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The Biden administration’s move to allow some homeowners to refinance their mortgages without paying title insurance has drawn the ire of the title insurance industry, which has previously opposed moves to relax title insurance requirements.
The pilot program announced Thursday will allow lenders to sell a portion of their refinanced mortgages to Fannie Mae and Freddie Mac without providing independent proof, through a legal opinion or the lender’s title insurance policy, that the property’s title does not exist. question.
Among several housing initiatives President Biden unveiled during Thursday’s State of the Union address, White House estimate It will save thousands of qualifying homeowners an average of $750 and up to $1,500.
Sandra Thompson
“For many aspiring and existing homeowners, closing costs are a significant factor in purchasing or relocating a home,” Sandra Thompson, head of the federal regulatory agency Fannie Mae and Freddie Mac, said in a report. Financing homes poses a huge affordability barrier.” statement. “Homeowners looking to refinance their mortgage are often surprised to find out-of-pocket costs that can make this difficult. One of the costs is a new lender’s title insurance policy, which covers the lender but not the homeowner. .”
Thompson said the program only applies to “low-risk refinance transactions that are confident the property is free from any prior liens or encumbrances” and is intended to “test whether allowing lenders to sell these refinance loans is a liability.” Responsible approach”. Ways to reduce closing costs incurred by existing homeowners. “
The American Land Title Association (ALTA), a Washington, D.C.-based title industry advocacy group, dismissed the pilot program as “pure political posturing that offers homeowners false promises of savings while leaving consumers, lenders and taxpayers People face greater financial risks.”
ALTA has been engaged in an extensive public relations and lobbying campaign against “Unregulated Title Insurance Alternative“For example, a lawyer’s opinion letter threatens to cut into the business of association members.
ALTA hired a public relations firm, marathon strategy, a “corporate rebranding activity” will be launched in 2021 around the theme of “Our title is protection”. The campaign aims to “educate consumers and policymakers and shape public perception of the industry,” according to one person. Another webinar.
but Fannie Mae and Freddie Mac Lenders will be given the option to use an attorney’s opinion letter instead of traditional title insurance on certain loans starting in 2022, alarming title insurance companies.
According to statistics, ALTA’s lobbying expenditures increased by 61% last year, reaching $1.34 million. Records tracked by OpenSecrets.
in December, Fannie Mae expands Use an attorney’s opinion letter to include loans secured by condominiums and properties subject to restrictive covenants.
Diane’s Tomb
ALTA CEO Diane Tomb said in a statement: “Fannie Mae’s decision to expand attorney-opinion subsidies to loans to purchase condominium units in lieu of title insurance will allow more It exposes consumers and lenders to unnecessary risks and weakens the protection of property rights.” statement then. “Title insurance provides more comprehensive coverage, particularly related to risks not easily discovered through a simple search of public records.”
Tomb also said Fannie Mae’s decision in December to expand its use of attorney opinions was “made without engagement with the title insurance industry, despite ongoing engagement by ALTA and its members with Fannie Mae and its federal regulators.” ” This is “disturbing”. Federal Housing Finance Agency (FHFA).
ALTA took a similar stance Thursday.
“By announcing this just hours before the State of the Union address, without engaging or engaging with the title insurance industry, the (Biden) administration has reduced the industry’s critical role to nothing more than a politicized talking point. ” ALTA stated in an article Press release.
Analysts at Fitch Ratings said they do not expect the title acceptance pilot to affect their ratings of title insurance companies, as the approved program “will initially apply to a very limited number of refinance transactions while still allowing lenders to pass title insurance policies Or AOL (Attorney’s Opinion Letter).”
“The product’s ultimate use and impact on title insurance policy issuance and premium volumes remain uncertain,” Fitch analysts said in a note. Leave a comment on Friday.
in a November 2023 Analysis Published by the Mortgage Bankers Association, Law Firm Attorneys blank rome It was concluded that “there is room for both types of products (title insurance and attorney opinions) in today’s market.”
Blank Rome’s attorneys wrote that the “enhanced” attorney’s opinion combined with the insurance “provides more coverage than the traditional AOL predecessor.” Although Enhanced AOL does not provide insurance against unknowable risks, “title defects are relatively rare, and some consumers and lenders may be willing to assume these risks because of the cost savings associated with purchasing Enhanced AOL in lieu of title insurance.”
Another recent analysis by the Urban Institute noted that while traditional forms of insurance providers pay 70 percent of the premiums they collect as claims, title insurance companies pay only 5 percent. Title insurance companies note that much of the cost of providing title insurance is spent on researching and clearing title clouds. But the Urban Institute puts the cost of a title search at less than $200.
“If title insurance were similar to other types of insurance, the premiums homeowners pay would likely be significantly lower,” Urban Institute researchers concluded in their analysis.Rethinking title insurance could dramatically lower costs for homebuyers”.
Alita Group, a startup that is building a platform that allows service providers to issue insured title submissions, estimates that homebuyers can save an average of $1,500.
Insured Title Opinions “combine the strength of a legal opinion, the efficiency of a data-driven title review, and the protection of comprehensive liability insurance to provide an alternative to title insurance that can significantly reduce closing costs for consumers,” Company claims.
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