Title Commitment Requirements
Pennymac requires a final title commitment or binder or title policy to be provided with each loan offered for purchase. In escrow states, Pennymac may accept preliminary title commitments as long as the Closing Disclosure shows sufficient coverage to cover the loan amount.
Title insurance policies must be written on a standard form meeting the specifications of Fannie Mae, Freddie Mac and GNMA.
In accordance with GSE requirements, the only acceptable American Land Title Association (ALTA) title insurance policy is the 1992 version, or a more recent version, which contains the updated creditor’s rights exclusion statement.
Regardless of the title insurance policy form used, the following endorsements must be attached to, or if a short form is used, incorporated into the policy:
- An ALTA Form 8.1, Environmental Protection Lien Endorsement. Form 8.1 may make an exception only for specific State statutes that provide for possible subsequent "super liens" that could take priority over the Mortgage
- For all adjustable-rate Mortgages (ARMs), the appropriate ALTA form for Variable Rate Mortgages (ALTA Form 6, Variable Rate Mortgage; ALTA Form 6.1, Variable Rate Mortgage — regulations; or ALTA Form 6.2, Variable Rate Mortgage — Negative Amortization).
- An ALTA 4 endorsement or its equivalent for each Condominium Unit Mortgage.
- An ALTA 5 endorsement or its equivalent for each mortgage secured by a PUD unit
- A leasehold lender's endorsement or its equivalent for all leasehold mortgages.
- The title insurance policy must include as part of the insured estate, the value of the lessee's leasehold improvements.
- An ALTA 7 endorsement or its equivalent for each mortgage secured by a manufactured home. The title policy must identify and insure the manufactured home as part of the real property.
- An ALTA 9 endorsement or its equivalent for each mortgage secured by property subject to a restrictive agreement or restrictive covenant.
The title insurance policies must be written by a title insurance company that had at least one of the following ratings at the time the mortgage loan closed:
- A “Financial Stability Rating” of “S” (Strong) or better, or a “Statutory Accounting Rating” of A”, A’, A, (Average) or better from Demotech, Inc.;
- A “BBB” or better rating from Duff and Phelps Credit Rating Company;
- A ”C” or better rating from LACE Financial Corporation;
- A “Baa” or better rating from Moody’s Investors Service; or
- A “BBB” or better rating from Standard and Poor’s Ratings Group.
The borrower’s title to the mortgaged property must be in fee simple, unless the mortgage loan is secured by a leasehold estate.
Title may be held by borrowers individually, or as joint tenants. Corporations, partnerships, real estate syndications, land trusts, Tenants in Common (TIC), and percentage of ownership are not permitted to hold title to mortgaged properties.
If a married borrower wishes to take title to the mortgaged property without his or her spouse, the lien created by the mortgage must be superior to any interest in the mortgaged property the spouse may have under the law or otherwise.
An attorney’s opinion stating that the mortgage is a valid first lien is acceptable for states in which title insurance policies are not generally issued. Mortgage loans that are secured by condominium or PUD units require a title insurance policy - even if the condominium or PUD unit is located in a state in which title policies are not normally issued.
The effective date of the title insurance is the earlier of the date of the final disbursement of loan proceeds or the date the mortgage was recorded.
The original principal amount of the mortgage loan is the minimum amount of title insurance coverage acceptable to Pennymac. If a mortgage loan can increase due to negative amortization, the minimum amount of title insurance coverage must equal the maximum possible principal balance of the mortgage loan.
The title insurance must show the insured as:
- Seller name, its successors and/or assigns, or
- PennyMac Loan Services LLC, its successors and/or assigns
General Title Waivers
The title to the property that secures a mortgage loan must be merchantable and free and clear of all defects, liens and encumbrances.
Unless otherwise permitted by the Non-Delegated Seller Guide, the title policy must not be subject to any exceptions unless waived in writing by Pennymac prior to closing.
Private Party Transfer Fee Covenant
On March 16, 2012, the Federal Housing Finance Agency (FHFA) issued a final rule (codified at 12 C.F.R. Part 1228) and a directive that prohibits Fannie Mae from purchasing or investing in any mortgages on properties encumbered by certain private transfer fee covenants, securities backed by such mortgages, or securities backed by the income stream from such covenants, unless they are “Excepted Transfer Fee Covenants.” Excepted Transfer Fee Covenants refer to any private transfer fees paid to homeowner associations, condominiums, cooperatives, and certain tax-exempt organizations that use private transfer fee proceeds to benefit the property.
Fees that do not directly benefit the property are subject to the above rule, and would disqualify mortgages on the property from being sold to Fannie Mae or used as collateral for Federal Home Loan Bank advances.
Lenders must establish policies and/or procedures to ensure that the loans it delivers to Pennymac are not secured by properties encumbered with a private transfer fee that is unacceptable under the Regulation.