The Congressional Real Estate Caucus is calling for a pause to the title insurance waiver program being piloted by the Federal Housing Finance Agency (FHFA), at least until it is thoroughly vetted and receives public input.
The pilot, first announced by President Joe Biden’s administration in March of this year, would waive the requirement for lender’s title insurance on certain refinances. Touting the move as a way to eliminate extra closing costs, a statement from the White House said that the move would save “thousands of homeowners up to $1,500, and an average of $750.”
But a letter sent this week by the bipartisan caucus to FHFA Director Sandra Thompson expressed concern that the pilot “reveals a misunderstanding of the critical importance for both new home purchases and refinancing by insinuating that it is a ‘junk fee.’”
The letter, co-signed by 17 members of Congress including caucus co-founders Lou Correa, D-Calif.; Mark Alford, R-Mo.; Brittany Pettersen, D-Colo.; and Tracey Mann, R-Kan., asserted that doing away with the title insurance requirement may expose both borrowers and lenders to a heightened risk of future financial loss and could put homeowners in jeopardy of losing their homes.
“Given the information currently available from FHFA … we believe the pilot will not protect consumers as effectively as title insurance, including by limiting the title review process which will merely search public land records to identify any liens or encumbrances that would impact the new refinance loan,” the letter read. “Relying simply on an automated title search using public records alone will leave consumers susceptible to hidden threats not found in other records like unfiled liens, fraud, and forgery.”
Cutting out the expert oversight of trained human title agents from the refinance process will simply expose consumers to larger risks, like the growing problem of seller impersonation fraud, the letter went on to say. The letter also raises concerns about the recent practice of lumping title insurance under the category of “junk fees”; the Consumer Financial Protection Bureau, for example, included title insurance in a recent request for information on “junk fees in mortgage closing costs.”
“This apparent classification of title insurance as a ‘junk fee’ may diminish the value consumers place on this protection or incentivize consumers to forego title insurance altogether,” said the letter. “Title insurance provides critical protections to homebuyers and lenders, and we do not support any efforts that would undermine those protections.”
The end of the letter featured five questions posed by the caucus, which asked for answers by Nov. 22:
- How will the pilot protect consumers from title risks not easily discovered through a public record search, and will non-public databases be examined for potential encumbrances?
- How does FHFA plan to protect consumers from seller impersonation fraud?
- Without title companies and agents, how will FHFA handle claims that arise, and what recourse will be available for homeowners and lenders when title-related problems come up? Who will cover the costs of rectifying those problems?
- Has FHFA analyzed the potential impact of removing title insurance on foreclosure rates?
- What analysis has been done of the potential costs to homeowners, lenders, and the government-sponsored enterprises associated with rectifying future title claims on loans acquired through the pilot?
The American Land Title Association, which has been vocal in opposition of the pilot since it was announced, joined the caucus in reiterating its concerns.
“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,” said Diane Tomb, CEO of Alta. “The FHFA Title Acceptance Pilot is a misguided policy that has received bipartisan pushback from all levels of government. We greatly appreciate the leadership of representatives Correa, Alford, Pettersen and Mann in continuing to voice those concerns.”
