title insurer solvency question?

[carroll]

"going forward I see some major issues with title insurer solvency in general"

-- may we start a thread about this?  What issues do you see happening?


carroll

[MountainDon]

No sooner said than done. Let's see what develops

[waggin]

Short answer as I see it is MERS and securitization of mortgages in general. 
://en.wikipedia.org/wiki/MERS
http://en.wikipedia.org/wiki/Securitization
IMHO, this is a very sanitized version of what MERS is and actually does.  Basically it is a (shell) company with no employees "created" by financial institutions to circumvent recording requirements and fees.  They arbitrarily decided that they didn't need to comply with local recording laws and started trading and transferring mortgages without bothering to record the assignments.  In securitization, a single mortgage might be traded several times in one year.  Needless to say, the record keeping wasn't exactly precise.  When the SHTF, they simply fabricated documents and had "vice presidents" of MERS sign them.  The signers were actually financial institution employees, not employees of MERS as was listed on the documents. 

Links with some of the issues raised by the use of MERS:
http://www.newscastmedia.com/mers-factor.html
Couple of key points within it:
Most cases that you read about, homeowners claim that they were presented with a back-dated assignment of the Deed of Trust after a foreclosure action had commenced.  The problem is that if the assignment happened after court papers were filed, then the foreclosing entity never had standing to begin with therefore can't foreclose.

It now makes sense that MERS took a close look at its Deeds and recognized this problem, however almost 60 percent of American homes have Deeds in MERS name.

This is a huge issue when it comes to title viability, as in many cases the chain of title is corrupted.  Fixing it is easier said than done, and when there is a foreclosure involved, it creates even more problems.  In many cases, the foreclosure was rubber stamped even though the foreclosing party didn't have legal standing. 

To tie this back to title insurers, the problem lies in the issue of the potential for an adverse determination in court that becomes precedent and would require cleanup of some sort in property titles.  In some cases, it can't be done as documents were purposely destroyed.  The obligation to remedy this will fall on title insurers.  If they can't fix the title at their expense, then they are obligated to pay the insured amount of the policy.  Some of them have already folded for various reasons.  The umbrella organization is ALTA (American Land Title Association.)  Theoretically, they would take responsibility for policies for folded firms.  However if a large percentage of mortgages are deemed to have caused title issues, then the next step might be nationalization a-la Fannie & Freddie.  Will we get legislation that retroactively grants immunity for illegal acts like with FISA and the telecoms?  Maybe.  The problems run a whole lot deeper than the whitewash issue of robosigning that was big a year or so ago.  That was a mere symptom.

If anyone else follows this stuff, it would be interesting to hear thoughts and experiences.

[umtallguy]

yep title insurance is very minimally capitalized... (little money behind lots of policys).. every property registered through MERS at any point has serious title defects...