Title pilot will turn the GSEs into insurers, ALTA says

The Biden Administration title waiver pilot turns Fannie Mae and Freddie Mac into "de facto primary market title insurer[s]," something they do not have expertise in, officials at the American Land Title Association said in a Tuesday press briefing.

Despite the Administration's stated aim of improving affordable housing opportunities for those in need of such assistance, this pilot's focus on a specific set of refinance transactions does not accomplish that, the group argued. The pilot was announced prior to the State of the Union address last Thursday. The next day, the Consumer Financial Protection Bureau took its own shot at so-called junk fees in the mortgage process.

"It doesn't meaningfully reduce costs for homebuyers, particularly first-time homebuyers or lower and moderate income families," said Chris Morton, ALTA's senior vice president of public affairs and chief advocacy officer. "It will be targeted to higher wealth homeowners with substantial equity in their homes."

Diane Tomb, ALTA's chief executive, put it in blunt terms, saying that the last time Fannie Mae engaged in such activities outside of its charter mission, it caused the Great Financial Crisis.

"It's a hollow attempt by the White House to placate Americans' current economic frustrations," said Tomb, who later added that "this pilot is simply a bad idea; it's bad politics, bad process, and bad policy."

In its fact sheet announcing the title waiver program, the White House said the pilot "would save thousands of homeowners up to $1500, and an average of $750, and the lower upfront fees will unlock substantial savings for homeowners as mortgage rates continue to fall and more homeowners are able to refinance."

Meanwhile, as part of its broader commentary on closing cost charges, the CFPB said consumers have no control over the cost of the lender's portion of the title insurance policy. 

"Title insurance is meant to protect against someone else laying claim to a borrower's property," the March 8 blog posting said. "A lender's title insurance policy protects only the lender against these possible claims, not the borrower."

Morton expressed dismay that the administration was "being opportunistic in dismissing and undermining an industry that provides protection to consumers" given ALTA's work to fight money laundering and wire fraud in the real estate transaction process, for which it was cited by the government for its partnership, he said.

Furthermore, the pilot "also makes an absolute mockery of the FHFA's new products and activities rule finalized last year, which outlines the need for a public comment and fully transparent and open process if a new activity by the GSEs is introduced, which in this case, this clearly is," Morton declared.

The pilot also plays into misconceptions about what title insurance does, added Steve Gottheim, ALTA's general counsel. The White House's fact sheet noted that title insurers pay 3% to 5% of premiums back in claims, versus 70% for other forms of insurance.

Approximately 70 cents of every dollar paid for a title insurance policy covers expenses associated with record searches on the property, as well as rectifying post-closing problems. That work is why the title claims rate is so low, Gottheim continued.

Furthermore, it is a myth that title insurance was not needed on a refinance, Gottheim said, pointing to risks like homeowner association fees and their superpriority lien or fraud, which  could arise between the time the home was purchased and the owner seeks a new loan.

When asked about analysts' reports stating the pilot would have limited applicability, Tomb responded a home is most Americans' largest asset, and if the government does something like this, what else are they going to do it to? "That's really our concern from a public policy standpoint," she said.

What lessons is the government going to learn from "cherry-picking the best transactions possible, the easiest ones, the ones with the least likely title problems and use that to justify other things that they want to do in a politicized environment?" Gottheim asked rhetorically.

At the end of the day, "Fannie Mae is not regulated to do title insurance," Tomb said. "They're not capitalized for this. So there's a lot more risk than people really understand."