The lawsuits continue to fly in reference to the banking industry, as everyone is trying to recoup losses from the ongoing mortgage debacle which still has a long way to go before they’re purged from the system. The latest Lawsuit is from Bank of America (NYSE:BAC), which is suing First American Corp., a title insurer who allegedly refused to cover over 5,500 loans which the bank says resulted in losses of $535 million to them.
The lawsuit contends First America failed to protect the bank against bad titles on lines of credit and home equity loans. Bank of America says in the suit they counted on First America to reveal if there were any outstanding liens or mortgages connected to the loans or lines of credit, which evidently Bank of America doesn’t believe they did concerning these large number of loans.
This of course is all about who will end up holding the bag at the end of the day, as many of those connected to the mortgage industry battle over who should pay the costs of the mortgage defaults. Other combatants in the fray include Fannie Mae, Freddie Mac, bond investors and mortgage insurers; all of which are trying to pass the costs of the defaults to each other or others like the mortgage originators.
Recently Bank of America said it would be writing off between $1.5 billion to $2 billion in home-equity loans in each quarter. The largest mortgage insurer, MGIC Investment Corp., has also been targeted by Bank of America, as they’ve been sued by the bank concerning the alleged denial of claims worth millions.
The reason this is an issue is because of the difference between full title insurance and “lien protection” plans. Most of us know what full title insurance is, as that’s what we get when we acquire any home to be sure there are no competing claims against the property before we buy it. “Lien protection” on the other hand, while faster and quicker in making a lot of deals, obviously doesn’t have the controls in place to ensure the kind of accuracy title insurance does.
A trade organization which represents title insurers – the American Land Title Association – actually opposed the lien-protection plans because they understood they didn’t offer the type of protection title insurance does.
What this case probably will center around is whether Bank of America understood the difference, which they probably did. If they tried to cut costs by paying for a product known to be less accurate, it’s hard to see how the company offering the product could be held liable, as long as they communicated this was the case.
But in these economic circumstances and legal environment, it continues to be unpredictable as to the probable rulings in a case, so many banks and other involved with the mortgage crisis won’t know until a ruling is made or settlement offered, which way things will fall.
