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Battle Rages on Between Radian, ALTA

Report suggests lien protection will cost California $1 billion

May 2, 2003


A new study claims the California economy would suffer if the state allowed an alternative product to replace title insurance in loan refinances.

The American Land Title Association (ALTA) commissioned the report, which was prepared by Nelson Lipshutz, president of the Regulatory Research Corp.

At issue is Radian Lien Protection (RLP), a product introduced in Sept. 2001 by Philadelphia-based Radian Guaranty Inc. Since June 2002, the company has been under a California court's cease-and-desist order. The company stands to lose their right to sell mortgage insurance in California if they sell RLP anywhere in the country according to the ruling.

According to Radian's website, the product offers an "innovative, cost-saving" alternative to the more expensive title insurance usually required by lenders for a refinance.

Reputable companies including Standard & Poor's, Moody's and Lehman Brothers have issued statements touting RLP and confirming their intent to use the product. Forbes magazine also defended RLP in a Sept.2002 article.

ALTA executive vice president James Maher, however, derided the '"silly product design" and declared RLP "essentially worthless."

The ALTA-commissioned study warned of a $1 billion increase in Calif. title insurance rates if RLP becomes available in the state. The report claims the cost would result from "deterioration of the public record and the consequent increase in title insurer operating costs and losses, as well as by increased mortgage interest charges produced by a slowing of real estate closings."

The study also claims that RLP would discriminate against low-income borrowers and minorities.

The study's release follows California's insurance commissioner John Garamendi's decision to review "additional evidence and testimony regarding legal issues" on RLP before finalizing the cease-and-desist order.

ALTA and Radian reacted predictably to the decision, with ALTA calling it a 'disappointment' and Radian 'applauding' it. A spokesperson for the official, however, said that the decision mainly allows the new commissioner, who was sworn in three months ago, time to review the primary question before the administrative law judge, "Are they (Radian) stepping outside the scope of their license?"

"I think it will ultimately be a slam-dunk," Maher said.

In California, title insurance sellers must be licensed and cannot sell mortgage insurance for the same transaction. Radian is not licensed to sell title insurance in the state, but claims RLP falls outside that restriction because it isn't title insurance. The judge issuing the cease-and-desist order disagreed.

Despite the eventual ruling by Garamendi, Radian may have another way around the law. SB 344, if passed, would eliminate the relevance of current law and allow the use of RLP. The state Senate insurance committee voted against the bill Wednesday, but may choose to reconsider it in the near future.

"Radian wants to play by different rules," Maher said. He added that he would be "happy to meet them in the marketplace," if they would submit to the same rules and regulations as the title insurers do.

Radian officials did not immediately answer requests for comment.

Anne Lineberry is MortgageDaily.com's editor. She previously worked as an online editor/producer for DallasNews.com and on the Metropolitan desk for the print edition of The Dallas Morning News. Emaill Anne at [email protected]

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