Letter to the Editor of "American Banker": Radian's Product A Poor Substitute For Title Insurance - Friday, November 2, 2001
November 2, 2001
November 2, 2001
An Oct. 26 article on page 9, "Radian Product May Lead to Suit by Title Group," concerned Radian Group and its title insurance product - a mortgage pool insurance/impairment product. The article points out the confusion between actual title insurance and mortgage impairment products.
From our viewpoint, the Radian lien protection product is title insurance, and Radian is not licensed to issue title insurance products. To the best of my knowledge, Radian does not comply with state title insurance regulations, including such elements as search requirements and reserving standards designed to ensure that title claims are minimized, and that companies have the financial resources to honor claims.
Several states, including Florida, Pennsylvania, and Illinois, have already taken actions against products offered by Radian or its subsidiaries. Such actions include the issuance of cease-and-desist orders and other departmental communications, indicating that the insurance laws of those states were violated.
As I write this, we have been informed by the California Department of Insurance that it has not approved the Radian lien protection product, contrary to Radian's assertion in the article.
The American Land Title Association believes that the issuance of the Radian lien protection product, and other similar mortgage impairment products, are prohibited under the title insurance laws of almost every state. For that reason, we are currently exploring litigation to supplement our campaign to inform state insurance departments of the offering of possibly illegal products.
We are further concerned that lenders and consumers will mistakenly believe that these products provide the same protections as actual title insurance, and that they will not understand the limitations and risk involved in these products.
The reported Radian product provides limited lien priority coverage. Traditional title insurance products, for both lenders and residential customers, provide more extensive protection. A traditional lender's title policy insures the validity of the mortgage lien and its enforceability (a guarantee that it can be foreclosed). It insures against forgery or other defects or encumbrances not noted, and it even provides protection against unfiled mechanics' liens.
For example, title insurance provides coverage for taxes and assessments, which are important to obtain clear ownership of the property. Reportedly, the Radian product does not.
In addition, many ALTA members offer streamlined title products specifically designed for refinances, which provide the lender with basic title information and assurance about the property.
Additionally, the title industry's limited title products are specifically designed and competitively priced with the mortgage impairment products for home equity lenders. Most important, these title products meet the regulatory and consumer protection requirements of state law.
Nor is the Radian product necessarily cheaper. Title insurance companies currently offer special reissue and refinance rates to many customers.
Additionally, the Radian product has limited availability - it is only available to borrowers with high Fair, Isaac credit scores. Title insurers do not limit access to their policies. Title insurance is available to any borrower, regardless of race, economic standing, or credit score.
To the extent that unlicensed or unregulated companies are permitted entry into the title insurance market, the basic economic structure of the home equity title insurance market could change significantly. In fact, high-risk, low-income homebuyers may find their costs increased and home affordability more difficult.
An important value of title insurance is in its curative work and defense of an owner's title or a lender's mortgage lien. A recent study indicated that title companies fixed title problems in 25% of their transactions before issuing a title policy. This translates into several million curative actions taken each year. And, unlike the Radian-type product, title insurance provides for a defense of the lender's mortgage lien or the owner's title should a problem arise, including the payment of attorney's fees.
To that end, the title industry paid approximately $350 million of loss and loss-adjustment expenses just last year. The title insurance process is essential for clear and marketable titles, and necessary to maintain the efficiency of the American real estate economy.
The reported Radian product, and similar mortgage impairment products, while certainly title insurance in their wording, are deficient and don't measure up to title insurance. None will clear up title defects; none will guarantee a right of access; none will pay to establish or litigate title to the property. Only standard title insurance, currently available through licensed and regulated title insurers, will provide these benefits.
There is a great danger to lenders who are misled into believing they are getting a product comparable to standard title insurance. Only title insurance companies are licensed to sell title insurance. Only title insurance can provide the lender and homeowner with the assurance that the title is clear.
Ann vom Eigen
Legislative/Regulatory counsel
American Land Title Association
Washington
Contact ALTA at 202-296-3671 or communications@alta.org.