Lien Protection Products Eligibility Criteria Changes

posted on Friday, January 31, 2020 in Business News

The Bank is simplifying its criteria for acceptance of LPPs in lieu of traditional title work. LPPs are insurance products that reimburse lenders for losses realized from otherwise unknown superior liens. If an undiscovered superior lien on the property impairs the lender’s ability to collect or reduces the net proceeds upon its satisfaction, the LPP provider will pay the lender for losses incurred. Typically, lien position is assessed via a borrower affidavit of open liens and a check of the credit report for potential real estate mortgage loans.

The Bank currently accepts LPPs in lieu of traditional title work on Home Equity loans and lines of credit (Type Codes, 1414, 1423 and 1424) where (i) the original loan amount/credit line is $250,000 or less and (ii) the member has obtained Bank approval of the LPP product. Approval is conditioned on the LPP policy meeting select criteria.

Commencing April 1, 2020, Bank approval of the LPP is no longer required. Rather, at a Member Collateral Verification (MCV) the Bank will assess eligibility of loans in the MCV loan sample with LPPs in lieu of traditional title work based on the following:

  • The Bank will use its lien verification resources (i.e. conduct a check of public records) to assure the sample loan's mortgage is in the requisite lien position at the MCV as of date; and
  • In the event the Bank is unable to validate the sampled loan's mortgage based on its resources, the member will be asked to prove the lien position of the sampled loan. There is no change in the type codes where LPPs are accepted or to the existing original loan amount requirements.

Loans with LPPs in lieu of traditional title work:

  • Are acceptable in Type Codes 1414, 1423 and 1424 only;
  • Have an original loan amount/credit line of $250,000 or less; and
  • Must meet the above and all eligibility criteria for the subject type code.

LPPs on loans with an original loan amount or credit line greater than $250,000 are ineligible without traditional post-closing title work demonstrating the requisite lien position.

Any questions on this change in LPP acceptance should be sent to: MCV_Collateral@fhlbdm.com.