In three days of appeals hearings, held September 30-October 2, the California Department of Insurance set out to prove that Radian’s mortgage guaranty insurance unlawfully contains elements of title insurance. The following is excerpted from a news release ALTA® sent out after the hearing.
ALTA® announced the successful conclusion of the hearing to appeal the Cease and Desist Order by the State of California against Radian Guaranty, a Pennsylvania-based mortgage guaranty insurance company, Amerin Guaranty, and RadianExpress.com (collectively referred to as Radian). The order, issued June 19, 2002, prohibits Radian from marketing and issuing any insurance policy providing coverage for undisclosed liens, since such coverage constitutes title insurance according to the California Insurance Code. Radian is not licensed to sell title insurance in California or any other state. ALTA® supports the California Department of Insurance (DOI) in its decision because it believes Radian is attempting unlawfully to offer a title insurance product under the guise of mortgage guaranty insurance.
In her opening remarks, California State Attorney Rebecca Westmore stated that Radian Guaranty and Amerin Guaranty are only licensed to sell mortgage guaranty insurance in California, not title insurance, and that RadianExpress.com is not licensed to sell any insurance in California. Additionally, the insurance code mono-line restriction for mortgage guaranty insurers in California further prohibits Radian from transacting any other class of insurance in the state. (Note: monoline restrictions prohibit companies that write certain lines of insurance, such as title and mortgage guaranty insurance, from offering any other class of insurance. Virtually every state has statutes and regulations governing the business of insurance, and at least 29 states have monoline statutes.)
"We believe the results of this appeals process will be significant because of the potential impact on the regulatory environment and the way monoline insurance is regulated nationwide," said James Maher, ALTA®’s executive vice president. "In addition to posing a very real threat to consumers and the nation’s real estate industry, the outcome will have significant economic ramifications for the state as well."
The state introduced signed affidavits from PMI, RMIC and United Guaranty, all mortgage guaranty insurance companies, stating that they cannot and do not offer protection for undisclosed liens, i.e. title insurance, as does the Radian Lien Protection (RLP) product, which demonstrates that this product deviates from permissible industry practices.
State’s witnesses over two days included Jill Jacobi, senior staff counsel, Corporate Affairs Bureau for the California DOI; Henry Knebel, a private attorney representing real estate and settlement services businesses; Richard Carlston, principal with the law firm of Miller Starr & Regalia; and Roger McNitt, a private attorney and former Chief Deputy Insurance Commissioner of the California DOI.
In her testimony, Jacobi stated that the RLP product falls within the definition of title insurance per Sections 104 and 12340.1 of the California Insurance Code and, further, that the RLP violates Sections 12640.10 of the Code, which clearly identifies monoline restrictions for mortgage guaranty insurance companies.
Both Knebel and Carlston testified that the insuring provisions listed in the Radian and Amerin policies were similar to those offered under a standard title insurance policy. Carlston further stated that a lender’s purpose for securing title insurance is to ensure first lien priority on a property. Under a title insurance policy this occurs as a result of a search of public records for recorded liens and by insuring a lender against those undisclosed liens that are not listed in the public record. Examples cited by Carlston for undisclosed liens include tax liens, homeowners association liens, abstract judgments, liens for child/spousal support, special assessments, and fraudulent liens.
Carlston also explained that in a refinance loan, there is a new deed of trust, regardless of whether a new lender is used. It is imperative, according to Carlston, that the lender on the new deed of trust be able to establish a first-priority position on the loan, which requires lien priority protection or, in other words, protection from undisclosed liens. The RLP, which applies to refinance and home-equity mortgages, contains the same provisions as those for title insurance, according to Carlston.
McNitt testified that the benefit of a mortgage guaranty pool policy is as a credit enhancement and that such policies do not contain provisions for undisclosed liens, referring to the RLP as a "major deviation" from the standard mortgage guaranty insurance policy.
Radian called only a single witness to support its position. Paul Fischer, senior vice president of Risk Management for Radian Guaranty and Amerin, testified on Radian’s assets and agency rating. During cross-examination, the DOI brought portions of Radian’s Web site into evidence and elicited testimony regarding the policy limits to support the state’s argument that the primary risk covered under the RLP is undisclosed liens (50 basis points) as opposed to standard mortgage guaranty (one basis point, or 1/50th the amount of protection).
The hearing concluded on Wednesday, October 2. The DOI has three weeks from receipt of the hearing transcripts to submit its closing brief. Radian then has two weeks to submit its reply, and the DOI has one week to submit its rebuttal.
"A decision to uphold California’s Cease and Desist Order against Radian will not be a win for the title insurance industry but for consumers," said Maher. "The fact that eight states have rejected the RLP so far clearly indicates that insurance departments, which are charged with protecting the public’s interest, have found this product to be unlicensed title insurance and therefore not consistent with the public’s interest."
For more information on the issue of Radian vs. title insurance, go to the
Mortgage Impairment Resource Center on the ALTA® Web site at: www.alta.org.