Saturday, January 28, 2012

insuring the full value of proposed construction

I always enjoy working with a consumer who is savvy, reads the stuff we send to them and asks lots of questions.  This week I had the pleasure of working with an attorney whose title insurance order for a new construction transaction is being processed by our office.

She carefully reviewed the title insurance commitment. She requested copies of the documents underlying the exceptions.  She considered enhanced coverage and decided against it.  She asked for amendments to some boilerplate exceptions and one specific exception and accepted our explanation of the coverage and its limitations.  We offered extra coverage at a price but she declined.

She wondered why we were only proposing to insure the lot value and not the entire construction package.  I explained that the owner coverage could only be issued for the value of the property as it exists at issuance and that there was a procedure for obtaining full coverage after construction and offered to look into that for her.  Surprisingly, though we do a fair amount of new construction title insurance, this is the first consumer who raised that issue.

I contacted our agency rep and asked for guidance.  We are fortunate to have an agency rep who is an attorney and who also is a regular teacher in our regional continuing education classes.  She, like JC and me, had heard for years in these various classes that full coverage was available but only after construction.

We were all pleasantly surprised when the answer was that we COULD issue an owner policy NOW for the full amount.  That made our consumer happy and also made us happy since we could base the premium on the higher coverage.

I thought about the logic and it makes sense to me that there isn't really any extra risk because claim processing, if any occurred, would ferret out the question of actual loss.

I'm posting this because I think it's a good example of how the industry is constantly evolving and this is one regional change I welcome.

Thursday, January 26, 2012

consumers suffering in the wake of the crappy standards era

Roy, a truck driver, and Sheila, a former hotel housekeeping supervisor, knew their new loan from Wells Fargo would enable them to save $198.86 a month - a nice chunk to help with gas and groceries.

But what the Bowers never imagined was that their old loan, the one Wells Fargo told them was paid off, would resurrect itself, trashing their credit report, scotching their son's student loans and throwing the whole family into foreclosure. All, they say, even though they didn't miss a single mortgage payment.

As I read this article I was reminded of the Coalition Petition we mailed to the Federal Reserve back in 2007 in an effort to bring attention to the crappy standards and to stop TitleSmart, the final straw.
I did some digging and finally found the text of the petition.  I might write it differently today - especially in hindsight after everything collapsed - but I'll leave it to you to read how I felt back then.

“Lobbying organization agendas are driven by the interests of those who provide the funding. The more you give, the bigger your voice. Nothing wrong with it on its face, it’s only when they pretend to be something else that the public is mislead."

In the face of everything that's wrong in the real estate/mortgage/title industry today, people have been dancing around the issue of new representation. I don't really think it's a new trade association we need right now, though it's pretty clear ALTA is inadequate. No, we're facing a much broader menace and thus need to pull together those concerned from a broad spectrum.

Real estate drives our economy. The family home is its most precious investment and the perceived key to the American dream. We can't let greed filled folly, thievery, incompetence, and lack of foresight destroy the land record system or the integrity of the real estate transaction.

I believe the majority of real estate agents & brokers, mortgage lenders & brokers, title insurance agents & attorneys, consumers & their advocates, lawmakers & regulators are forthright, good doing, honest, hard working people who try to do the best for themselves and their customers. I believe that most people are afraid to speak their mind. I believe that most people trust that professionals and leaders will protect their interests.

We have crisis is the real estate industry. Our leaders have lost their way. NAR, MBA, ALTA, NAMB have forgotten the face of their fathers. Somewhere along the way integrity and concern for the common good got lost.

We need a coalition representing the full spectrum of industry participants and consumers with a mission, to protect the integrity of the real estate market for the greater, common good.

Technology is a powerful tool, for good or ill. Embrace it we must, but carefully and thoughtfully, and pursue a free competitive market where pricing and delivery of products and services are improved without sacrificing security, fidelity, and the underlying integrity of land records.

Fraud, lowering of standards in lending and title examination, conflicts of interest, the drive for volume, focus on referral networks, not caring who's handling all that money and people's lives, the desire for instant product - no matter what the consequences - revenue sharing - this seemingly uncontrollable greedy locomotive push push pushing without regard for the interests of the consumer, the "real" customer, without regard for the interests of the investors funding mortgage pools, without regard for anybody or anything except themselves.

