Bipartisan group asks FHFA to stop title waiver pilot

As the federal government prepares for a change in administrations, a bipartisan group from the House of Representatives sent a letter to the Federal Housing Finance Agency asking for the title waiver pilot to be put on hold.

The letter disparages FHFA's insinuation, as well as statements from the Consumer Financial Protection Bureau, that title insurance premiums are a "junk fee" on borrowers.

"We ask that the pilot be halted until FHFA solicits public input and thoroughly vets the pilot, as called for in the FHFA's Prior Approval for Enterprise Products Rule," said the letter from the Congressional Real Estate Caucus.

The caucus is co-chaired by Reps. Lou Correa, D.-California; Mark Alford, R.-Missouri; Tracey Mann, R.-Kansas; and Brittany Pettersen, D.-Colorado. The letter was also signed by 13 other House members from both parties.

"We applaud your ongoing efforts to promote homeownership, especially for low-income Americans, and share your concerns about the difficulty and costs of purchasing a home," the letter stated.

"However, the pilot will not achieve your stated goal of finding ways to 'responsibly reduce closing costs for homeowners in a safe and sound manner' and may expose homeowners and lenders to a heightened risk of future financial loss, or even the loss of their home."

The missive goes on to point out the significant pushback from members of both parties on a state and federal level, including 14 state attorneys general and the National Association of Insurance Commissioners.

The waiver program was revived by the Biden Administration as part of its State of the Union proposals for housing. It had originally been scrapped by Fannie Mae in August 2023.

The plan eliminates the need for the lender's title policy, and even the use of an alternative like an attorney opinion letter, on certain conforming refinance mortgages. Currently a lender's policy is mandatory for all mortgages sold to Fannie Mae and Freddie Mac; an owner's policy is typically sold in tandem, but it is not required. The pilot would not have affected the sale of an owner's policy.

While most of the industry, including the American Land Title Association and the Mortgage Bankers Association, came out against the revived pilot, others expressed support, including the Community Home Lenders of America. The management at Doma, at the time a publicly traded title underwriter since sold to Title Resource Group, said it would participate in the pilot during its fourth quarter 2023 earnings call.

The future of the pilot is likely in doubt given the different philosophical views towards housing displayed by the Biden Administration compared to those of Pres.-elect Trump.

This summer, Fannie Mae put out a request for proposal regarding the pilot, which closed on July 26. National Mortgage News contacted Fannie Mae for an update that was not been returned by press time.

The congressional letter also asked the FHFA to answer a series of questions by Nov. 22, including how will the agency handle claims on loans that were to be acquired through the pilot.

"FHFA has received the letter and will respond to it directly," a statement from an agency spokesperson said.

Among ALTA's arguments against the pilot at the time it was revived was that it would turn Fannie Mae and Freddie Mac into de facto title insurers. Its views remain unchanged, with CEO Diane Tomb quoted in a press release from Rep. Correa.

"Title insurance is the most effective way to protect homeowners and lenders against future financial loss and any effort to remove those protections puts them squarely in harm's way," Tomb said. "The FHFA Title Acceptance Pilot is a misguided policy that has received bipartisan pushback from all levels of government."

Supporters of the waiver, as well as alternatives to title policies point to the low rate of claims payments made.

But the industry says that is not an accurate measure of what title insurance does, because the risks it protects against are backward looking, rather than forward.

"Identifying the risks to ownership and curing many of them before a transaction closes is why homeowners so rarely are challenged on their ownership right after closing," said Mark Fleming, economist at First American Financial, also in the Correa press release. "Even on the rare occasions when issues arise, the duty of the insurer to defend the insured and indemnify against loss effectively provides continued protection of their interests."