The fallout from the mortgage robo-signing/foreclosure/securitization is multi-fold. Most of the effects are going to be determined by litigation and likely won’t be hashed out for years. One of the immediate effects was that for a period of time, some title insurers stopped issuing title insurance on foreclosed properties from certain lenders. This effectively made these properties unsellable, as most lenders require that a borrower purchase title insurance, they generally won’t provide funding for a property without it.
Title insurance is a form of indemnity insurance people purchase when they buy a home. It protects the buyer from losses due to title problems.
Some of the largest title insurers (Old Republic International, First American Financial, and Stewart Information Services) were demanding that lenders re-selling foreclosed homes provide written indemnification for these properties. The indemnification would protect the title insurers in the event that the lender improperly foreclosed on a home. Today we learn from a Washington Post article by Elizabeth Razzi that these title insurers have dropped this demand.
This is important because it means that people will be able to get title insurance on foreclosed properties, and hopefully the REO market will not grind to a halt. Foreclosed homes comprise as much as 40 percent of the market in some places.
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