More than a year ago, Philadelphia-based mortgage insurer Radian Guaranty came to California with what seemed like a great deal for hundreds of thousands of people refinancing their homes.
It offered an alternative to title insurance called lien protection that is often 50% cheaper and takes a fraction of the time to complete.
For The Record
Los Angeles Times Friday May 02, 2003 Home Edition Main News Part A Page 2 National Desk 0 inches; 28 words Type of Material: Correction
Title insurance -- An article in Thursday's California section misspelled the name of a spokesman for the title insurance industry. His name is Mark Bogetich, not Mark Bogatich.
Refinancing has often been the occasion for homeowners to buy entirely new title coverage. Policies frequently cost $700 or more and can delay completion of refinancing by as long as two weeks as the insurer exhaustively searches anew for defects in the property title, many of which have already been identified when the property was first purchased.
Radian's policy may cost $275 to $325 and takes only a day or two to search for liens that may have been incurred between the purchase and the date of refinancing. Sometimes, an affidavit is also required from the homeowner in which he or she affirms that there have been no new liens.
But the company's method has become the focus of an intense battle involving state regulators, consumer activists and traditional title insurers.
Last year, then-California Insurance Commissioner Harry Low ordered Radian to stop issuing the policies, citing a 70-year-old state law making it illegal for mortgage insurers to offer title insurance. An administrative law judge later reached the same conclusion: that the 1930s-era law does apply.
But the current insurance commissioner, John Garamendi, overruled the judge last month and said he would make a final decision about whether the lien protection policies are legal by August. He said he would examine whether lien protection policies are mortgage guaranties, not title insurance, and therefore not covered under the old law.
Critics, including traditional insurers, argue that Radian's policies are inadequate because the searches for liens are not extensive enough to find all the defects that exist. This places both homeowners and lenders at risk, they say.
Supporters of Radian contend that by retaining the title policy obtained at purchase, the homeowner has all of the protection against defects he or she needs. A lien protection policy obtained in refinancings, second mortgages and equity loans is sufficient to add any protection that is needed, they said.
Consumer groups such as the Consumers Union and the National Community Reinvestment Coalition have been pressing insurance authorities to take into their own hands the question of approving Radian's policies. Garamendi undertook his review at their behest.
