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Title insurer Fidelity National Financial Inc. on Wednesday said it reached an agreement with Bank of America that it hopes will protect it from losses related to the uproar over mortgage lenders accused of cutting corners on foreclosure paperwork and legal procedures.
Jacksonville, Fla.-based Fidelity National said Bank of America Corp. will be required to show that all documentation and procedures related to the foreclosure of a property comply with state law and local practice. The Charlotte, N.C., bank will also cover any losses Fidelity National faces that are directly related to its failure to comply with laws on transactions in which foreclosure has already occurred or will take place.
The deal comes amid accusations that mortgage lenders nationwide cut corners as they moved to seize millions of homes. Lenders won't issue mortgages without title insurance, which protects a homebuyer and mortgage provider in case any unpaid taxes, questionable ownership or other problems surface. Title insurers are trying to come up with a way to ensure they don't have to pay claims to the buyer of a foreclosed home if inaccuracies end up voiding the home purchase.
Bank of America, the nation's largest bank, has suspended foreclosures in all 50 states while it checks to see if employees made errors in loan documents needed to complete foreclosures. It has said it will resume the proceedings next week.
"We believe that this agreement reflects current law in every state and is consistent with the rights that we have under the policies we issue," said Fidelity National Chairman William P. Foley in a statement. Fidelity National will also require guaranties on future foreclosure-related transactions from all other lenders.
JPMorgan Chase & Co., Ally Financial's GMAC Mortgage unit and PNC Financial have also stopped foreclosures in some states while they review procedures. Attorneys general in all 50 states and the District of Columbia are jointly investigating whether mortgage companies have violated state laws.
Fidelity National said it does not believe that this situation will have a material adverse impact on its title business. The company said it believes policies written to new purchasers of foreclosed homes will not result in additional claims exposure "because the new owners and their lenders would have the rights of good faith purchasers which should not be affected by potential defects in documentation.
"Even if a court sets aside a foreclosure due to a defect in documentation, the foreclosing lender would be required to return all funds obtained from our insureds, resulting in no loss under the title insurance policy," Fidelity National said.
The details of the deal with Bank of America were disclosed at the same time Fidelity National posted a 13 percent increase in third-quarter profit, boosted by increased sales of specialty insurance, investment gains and cost cutting.
For the three months ended Sept. 30, Fidelity National said its net income attributable to common shareholders was $83.2 million, or 36 cents per share, compared with $73.4 million, or 32 cents per share, in the year-ago quarter.
Revenue slipped 3 percent to $1.42 billion, from $1.47 billion last year.
Analysts polled by Thomson Reuters, on average, expected profit of 30 cents per share, on revenue of $1.4 billion.
Fidelity National said total title premiums fell 8 percent to $903.3 million. Specialty insurance rose 12 percent to $110.8 million. Foley said the company saw strength in its title business, with refinance order volumes rising throughout the quarter.
Realized investment gains nearly quadrupled, to $40.1 million, much of that gain due to the sale of about half of the company's shares in Fidelity National Information Services, an electronic payment processing and outsourcing company it split from in 2006. The insurer continues to own 1.6 million shares, valued at about $45 million, of Fidelity National Information Services.
The company cut total expenses by nearly 5 percent to $1.3 billion.
Separately, Fidelity National said its CEO Alan L. Stinson has stepped down from that role to become an executive vice president, citing his desire to work in a "less rigorous capacity than his role as CEO." Chief Operating Officer George P. Scanlon was named the new chief executive.
The company also said its board declared a dividend of 18 cents, payable Dec. 23 to shareholders of record as of Dec. 9.
In aftermarket electronic trading, Fidelity National Financial shares slipped 24 cents to $14.50, after closing Wednesday trading up 25 cents at $14.74.