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As you may have noticed, information from Wikipedia (an outstanding source) has been referenced many times in the past Daily Journals. This one is no exception. The following excerpts shed some light on another peice of the puzzle about how the U.S. mortgage crisis came to be - especially if you are able to read between the lines:

Excerpt 1:

"Title insurance in the United States is indemnity insurance against financial loss from defects in title to real property and from the invalidity or unenforceability of mortgage liens. Title insurance is principally a product developed and sold in the United States as a result of the comparative deficiency of the US land records laws. It is meant to protect an owner's or a lender's financial interest in real property against loss due to title defects, liens or other matters. It will defend against a lawsuit attacking the title as it is insured, or reimburse the insured for the actual monetary loss incurred, up to the dollar amount of insurance provided by the policy."

Excerpt 2:

"Owner's policy - The owner's policy assures a purchaser that the title to the property is vested in that purchaser and that it is free from all defects, liens and encumbrances except those which are listed as exceptions in the policy or are excluded from the scope of the policy's coverage.... Lender's policy - This is sometimes called a loan policy and it is issued only to mortgage lenders. Generally speaking, it follows the assignment of the mortgage loan, meaning that the policy benefits the purchaser of the loan if the loan is sold. For this reason, these policies greatly facilitate the sale of mortgages into the secondary market. That market is made up of high volume purchasers such as Fannie Mae and the Federal Home Loan Mortgage Corporation as well as private institutions."

Excerpt 3:

"A federal law called the Real Estate Settlement Procedures Act (RESPA) entitles the individual homeowner to choose a title insurance company when purchasing or refinancing residential property. Typically, homeowners don't make this decision for themselves, instead relying on their bank's or attorney's choice; however, the homeowner retains the right. RESPA makes it unlawful for any bank, broker or attorney to mandate that a particular title insurance company be used. Doing so is a gross violation of federal law and any person or business doing so can be heavily fined or lose its license. Section 9 of RESPA prohibits a seller from requiring the home buyer to use a particular title insurance company, either directly or indirectly, as a condition of sale. Buyers may sue a seller who violates this provision for an amount equal to three times all charges made for the title insurance."

I'd be willing to bet only a very small fraction of mortgagors (homeowners pledging their property as collateral for a mortgage loan) were told, or had the slightest idea, that they could (a) pick their own title company, and (b) purchase their own title policy (Owner's policy) to protect their own interests in addition to being forced to buy a Lender's policy to protect the bank.

Did you?

- Ed Smith