I have been in the mortgage industry for 20+ years, of which, I spent 5 years in the primary market as senior underwriter making investment quality decision that included the use of my FHA direct endorsement authority. Additionally, I have spent a total of 7 years in the secondary market as a quality control underwriter and credit risk manager for 5 years and as a senior risk manager for 2 years. In these roles, I weighed risk level of loans being purchased in bulk from various primary lenders. Most recently, I have provided consulting services advising lenders as a mortgage subject matter expert on behalf of several of the “big four” auditors.
Secondary market mortgage purchasers and government-sponsored enterprises (GSEs) require title insurance for every mortgage being delivered as required in their seller/servicer guidelines. Thus, primary market lenders require mortgages to have title insurance for protection against losses arising from property title-related issues that comply with GSE requirements. GSEs require that title insurance cover protection amount equal to or greater than the loan amount. As a quality control underwriter for defaulted loans, I issued several hundred repurchase letters to primary lenders for items such as improper borrower qualification, fraud, inaccurate appraisal value, misalignment of program guidelines, and lack of mortgage insurance or insufficient mortgage insurance coverage. However, at no time was a repurchase letter issued to lenders based on title insurance issues, much less, title insurance coverage types. Moreover, I have advised banks on their mortgage repurchase operations in which they have not received any repurchase requests from the GSEs based on title insurance-related issues. As such, it can be argued that the risk of mortgage default or loss based on lack of title insurance is minimal. As long as title insurances with protection amounts equal to the origination loan amounts were included with loans, lenders would not or should not require any other special title insurance policy with a higher premium.