Although the mortgage market mess persists, one aspect of the fiasco appears to have worked itself out. Several major title insurance companies were demanding that mortgage servicers take on liability for title problems, but dropped that request on Thursday. This matters a lot, because it could mean that purchasers of foreclosed homes won’t shy away from buying due to the fear of not getting title insurance.

Elizabeth Razzi of the Washington Post reports that three big title insurers, First American Financial, Old Republic International and Stewart Information Services, are no longer demanding indemnifications from banks and servicers on foreclosed properties. Those three firms make up more than half of the title insurance market.

Calculated Risk explains why this is so important:

This is means that the buyers of REO (lender Real Estate Owned) will be able to obtain title insurance, and that the new owner can sell the property. There was some concern that buyers would shy away from REOs.

So the demand problem is partially solved. Although some buyers might still worry about purchasing a foreclosed home, it won’t be due to a lack of title insurance. Instead, they may fear title insurers’ ability to back up a flood of claims if many titles are bad. Since that’s likely less of a concern, however, this new development should prevent a plummet in foreclosed property sales.

But it doesn’t fix the supply problem. Some banks and servicers are still investigating their documentation and procedures and halting some foreclosures temporarily. This will reduce the number of defaulted properties that hit the market, which will further delay the sector’s recovery. Housing cannot move confidently forward until all properties from bad mortgages have been absorbed by the market.

Posted by John Mauldin

We are going to quickly review a few charts from Gary Shilling’s latest letter, where he reviewed the housing market in depth. Bottom line, the housing market has not yet begun to recover and it is not only going to take longer but the decline in prices may be greater than many have forecast. I wrote three years ago that it could be well into 2011 before we get to a “bottom.” That may have been optimistic, given what we will cover in this letter.

This seems to be a realistic view of the market. I’m not sure we’ve seen the bottom and I certainly haven’t seen any increase in activity.

Posted via email from Title Insurance
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Lexology – HUD adopts RESPA exemption for certain silent seconds

October 20, 2010 admin

Addressing concerns raised by providers of a common form of mortgage loan assistance, the Department of Housing and Urban Development (HUD) decided to exempt certain silent second lien mortgage loans from the requirements to provide a good faith estimate and HUD-1 under the Real Estate Settlement Procedures Act (RESPA).

State housing agencies, nonprofit organizations and similar entities often provide mortgage assistance to home buyers by extending a second lien mortgage loan for down payment and/or closing cost purposes. The loans, commonly referred to as “silent seconds,” often provide for no interest rate or periodic payment, often are either forgiven or require repayment based on certain events, and often have no or minimal fees. The loans pose disclosure issues for purposes of the good faith estimate and HUD-1 under RESPA. For example, the documents require the disclosure of various loan terms, including the repayment terms.

Requests for an exemption from the good faith estimate and HUD-1 requirements were made to HUD by administrators of various silent second programs. The administrators advised that producing good faith estimates and HUD-1s is difficult for silent seconds, and that the disclosures provided for in the documents are of little benefit to borrowers given the nature of silent seconds.

HUD decided to use its exemption authority under RESPA to exempt silent seconds meeting certain conditions from the requirements to provide a good faith estimate and HUD-1. The conditions are as follows:

The loan is a subordinate lien loan; and

The purpose of the loan is:

Down payment, closing cost or other similar homebuyer assistance, such as principal or interest subsidies; or

Property rehabilitation assistance; or

Energy efficiency assistance; or

Foreclosure avoidance or prevention; and

The loan carries a zero percent interest rate; and

The repayment terms are as follows:

Repayment is forgiven, incrementally or at a date certain; or

Repayment is forgiven, incrementally or at a date certain, subject to certain ownership and occupancy conditions (e.g., the recipient must maintain the property as his or her primary residence for five years); or

Repayment is deferred for a minimum of 20 years; or

Repayment is deferred until sale of the property; or

Repayment is deferred until the property is no longer the primary residence of the recipient; and

The total of the settlement costs assessed to the recipient for the subordinate loan is less than one percent of the amount of the subordinate loan and includes, at most, charges for the following items:

Recordation fee;

Application fee; and/or

Housing counseling fee; and

At or before settlement the recipient/mortgagor receives a written disclosure that effectively describes the loan terms, repayment conditions and any costs associated with the loan.

The exemption for qualifying silent seconds applies only to RESPA sections 4 and 5 —the good faith estimate and HUD-1 Settlement Statement. The exemption does not apply to any other RESPA sections, including section 8.

Silent seconds also pose issues with regard to disclosures under the Truth in Lending Act (TILA). The Federal Reserve Board has not issued any similar exemption for silent seconds with regard to TILA disclosures.