NAR, MBA, ALTA, NAMB have become enablers and promoters of a new mob-like mode of controlling the real estate market. This has got to stop.

The TitleSmart product is it, the final straw. If title underwriters convince ignorant lenders and the buying public that the land record system is ready to move to automated title underwriting, a disaster will take place. I am not saying that someday, full automation might not be an option, just like surgery. Some day robots might be able to do it, but for now the technology is still in the hands of experienced human surgeons. We are not ready for full search and examination automation. Anybody who tells you we are is lying or ignorant. Automating title search and examination before the land records system has fully integrated technology and the system has matured to a point where reliability is tested and proven by outside experts over a period of time, is just plain foolhardy.

For the benefit of all, we need to get our arms around our industry and save it and the American public. I think it's time to organize and start lobbying our lawmakers and regulators ourselves.

Sign this petition as a start.  Let's send a message right to the top.  We're asking the Board of Governors of the Federal Reserve to consider the economic impact of the degradation of quality underwriting standards and controls in the title insurance industry and the impact automated search and examination products will have on the integrity of land records. 

Wednesday, January 25, 2012

"government sponsored enemies" ????

“These government-sponsored enemies in the case of Freddie Mac and Fannie Mae are a large reason our housing crisis has occurred,” said Romney, who stood on a podium in front of a home that once belonged to Chris and Bridgette Davis, who saw their home foreclosed on in June 2011, according to public records.
“I am running against a guy in this primary, who was out working for one of these guys, Freddie Mac,” said Romney, who then launched into a renewed attack on Gingrich being an “influence peddler.”

Romney needs to learn some history of the housing marketplace before he tosses out cheap political crap like that.  Freddie Mac and Fannie Mae, following in the footsteps of the FHA and VA programs with Ginnie Mae, served for decades in expanding responsible homeownership and eliminating the term disintermediation from the vocabulary of mortgage bankers.
By creating a marketplace with uniform documents and standards, these entities created a marketplace through which whole mortgage loans and later securitized pools of mortgages could move, thus making money available nationwide without interruption.
I am still stymied over the full scale Koolaid drinking abandonment of good lending standards first embraced by private mortgage banking then embraced by Freddie Mac and Fannie Mae but the abandonment of standards did not start with these entities.
It started - in my opinion - with ridiculous underwriting standards - now know as sub-prime lending - adopted by lenders moving paper privately.  A boom market which covered up the consequences of bad lending lead management in the mortgage banking business and related businesses - the security houses, for instance, to operate in a whole knew lending mindset, one focused on churning volume and not quality.  Fannie Mae and Freddie Mac should have stopped it but management there was subject to the same influence and caved.
While purists want government out of the mortgage market, let's step back and review how the market worked before these agencies were born and rather than bill them as enemies, let's have an intelligent discussion about disintermediation and whether the American public might not need a statesman who has an understanding of broad issues who might help them understand why such agencies were created and why we may need reform but not a hanging post. 
This is why I am very interested to know more about the nature of the consultation provided by Newt Gingrich.   I can see why a historical perspective is necessary when trying to help an agency like Freddie Mac fix what is wrong.


Wednesday, January 18, 2012

on the Countrywide VIP program

Cummings also revealed an internal email at Countrywide from Brandt that alleges Mozilo's role in approving McKeon's loan.

"Per Angelo — 'take off 1 point, no garbage fees, approve the loan and make it a no doc,'" Brandt wrote to staff, according to Cummings' letter.

I have to say my gut reaction to this program and how it worked has always been that Angelo Mozilo wanted to keep lawmakers happy and that these were standard issue orders that may have been issued without the knowledge of lawmakers.  I'm no big fan of Mozilo or most politicians but my guess is that the politicos might have known they were being giving special service but not known they were getting a special deal.

I'm a small fry but I've had this happen to me.  Before I was in the title insurance business I was a mortgage banker.  I bought a house back in 88 and was surprised when I got to closing to find that the title insurance agent had waived their fees.  I objected and insisted that we pay the normal fees.  I'm sure you realize this was a RESPA violation.  My opinion of the title agent went down that day.  They had a hard time understanding my position as I believe this was normal procedure for them.  I had not asked for nor expected a special deal.

