares enough to watch your back. Shop for a title insurance agent like The Closing Specialists® who will make the title insurance commitment available for review and approval prior to closing. Shop for a surveyor who will show all easements and restrictions so you have full knowledge of what you are buying and understand realities that may affect your use and enjoyment of the property.