A controversial new program at Norwest Mortgage Co. that offers a substitute for title insurance is now taking heat from state regulators.

Nebraska's Department of Insurance has taken action against the Des Moines-based lender for its Title Option Plus program. Other states are expected to follow.

At issue is whether Title Option Plus constitutes title insurance.

Norwest and its subsidiary, ATI Title Co., maintain it is not. The insurance department says it is and insists that Norwest be licensed in Nebraska to sell it.

On Aug. 26, the insurance department issued a cease and desist order on all operations at Norwest Mortgage and ATI related to the Title Option Plus program, which was launched in July.

Robert G. Lunge, the department's acting director, wrote in the order that "Norwest is engaging in the unauthorized business of insurance in Nobraska and in unfair trade practices respecting the solicitation of insurance in the state."

Mr. Lunge is also chairman of the committee on title insurance at the National Association of Insurance Commissioners.

On Monday, Norwest Mortgage asked the Lancaster County District Court for a temporary restraining order to block the order. Norwest argued that the department had no authority to issue the order. It also said that the order, which according to Norwest's lawyers had extremely broad language, would unduly hamper the lender's operations in the state.

Rather than go to court, Norwest agreed with the state Monday that it would not press for a restraining order if regulators would riot immediately seek to keep it from selling Title Option Plus locally.

A show cause amendment to the cease and desist order will be signed on Thursday when Mr. Lunge, who is at a National Association of Insurance Commissioners meeting in New York, returns to Nebraska. The amendment will freeze the order until Sept. 7, when Norwest and state regulators will meet to decide the matter.

Steven D. Morrison, general counsel for Norwest Mortgage and ATI, said the lender would dispute the state's right to call the meeting.

Most borrowers buy title insurance to protect against liens on their properties. The insurance costs about $350.

The American Land Title Association, a trade group, says that 90% of all loans have title insurance. Between 2% and 9% of such policies result in claims.

Norwest maintains that Title Option Plus program is not title insurance. For about $250, the lender checks for liens on a property and assumes the risk internally.

The borrower does not receive any protection from land claims.

Freddie Mac, the Federal Home Loan Mortgage Corp., buys the loans from Norwest.

Kristine M. Thomas, counsel for Nebraska's Department of Insurance, said regulators from Ohio have been in touch with Nebraska officials for information about their action on Title Option Plus.

And James R. Maher, executive vice president at the American Land Title Association, said Illinois, Minnesota, and New York have all expressed concern about Norwest's program.

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