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
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.
Borrower’s Estate
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.
Attorney’s Opinion
An Attorney’s Opinion Letter (AOL) stating that the mortgage is a valid first lien is acceptable for states/jurisdictions where an AOL is not prohibited by law. Follow investor specific requirements for product eligibility, AOL specific requirements, and attorney licensing, gap, and malpractice insurance requirements.
Effective Date
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.
Minimum Coverage
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.
Insured
The title insurance must show the insured as:
- Correspondent 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 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
Loans with private transfer fee covenants are ineligible unless such covenants are “excepted transfer fee covenants”. Excepted transfer fee covenants are covenants that: requires payment of a private transfer fee to a covered association (homeowner associations, condominiums, etc.) and limits the use of such transfer fees exclusively to purposes which provide a direct benefit to the real property encumbered by the private transfer fee covenants; or requires payment of a private transfer fee under a program meeting the Duty to Serve shared equity loan program criteria identified in 12 CFR 1282.34(d)(4) (other than Duty to Serve 100% AMI)
Fees that do not meet these “excepted transfer fee covenants” requirements would disqualify mortgages on the property from being sold to Fannie Mae or Freddie Mac. (FHFA Final Ruling 12 C.F.R. Part 1228)
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.