It's one thing to keep your eye on a VIP transaction to make sure it goes smoothly.  It's another thing altogether to give them a sweet deal that violates the law.


Tuesday, January 17, 2012

query: error on the HUD-1 fraud

Hmmm....  This isn't real clear but since you mention fraud, first consider if you have suffered a loss as a result of the fraud.  If so, you may have a claim against your title insurer.

If your concern is making things right and perhaps just reporting a bad guy, do a certified letter to the title insurance company with copies to the state insurance regulator, the state attorney general and the FBI.  If the fraud was perpetrated by a mortgage lender representative you can also copy the state mortgage license regulator, perhaps the department of banking.  If the fraud was perpetrated by a real estate agent you can also copy the state real estate license regulator and perhaps the state real estate commission.

Fraud in a real estate transaction was a central part of the credit crisis which caused the collapse of the market. Regulators and law enforcement are taking it very seriously.

Sunday, January 15, 2012

the important question is...

How could a title agent, even one who is an attorney, get away with this crap without being discovered by his underwriter in routine audits?  I think the underwriter ought to be held accountable for the negligence of not having kept a close eye on an agent.  Failed to record 3000 documents?  That didn't happen overnight.

Jonas, as an owner of two title companies, failed to record more than 3,000 mortgages and remit more than $1.5 million meant for title-insurance premiums and mortgage payoffs.

Read more in  StarTribune.

Thursday, January 12, 2012

CFPB examines high risk lending

If a lender offers non-traditional or subprime loan products and also offers loans that have two or more risky characteristics, the examiners must determine whether the increased risks are taken into account as part of the underwriting policies. They must also examine whether any mitigating factors are required for approval and whether actual underwriting practices conform with policies.

According to the examiner guidelines, risky characteristics include: limited or no documentation of income, assets and/or employment; simultaneous second lien; negative amortization, option payment or interest-only features; introductory rate 200 basis points or more below fully-indexed rate; and balloon clauses.

Wednesday, January 11, 2012

Who is the lender named on the HUD-1 form?

First I think we need to recognize that the primary purpose of the HUD-1 is consumer disclosure.

Until yesterday, every HUD-1 I have ever produced disclosed the name and address of the mortgage lender named in the NOTE and MORTGAGE.  Simple.

Yesterday, we had a transaction with a retail lender who was working with a wholesaler who called themselves a warehouse lender but really acted like a wholesale lender but wanted to also act like the retail lender.  Does that make sense?

So, this wholesale lender whose name is not on the NOTE or MORTGAGE insisted that their name and address be shown on the HUD-1 and would not approve the HUD-1 unless we made that change.  They wanted their name on the HUD-1 because they were table-funding the loan.

I was very uncomfortable doing this because we were not really doing a proper HUD-1 preparation, however, the lender is responsible for RESPA compliance and so we made the change, however, we informed the lender that we would create a special disclosure for buyer and seller to sign which acknowledged this unusual circumstance and disclosed the name and address of the lender whose name appeared in the NOTE and MORTGAGE.

There were a number of other requests made by this goofy lender leaving me with the impression that our comrades out there in the title insurance business must be doing whatever these folks want without regard to proper procedure.  They thought we were nuts for even questioning their request.  

Thursday, January 05, 2012

lingo for a non-borrower co-mortgagor

This is the language we add in mortgages when there is a vested owner who is not a borrower on the loan:

The co-mortgagor, _____, has an ownership interest in the real property described herein and has joined in this Security Instrument for the sole purpose of validating the lien.  Said co-mortgagor is NOT a Borrower on the Promissory Note referenced in this Instrument and his joinder in this Security Instrument shall not affect the terms of said Note.

We change it slightly when the interest is only marital.  Having this language in the mortgage is preferred to using a separate spousal waiver - at least in my view.  It's more easily connected to the mortgage and likely to be discovered in a foreclosure title search.

The co-mortgagor, _____, has a marital interest in the real property described herein and has joined in this Security Instrument for the sole purpose of validating the lien.  Said co-mortgagor is NOT a Borrower on the Promissory Note referenced in this Instrument and his joinder in this Security Instrument shall not affect the terms of said Note.