Fannie, Freddie want servicers to assume risk -source

NEW YORK, Oct 22 (BestGrowthStock) – Fannie Mae and Freddie Mac are
in talks with U.S. title insurers to require mortgage servicers
to assume insurers’ liabilities if there are legal challenges
to foreclosures on homes whose mortgages Fannie and Freddie
underwrote, a source familiar with the matter said.

Fannie Mae (FNMA.OB: ) and Freddie Mac (FMCC.OB: ), which are
controlled by the U.S. government, together own or guarantee
more than half of the $11 trillion of U.S. home mortgages.

Allegations that some banks used shoddy paperwork in
processing foreclosures has sparked a wave of lawsuits, and
more borrowers are expected to challenge foreclosures in
court.

The disputed foreclosures could create a headache for title
insurance companies, which protect homeowners against the risk
of a prior owner claiming to still have a legal right to the
property.

Fannie Mae and Freddie Mac are negotiating with the
American Land Title Association, the trade group for title
insurers, to ensure that any legal costs associated with faulty
foreclosure paperwork by loan servicers are borne by the
servicers, the source said. Both Fannie and Freddie declined to
comment.

The biggest loan servicers are owned by banks.

“Fannie and Freddie are interested in (servicers agreeing
to provide warranties) because they want to make sure that the
market for foreclosed properties opens up,” said Peter
Sadowski, spokesman for the largest U.S. title insurer,
Fidelity National Financial Inc (FNF.N: ).

Fannie Mae and Freddie Mac buy up pools of mortgages from
lenders in order to free them to make new loans and then
package some of the mortgages into securities that are sold to
investors.

If an improperly foreclosed home is sold, the owner who
defaulted could sue the current owner. The title insurer would
have to defend the current owner in court, and if unsuccessful,
have to pay the owner back.

ALTA chief lobbyist Justin Ailes said title insurers hope
lenders and servicers will reassure insurance companies that
the insurers would not be on the hook for liabilities and costs
if home ownership transfer is challenged because of banks’
mistakes.

Title insurance is virtually a required step in a
foreclosure sale and provides extra footing for a security.

Fidelity National as of Wednesday requires such an
assurance from lenders as they have to assume any liabilities
that the title insurer might incur in foreclosure sales closed
on or after Nov. 1 if owners who lose their homes challenge the
foreclosures.

Fidelity National reached a similar agreement with the Bank
of America (BAC.N: ) earlier this month.

Sadowski said his company is working toward similar
indemnity agreements with three other large lenders, JPMorgan
Chase (JPM.N: ), Citigroup (C.N: ) and Wells Fargo (WFC.N: ).

The four largest national title insurers — Fidelity
National Title, First American Financial Corp (FAF.N: ), Stewart
Information Services (STC.N: ) and Old Republic International
Corp (ORI.N: ) — control 90 percent of the market.
(Reporting by Alina Selyukh; Editing by Leslie Adler)

Fannie, Freddie want servicers to assume risk -source