Massive Mortgage Mess Update: Title Companies Stop Insuring Foreclosed Properties
Today's latest chapter in what is now known as the new 3M: the Massive Mortgage Mess, is that Fidelity National has told lenders to halt foreclosures, and to stop sales of bank owned properties. The reason, and this should be no surprise to anyone, is "possible document flaws." Fidelity is merely the next of, well, all. And while the WaPo reports that the John Walsh, acting director of the OCC has reached out to seven lenders including Chase, Bank of America, Wells Fargo, Citi, PNC Bank, U.S. Bank and HSBC, to review their foreclosure processes in light of the Ally and JPM Chase situations, the news of the day comes from the NYT that Old Republic National Title has stopped insuring title to Ally-foreclosed properties "until further notice." And once the insurers lost faith in the product they are supposed to have 100% confidence in it is game over: virtually no foreclosure transactions will take place going forward. We hope RealtyTrac will provide an update on what they may be seeing in foreclosure trends in the past two weeks : we are confident these have plunged off a cliff across the land.
From the NYT:
As more defaulting homeowners become aware of the lenders’ problems, they are expected to hire lawyers and challenge the proceedings against them. And if completed foreclosures were not properly done, families who bought the troubled homes could be vulnerable to claims by the former owners.
Apparently alarmed about such a possibility, one of the major title insurance companies, Old Republic National Title, has sent a bulletin to agents saying that “until further notice” it would not insure title to properties foreclosed upon by GMAC Mortgage, the country’s fourth-largest home lender and one of the two big lenders at the center of the current controversy.
GMAC declined to comment, and Old Republic representatives did not return calls.
As we have long expected, this merely means that as the foreclosure pipeline gets clogged beyond repair, and as mortgage losses accumulate at an exponentially growing pace, stocks of financial companies will likely surge as very soon their survival will become a binary bet on TARP 2. Very soon the investing public will realize that they are worth either nothing or infinity, which is what we affectionately call the Fed's price target for the US financial sector.