The Federal Housing Finance Agency needs to put the title insurance pilot
The one from House Republicans promised an investigation into how the announcement got fast-tracked, especially in light of previous statements from FHFA Director Sandra Thompson on a similar proposal by
"Eliminating the use of title insurance on any loan backed by Fannie Mae and Freddie Mac (the GSEs), and therefore taxpayers, is a significant change and one that requires rigorous scrutiny," a letter signed by a trio of Republican Congressmen, Warren Davidson, Bill Huizenga and Andrew Garbarino.
They called for the Agency to follow the review process for new products put in place in 2023.
"Rather than abiding by this process, including allowing for notice and comment, FHFA approved this new pilot behind closed doors," the letter said.
Furthermore, the Congressmen state the pilot program and its announcement
They called it "a partisan agenda that is in direct contrast to FHFA's mission and to the detriment of the housing market and broader financial system," the letter said. "The implication that FHFA would undertake an action that could impact the safety and soundness of the GSEs to advance a political talking point is unacceptable."
As a result, the House Financial Services Committee will be investigating the fast-tracking of the pilot's approval process, the letter promised.
Bose George, an analyst at Keefe, Bruyette & Woods, weighed in on these comments in a flash note.
"While this letter is unlikely to change anything in the near term in terms of the timing of any pilot program, it is a good indication of the political opposition that is likely to develop if it looks like the GSEs are engaging in 'charter creep' and increasing their role in the mortgage market," George wrote.
Ed DeMarco, who for five years served as acting FHFA director, took a more measured perspective.
"I am writing to ask that FHFA approach this issue with caution and a sensitivity to the role title insurers and title insurance plays in lowering risk for lenders and consumers alike," said DeMarco, who wrote his letter as president of the Housing Policy Council. "Removing a risk-mitigating mechanism from real estate finance requires careful study."
Title claims are rare, but the costs are substantial, including the potential to wipe out both the lender's and the homeowner's positions in the property.
"Eliminating title insurance could transition title risk from today's low frequency, but high severity outcome to a higher frequency and high severity outcome," DeMarco said. "Surely, as the largest two holders of mortgage credit risk in the country, and being backed by taxpayers,
DeMarco brought up several topics for potential discussion as part of a comment period during the evaluation process about how the pilot would work and the risks involved, including that borne by the GSEs.
"In sum, without additional details, this sort of critical policy making process is superficial at best," DeMarco said. "And it may mean that we are unaware of or are misunderstanding key elements of the proposal."
DeMarco asked that FHFA engage in a transparent process that includes "a constructive dialog" before entering into this pilot program.
"A fair comparison of the current marketplace for title insurance with any alternative regime should include an assessment of both cost and of value," he wrote. "The value is the risk mitigation, including a true assessment of the financial strength of the party mitigating the risk."
