Fidelity National Drops Nationwide Indemnity Requirement

This whole title insurance thing is getting confusing.

Fidelity National Financial Inc., the largest U.S. title insurer, canceled a requirement for lenders to guarantee proper foreclosure procedures amid “heightened review” processes by banks.

The company won’t require an indemnity agreement before insuring individual foreclosed properties, according to a memorandum to employees yesterday. It will continue the arrangement with Bank of America Corp., the largest U.S. lender.

Fidelity National reversed course from a requirement put in place a week ago after institutions took steps to police foreclosure paperwork, according to the memo. Failure of other insurers to follow its lead also put the Jacksonville, Florida- based company at a competitive disadvantage, said Peter Sadowski, executive vice president and chief legal officer.

“Although competition was a factor, we wouldn’t take undue risk for competitive reasons,” Sadowski said in an interview. “We feel comfortable with the new process.”

But what I take it to mean is that, at least partly because other title insurers weren’t requiring Fannie and Freddie to indemnify their foreclosure sales, Fidelity National dropped the requirement that they (and other lenders) do so, too. But it’s not clear if, in lieu of this indemnity, Fidelity is going to require the lenders to actually prove they have standing to foreclosure.

Whatever the case, Fidelity National seems to be saying that a risk that was there just week ago, no longer exists.

NOW Fidelity National Is Heading in the Right Direction

According to MarketTicker via 4closureFraud, Fidelity National has done the thing (at least in Florida) that makes it demand that mortgage servicers warrant against mistakes-otherwise-known-as-fraud meaningful.

Eh, I have an update from Fidelity Title – this is for Florida foreclosures.

Here’s the salient “trouble spot” – this is what must be in the foreclosure docket for them to grant a policy:

The plaintiff in the action is: (1) the record holder of the mortgage being foreclosed; or (2) has filed the original promissory note in the foreclosure file; or (3) has obtained a final order reinstating the lost promissory note.

In other words, before Fidelity will insure the title of a foreclosure sale, it wants to see real proof that the party foreclosing on the home has the legal right to do so. Imagine that?!?! Property rights!

This may well increase the likelihood of clearing out the shitpile the finance industry created.

Fannie and Freddie Near a Deal with Title Industry

As I noted in my last post on the move, led by Fidelity National, to require banks to warrant against “incompetent or erroneous affidavit testimony or documentation,” the move was largely about getting Fannie and Freddie on board and with them making this a standard practice in the industry.

So I’m not surprised by the report that that’s precisely what is happening. But I do find the description of Fannie and Freddie’s role in this process to be noteworthy.

The behind-the-scenes work illustrates how, as banks prepare to resume home repossessions, few entities have a greater interest in helping to put the foreclosure train back on track than Fannie and Freddie, which together own or guarantee half of all U.S. mortgages.

“They’re in a position to pursue good, straight, and solid answers. In that way, they play a quasi-regulatory role,” said Kurt Pfotenhauer, chief executive of the American Land Title Association, a trade group.


Still, the foreclosure-document crisis is raising an age-old question that has dogged the mortgage firms: Should they play the role of regulator, or business partner, with the mortgage originators and servicers that are their customers?

On one hand, Fannie and Freddie need to make sure foreclosures are proceeding properly. But on the other hand, they want to move the process along as fast as possible because each day that they can’t repossess homes, they lose more money and ring up a bigger bill for taxpayers.

“Given their public purpose and the special advantages they have in the marketplace, Fannie and Freddie should be a model to the whole industry of how to make sure the foreclosure process is working properly,” said Julia Gordon, a senior policy counsel at the Center for Responsible Lending.

But the firms’ regulator, and the companies themselves, say that the onus is on servicers to fix any problems and vouch for the quality of their foreclosure processes.

Fannie Mae “is not in a position to be the determining body as to whether servicers are putting processes in place that comply with the law,” a company spokeswoman said.

This is basically the government–as the owner and guarantor of Fannie and Freddie–basically saying the banks should just fix their own practices. No wonder that line sounds so similar to what we’re hearing from the Obama Administration.

And couple this disinterested stance toward servicer problems with the news that the government has known, since sometime after May, that there was a,

significant difference in the performance of servicers, and in particular, information that shows us there is not compliance with FHA rules and regulations around loss mitigation.

