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Major title insurer insists lenders vouch for foreclosure paperwork

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Oct. 20 (Bloomberg) -- Laurence Kotlikoff, an economics professor at Boston University, and Mario Gabelli, chairman and chief executive officer of Gamco Investors Inc., talk about states' probe into foreclosure practices and the impact on banks. They speak with Betty Liu on Bloomberg Television's "In the Loop." (Source: Bloomberg)

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By Zachary A. Goldfarb and Jia Lynn Yang
Washington Post Staff Writers
Wednesday, October 20, 2010; 8:18 PM

The country's largest title insurer said Wednesday that banks and other lenders must vouch for the accuracy of their mortgage documents before the firm will write insurance for a foreclosure sale.

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Fidelity National Financial announced the policy change - the strongest move yet by a title insurer to protect itself from possible losses - in a memo to its employees and agents, according to Peter Sadowski, the company's chief legal officer.

Recent reports of flawed paperwork have particularly worried title insurance companies, which are critical in the home-buying process. Lenders require buyers to buy coverage in case there is a dispute over who owns a home.

If there proves to be any problem with the accuracy of a title because of shoddy paperwork, the lenders would be responsible for losses under Fidelity National's new policy.

"We are obviously reading the same thing that everybody else is about investigations by attorneys general and other regulators into this, and there has been a certain cloud put on [lender-seized] properties going forward, and we want to make sure that cloud is lifted," Sadowski said.

A major insurer, Old Republic National Title Insurance, said this month that it would not back homes foreclosed on by J.P. Morgan Chase, which halted seizures in some states after paperwork problems surfaced. And Fidelity National has an agreement with Bank of America that the bank must sign warranties on every foreclosure sale, Sadowski said.

In Washington, federal officials addressing problems posed by the flawed foreclosure process said Wednesday that they did not think it presented a grave danger to the financial system, though they had not completed their assessment.

"We have not found evidence at this point of a systemic issue," said Shaun Donovan, secretary of Housing and Urban Development, at a White House briefing.

Assistant Treasury Secretary Michael S. Barr added, "We're not saying there couldn't be significant real problems that affect real people in a real way."

The officials said they hoped that government regulators would complete their review of the breakdown in the foreclosure process by the end of the year. Separately, federal investigators are examining whether companies committed crimes when submitting foreclosure documents.

Public attention has been focused recently on the foreclosure process, but Donovan said that modifying mortgages to make them more affordable might be more important.

Donovan said HUD had found "significant differences" in how big banks follow federal guidelines in deciding when to modify a mortgage and when to foreclose. He said the government would seek to force to banks to comply.

Barr and Donovan declined to comment on whether Bank of America and Ally Financial acted properly in resuming foreclosures. The companies halted them briefly to review paperwork for problems.

"This is a problem for the banks and the servicers to fix, and they can fix it as fast as they feel like," Barr said.

yangjl@washpost.com goldfarbz@washpost.com


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