BofA seeks to pin losses on title insurer
During the subprime loan era, it’s well documented that lenders took all kinds of shortcuts -- such as failing to verify borrowers’ employment or income -- to sell mortgages.
Now Bank of America Corp., the nation’s biggest mortgage lender, is saying the nation’s second-largest title insurer did much the same thing and should be on the hook for more than $500 million in losses.
In a lawsuit filed earlier this month, BofA alleged that First American Corp. in Santa Ana relied on home buyers to tell them about liens on their properties and other matters, rather than conducting traditional title searches.
The shortcut was part of a program called QuickClose that BofA said in its suit did not require “title searches in connection with loans processed under the program.”
The bank said in the suit that the insurer has not made good on more than 5,000 mortgages it was supposed to protect.
First American spokeswoman Carrie Gaska issued a statement Thursday saying the insurer regrets that its “valuable customer” has filed suit. “However, we are hopeful that we will be able to resolve this matter outside of court with continued discussions.”
Bank of America declined to comment.
The suit, filed in North Carolina, where BofA is based, comes shortly after the bank sued MGIC Investment Corp., the nation’s largest mortgage insurer, for allegedly denying millions of dollars in claims.
The bank’s efforts to curb its losses in the mortgage fallout are indicative of what’s going on in the industry, said banking analyst Bert Ely.
“Every time you have a disaster everybody sues everybody else, and mortgage financing was a disaster,” he said. “You have lots of losses floating around, and companies are looking to others to eat their losses.”
Fannie Mae and Freddie Mac, which together own more than half the mortgages in the nation, are increasingly asking lenders who made loans to buy them back, saying the loans were not made in accordance with their underwriting standards, said Paul Muolo, executive editor of National Mortgage News.
“It is basically pass the hot potato to the next guy,” Muolo said. “It’s like the lawyers have taken over and they are looking for outs.”
Ely said that if First American didn’t do proper title checks, it could end up on the losing end of the suit.
“If first American was dumb enough to enter into these agreements the way that Bank of America is saying they were, then the question that comes up is why was First American dumb enough to take a homeowner’s word that there were no problems and not check it out,” Ely said.
The title insurance policies that First American sold to Bank of America were uncommon in the industry, he said.
“The American Land Title Assn. has openly opposed these types of lien protection plans,” Ely said. “First American was offering a product that at least more than a few in the industry weren’t comfortable with.”