Yet it has not done anything about the servicers that it knows (but will not name) which have not followed required practices to try to keep people in their homes.

Note too the reference in the linked article to Fannie’s institution of fines on servicers that didn’t churn through their foreclosures in timely fashion.

The past practice of Fannie and Freddie shows they have every intention of keeping foreclosures churning through the system and government regulators appear to have no intention of slowing that churn. Signing this title insurance agreement is part of that same process.

We, the taxpayers, have become the owners of a system that churns inexorably on to evict us from our homes.

Fidelity National’s Role in the Cover-Up

I’ve got a slightly different take than DDay on the news that Fidelity just established a policy requiring lenders to warrant all foreclosure sales going forward.

Fidelity 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.

DDay argues that Fidelity National is basically asking for a guarantee that it won’t have to pay off any claims on title problems.

I’m sure the health insurance market would love a clause that forced the maternity ward to sign a warranty that the baby they birthed into the world will be healthy their entire life, or else they pay up. I do understand the title insurers’ complaint, and I’m glad they’re forcing the issue with the lenders, but I can’t help but find it a little weird. If the banks are paying on the insurance, I’m not sure we need a title insurance industry.

Now, I’m not an expert. I’m just someone who has been considering whether she should still be looking to buy a house in this market. But as I understand title insurance the biggest part of the service they offer–what you’re paying them for–is not risk going forward, but rather a competent and thorough search for any outstanding title problems. Here’s one explanation:

Because title insurance protects against what may have happened in the past, most of the expense incurred by title companies or their agents is in loss reduction. They look to reduce losses by finding and fixing defects before the policy is issued, in much the same way as firms providing elevator or boiler insurance. These types of insurance are very different from life, property or mortgage insurance, which protect against losses from future events over which the insurers have no control.

So I take this move not as an effort to avoid paying any claims. I take it as an admission from Fidelity National that it cannot or will not adequately do that main part of its job: review the documents on a house and make sure the documents say what they appear to say. Instead of doing the forensics required to check that documentation (lawyers challenging foreclosures have proven fraud by showing notary stamps post-date the purported signing of the notarized document, comparing signatures to prove some are forgeries, and pointing to allonges not attached to the actual note, among other things) on every sale, they’re simply demanding that banks claim they don’t need to do that work.

Note, too, that Fidelity National instituted this policy (as distinct from the agreement it signed with Bank of America on the day BoA halted foreclosures) in consultation with Fannie and Freddie. That is, in consultation with government owned entities holding a majority of the mortgages out there.

So the government and Fidelity National have gotten together and said, “rather than actually check for fraud we’ve got abundant evidence exists not just in foreclosures being processed now, but in foreclosures already sold and–significantly–in performing loans that were securitized at the height of the boom, let’s just have the banks sign off on any foreclosures going forward.” As a particularly nice touch, they’re describing this fraud not as fraud, but “incompetent or erroneous affidavit testimony or documentation.”

From the standpoint of an industry and a government hoping to prevent people from learning about the extent to which our property system has been tainted by the banksters, that might be shrewd. After all, the most common time for real people to challenge bank conduct here is when they are foreclosed on or when they buy a house–when they are involved in a legal transaction. We only came to understand the true extent of foreclosure fraud after foreclosure and bankruptcy lawyers had dealt with such volume of cases that they came to learn the tricks of the servicers and even reviewed enough documents to have solid evidence of notary and robosigner fraud. By getting indemnity from the banks, Fidelity National (and our government acting through Fannie and Freddie) will ensure that one entity at least will continue to offer lenders title insurance, helping them unload those properties that may or may not have fraudulent title, but will never look closely at the documentation to see if there has been fraud. Fannie and Freddie just worked with Fidelity National to ensure that 38% (Fidelity National’s market share) of the 25% of all homes that are sold that are foreclosures will never have their title examined closely. 9.5% of homes will be sold without the thorough paperwork review that everyone knows should be done at this point, thereby ensuring not only that the market will continue to move, but also that banks always have a way to sell a house without the title insurer doing its job, but instead relying only on the bank’s say-so for the most likely title problem.

But the thing is, they may well get away with it (or, at the very least, minimize bank losses). Read more