Largest Title Insurer Demands Lender Indemnity Covering Foreclosure Fraud; Is this Kicking the Can or Part of the Solution?

In wake of robo-signing and other foreclosure fraud including cases of mortgages being sold more than once, the nation’s largest title insurer, Fidelity National Requires Banks to Sign Foreclosure WarrantyFidelity National Financial Inc., the largest U.S. title insurer by market share, will require lenders to sign a warranty assuring their paperwork is sound before backing sales of foreclosed homes.

An indemnity covering “incompetent or erroneous affidavit testimony or documentation” must be signed for all foreclosure sales closing on or after Nov. 1, the Jacksonville, Florida- based company said in a memorandum to employees today. The agreement was prepared in consultation with the American Land Title Association and mortgage finance companies Fannie Mae and Freddie Mac, Fidelity National said.

Bank of America Corp., the biggest U.S. lender, agreed to a similar contract with Fidelity National on Oct. 8, the same day it extended a freeze on foreclosures to all states amid concern by federal and state officials that lenders are seizing homes without properly reviewing documents. The bank plans to start resubmitting foreclosure affidavits next week. Attorneys general across the country have opened a joint investigation into foreclosures, saying they will seek an immediate halt to any improper practices at mortgage lenders and loan servicers.

Title insurers use their records and public documents to verify a seller is the home’s true owner and that the property is free from liens. They collect a one-time premium at the closing of the purchase and pay costs that may arise if someone disputes the new owner’s right to the property.

The indemnity agreement requires lenders to protect title insurers at their own expense from “any and all liability, loss, costs, damage and expense of every kind” if errors arise in foreclosure procedures, according to the document.

“This is a standard all lenders should follow,” said Kurt Pfotenhauer, chief executive officer of the American Land Title Association, a Washington-based trade group. “The sooner that indemnification agreement is adopted market-wide, the more confidence investors can have in this foreclosure market.”
Kicking the Can or Part of the Solution?

Zero Hedge, in Largest US Title Insurer To Demand Indemnity And Foreclosure Warranty From Banks writes …

“The American Land Title Association, which is nothing but a lap dog for the bankers, of course applauded this development. At this point it is only a question of who can kick the massive mortgage fraud can the farthest down the road, before it all comes crashing down.”

I respectfully disagree. Whether American Land Title is anyone’s lapdog is irrelevant. The pertinent question is whether or not the arrangement makes any sense.

I suggest it does, and I certainly am not a lapdog for the banking industry.

That Bank of America is willing to indemnify insurers is a sign that it does not believe it will lose much by the indemnifications, and/or that it simply needs to get the issue behind them.

Either way, and most likely some of both, we really do need to clear the backlog of foreclosures.

It is easy to get distracted by the mess and attack every proposal.

The pertinent point is this arrangement helps achieve the badly needed result of reducing the backlog of foreclosures, which in turn is necessary to reduce the massive housing shadow inventory.

Thus, this agreement is very much a part of the solution, not a part of any can-kicking exercise.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
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