Fannie Mae seeking vendors for controversial title pilot

Fannie Mae on Friday confirmed it will be putting forth a formal solicitation for vendor participation in a Biden administration project that's aimed at making housing more affordable.

The request for proposals is in response to interest from providers of title insurance alternatives, according to Fannie, which will be testing whether it'd be safe to waive coverage or possibly even an alternative called the attorney opinion letter, on certain mortgages.

The concept has gotten some pushback from the title insurance industry, which has contended that going without title insurance could expose the mortgage business and consumers to undue risk. 

The American Land Title Association on Monday renewed its challenge to the pilot, reiterating concerns about the risk, asserting that it goes beyond both Fannie's and competitor Freddie Mac's congressional charters. ALTA called for a more deliberate and formal approach.

"It should receive the scrutiny of public comment, review and robust analysis as authorized under the FHFA's Prior Approval for Enterprise Products rule, which was finalized last Spring" the group said in an emailed response to an inquiry from this publication.

ALTA also called for a broader range of public stakeholders beyond federal officials to be involved as part of that process.

"Making homeownership more affordable for Americans is a top priority for the title insurance industry. We believe there should be transparent discussions about how that can be done, particularly without undermining state insurance laws," the association said.

Fannie has promised that the investigation into the efficacy of waiving coverage in limited circumstances would involve a small number of loans.

"The request for proposal, which will be issued by the end of the second quarter, will provide Fannie Mae the opportunity to evaluate interested industry participants for potential inclusion in the pilot," the government-sponsored enterprise said in a statement.

Fannie said it would be looking for responses to its RFP from companies "that have viable technology solutions for managing title-related risk and reducing closing costs for borrowers."

Companies like Voxtur and iTitle Transfer offer such services.

The concept Fannie Mae is trying out in regard to title insurance is somewhat similar to its limited waivers for appraisals, which have been most frequently used in conjunction with loans made to existing borrowers. In January, 11% of Fannie's loans had appraisal waivers and a larger percentage used hybrid options, according to AEI Housing Center's analysis.

Refinances will be the only type of mortgage involved in the title pilot and they currently represent a relatively smaller share of loans in the market.

It's unclear whether the title waiver pilot's reach would be similar to what's been seen in appraisal alternatives if more broadly adopted as the former involves different risks related to whether the lien or right to ownership of the property is contested as opposed to its value.

The RFP announcement comes just days after news that the Consumer Financial Protection Bureau is considering making lenders pay for their portion of the title insurance policy on a newly originated loan.

While the CFPB's interest is less specific than Fannie's, it has said that it is "looking carefully at closing costs and fees consumers may encounter throughout the mortgage process.

"We are working with agencies across the government to foster greater competition in the mortgage market and help Americans save money when purchasing or refinancing a home," the bureau added.

The CFPB also has made mention of title insurance in the context of a broader push against what it's characterized in a blog as "junk" fees, suggesting that some forms of it could be unnecessary.

The intersection of the bureau's view of title insurance and that of Fannie Mae's regulator, the Federal Housing Finance Agency's, has been a conundrum, said Peter Idziak, a mortgage attorney at Polunsky Beitel Green, in a statement issued late last week.

"It's schizophrenic for the CFPB to be … decrying lender's title insurance premiums as 'junk fees' while at the same time, FHFA still requires a lender's title policy or attorney title opinion on almost all loans purchased by Fannie Mae and Freddie Mac," he said.