Fidelity National Financial Inc., the largest U.S. title insurer, canceled a requirement for lenders to guarantee proper foreclosure procedures amid “heightened review” processes by banks.
The company won’t require an indemnity agreement before insuring individual foreclosed properties, according to a memorandum to employees yesterday. It will continue the arrangement with Bank of America Corp., the largest U.S. lender.
Fidelity National reversed course from a requirement put in place a week ago after institutions took steps to police foreclosure paperwork, according to the memo. Failure of other insurers to follow its lead also put the Jacksonville, Florida- based company at a competitive disadvantage, said Peter Sadowski, executive vice president and chief legal officer.
“Although competition was a factor, we wouldn’t take undue risk for competitive reasons,” Sadowski said in an interview. “We feel comfortable with the new process.”
The company said on Oct. 20 that an indemnity covering foreclosure paperwork must be signed for all foreclosure sales closing on or after Nov. 1. The agreement was prepared in consultation with mortgage finance companies Fannie Mae and Freddie Mac and the American Land Title Association, an industry trade group, after some lenders canceled sales of foreclosed properties amid allegations of shoddy paperwork.
Attorneys general across the country have opened a joint investigation into foreclosures, saying they will seek an immediate halt to any improper practices.
Fannie, Freddie Guidelines
Rules adopted by state courts and instructions issued by Fannie Mae and Freddie Mac earlier this month requiring its servicers to “review all pending foreclosure proceedings to ensure compliance with applicable law” make an indemnity agreement unnecessary, Fidelity National said in its memo.
Bank of America’s indemnity agreement with Fidelity National, signed Oct. 8, still stands, Sadowski said.
“They think the indemnity is an easier way to go for them,” he said.
The company may make individual agreements with other lenders, according to the memo.
Fidelity National shares dropped 14 percent this month through yesterday amid concern that foreclosure mistakes may allow former owners to challenge the repossession of their homes. Shares of Santa Ana, California-based First American Financial Corp., the No. 2 insurer, fell 3.6 percent. The Standard & Poor’s 500 Index gained 3.9 percent in that time.
Fidelity National slid 12 percent on Oct. 21 after its chief executive officer stepped down and the company said it will use a smaller portion of earnings for dividends.