Title insurance, hidden defects among readers' chief complaints
By JEFF LAZERSON / CONTRIBUTING COLUMNIST
Today marks exactly five years that I’ve been writing this column.
I’m going to share with you the most common gripes I have received over these five years as well as my suggested solutions in what will be named complaint clearinghouse.
1) The biggest complaint I get from readers is about having to pay for another title insurance policy each time a property is refinanced. When you originally purchased your home you paid for a title search and title insurance policy for the benefit of your lender, guaranteeing your clear title.
Why do you have to pay every cotton picking time?
Answer: It’s a shameless profit center for the title insurers.
They’ve made no effort to work with lenders for a lower cost consumer solution. Pay for a new policy or no refi.
There are many data bases that lenders can check to be certain there is no new dirt against you (liens and judgments that came up after the last title search). The new refinance lender is primarily concerned that its lien is in first position and doesn’t get subordinated to say a court judgment.
Lenders don’t care because you get stuck with the title insurance bill, not them.
2) Readers have equity in their homes that is sometimes desperately needed to live on, do urgent home repairs or pay for medical and other family emergencies. What about homeowners that can’t qualify for a mortgage due to lack of income or bad credit?
They are forced to sell their homes just to un-tap the equity. Yet, there is an abundance of cash-out refinancing options for those same borrowers on rental properties because rentals are not beholden to the strict ability-to-repay tests that lenders must abide by in the owner-occupied world.
Answer: Congress needs to update Dodd-Frank, allowing borrowers to do a one-time emergency equity cash-out, no-qualifier loan as long at least 30 percent equity remains.
3) Readers get upset because sellers lie, failing to disclose material property defects and termite trouble that even home inspectors do not detect. Buyers eventually discover the damage.
Answer: Create legislation awarding triple damages to the buyer via mediation, arbitration or litigation if it can be proven that the seller knew or should have known about the defects and failed to disclose.
And, the California Association of Realtors needs to put the seller termite inspection language back into the boiler plate residential purchase agreement.
4) Readers complain that the FICO credit scoring system lacks flexibility in that a one point score difference can trigger a hugely more expensive loan or even a complete loan denial.
And, FICO scoring discourages mortgage shopping because credit inquires can reduce your credit scores.
Answer: Eliminate credit scoring altogether. Underwriting worked fine before the advent of credit scores. Go back to loan committees that dig into each file to better understand the borrowers. This also affords borrowers to freely shop lenders without being worried about their scores dropping or pricing hits that work against them.
5) Readers complain about incompetent property appraisers who are not familiar with the local area and don’t provide fair value comparisons.
Answer: Go back to letting loan officers choose the appraisers. Competency, speed and dependability will rule. Lenders have tons of current appraisal data to compare and insure the property value is fair when the loan officer directs the business.
Happy anniversary readers! I enjoy writing this column more than (I hope) you enjoy reading it.
Jeff Lazerson - Mortgage Columnist since 2011