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The controversy over a pilot program that’s letting some householders refinance their mortgage with out paying for title insurance coverage flared up once more this week, with Republican attorneys normal from 14 states urging Fannie Mae and Freddie Mac’s federal regulator to kill this system.
The July 22 letter to Federal Housing Finance Company (FHFA) Director Sandra Thompson alleges:
- The FHFA authorized this system with out searching for public enter
- This system solely advantages householders with “lower risk” refinance loans, and doesn’t serve first-time and low-income householders
- Waiving title insurance coverage exposes householders to potential fraud and abuse
- This system permits Fannie Mae to sideline small companies
Jonathan Skrmetti
“The affordable housing crisis demands meaningful bipartisan solutions, not shortsighted regulatory overreach,” Tennessee Lawyer Common Jonathan Skrmetti stated in a assertion.
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The letter was additionally signed by attorneys normal Steve Marshall (Alabama), Tim Griffin (Arkansas), Chris Carr (Georgia), Todd Rokita (Indiana), Kris Kobach (Kansas), Liz Murrill (Louisiana), Lynn Fitch (Mississippi), John Formella (New Hampshire), Gentner Drummond (Oklahoma), Alan Wilson (South Carolina), Marty Jackley (South Dakota), Ken Paxton (Texas) and Jason Miyares (Virginia).
“FHFA has received the letter and will respond directly,” was the company’s solely remark to Inman Thursday on the allegations raised by state attorneys normal.
One in every of a number of housing initiatives unveiled by President Biden throughout his State of the Union deal with in March, the FHFA pilot program permits lenders to promote among the mortgages they refinance to Fannie Mae with out having to offer unbiased verification that there aren’t any clouds on the property’s title by way of a authorized opinion or a lender’s title insurance coverage coverage.
The FHFA estimates the title acceptance pilot program will save eligible householders $500 to $1,500 in closing prices once they refinance by eliminating the necessity to buy lender’s title insurance coverage.
In a web site FAQ, the FHFA says it authorized a “small-scale, limited duration pilot” permitting Fannie Mae to make use of an automatic title assessment course of “to assess title risk during loan manufacturing and prior to loan purchase.”
For now, the title acceptance pilot program is proscribed to lenders refinancing loans in choose geographies, and solely mortgages with loan-to-value ratios of lower than 80 p.c will probably be eligible for title insurance coverage waivers.
“Pilots, often small in scale with limited duration, are meant to inform longer-term policy one way or the other,” the FHFA FAQ states. “Pilots are a vital tool to test, learn, and in some cases, be scaled towards permanent policy.”
The title acceptance pilot is a part of a broader push to permit mortgage debtors to bypass the expense of title insurance coverage by way of alternate options like legal professional opinion letters.
Fannie Mae in 2022 started permitting lenders the choice of utilizing an legal professional opinion letter as an alternative of conventional title insurance coverage for some loans, a observe allowed by Freddie Mac since at the least 2008. Fannie Mae stated in February that it’s bought greater than 10,000 mortgages with legal professional opinion letters “and has not experienced losses from title claims on these loans.”
The American Land Title Affiliation (ALTA), an business commerce group, has been engaged in a public relations and lobbying marketing campaign opposing such “unregulated title insurance alternatives.”
ALTA weighed in once more Thursday, claiming the title acceptance pilot — which lets lenders refinance some debtors with out acquiring title insurance coverage or an legal professional opinion letter — has confronted “bipartisan backlash from state and federal lawmakers.”
Diane Tomb
“An attorney general’s role is to enforce state consumer protection laws, and we at ALTA share the concerns raised by the 14 state attorneys general about the pilot program’s lack of transparency, the shift of title risk from state-regulated title insurance companies to Fannie Mae, and the impact on local economies,” ALTA CEO Diane Tomb stated in a assertion. “We applaud their call to terminate the pilot program.”
Rep. Wiley Nickel, D-North Carolina, and 17 different Democrats wrote Biden in April to oppose the pilot program, citing ALTA statistics that over 90 p.c of the title business is comprised of small companies.
“We’re very concerned with the notion of empowering two large corporations [Fannie Mae and Freddie Mac], currently under federal conservatorship, to push aside small businesses in our communities that take pride in helping their neighbors protect their homes,” Nickel and his colleagues wrote.
Battle over legal professional opinion letters
As a part of its parallel marketing campaign in opposition to legal professional opinion letters, ALTA is backing laws within the Home and Senate which might require title insurance coverage on mortgages bought by Fannie and Freddie.
Laws launched within the Home in September by New York Republican Rep. Andrew Garbarino, H.R. 5837, would successfully ban the usage of legal professional opinion letters for clearing title on typical mortgages by requiring lenders promoting mortgages to Fannie and Freddie to acquire title insurance coverage. The invoice has attracted 11 Republican and 4 Democratic co-sponsors, together with Nickel.
A companion invoice within the Senate, S. 2687, launched in July 2023 by Sen. John Kennedy, R-Louisiana, has two Republican co-sponsors however no Democrats.
Based on OpenSecrets, ALTA boosted spending on lobbying by 61 p.c final 12 months, to $1.34 million, and has contributed $777,000 to candidates and occasion committees within the present election cycle, with barely extra (54 p.c) going to Republican candidates and committees.
However legal professional title opinion letters might nonetheless be on the cusp of widespread adoption, as new know-how guarantees better effectivity and scale.
In Might, the nation’s largest mortgage lender, United Wholesale Mortgage, expanded its Title Evaluate and Closing (TRAC) program, which it launched in 2022 to dispense with lender title insurance coverage insurance policies in favor of legal professional title opinion letters issued by in-house legal professionals who assessment title paperwork.
This month know-how supplier Alita Group launched a platform that lets title suppliers produce a “modernized” legal professional opinion letter that’s additionally “wrapped” with an errors and omissions insurance coverage coverage.
Alita claims its insured legal professional opinion letter, AOLPro, addresses probably the most generally encountered title dangers, and is “poised as a viable option” for lenders trying to assist debtors keep away from the price of acquiring title insurance coverage.
The corporate is pointing its title business critics to an evaluation of AOLPro carried out by the legislation agency Bradley Arant Boult Cummings LLP.
“Alita’s modernized version of the AOL relies on the same title search and exam process that underlies a title insurance policy and is presented in a format that lenders are accustomed to seeing,” the legislation agency discovered. “It also has the added benefits of an attorney review and a carefully considered E&O policy issued by AM Best A-rated insurance carriers.”
An insured legal professional opinion letter “cannot provide coverage for title defects that are not discoverable from the public records,” attorneys with Bradley’s Title Insurance coverage Claims & Title Defect Healing Apply Group acknowledged.
A beforehand solid deed within the chain of title that may’t be detected by an examiner, “would not typically be covered by the AOLPro,” Bradley attorneys wrote. “However, when fraud, forgery, incapacity, impersonation, improper execution of documents or improper recording are discoverable by a title examination or preventable in connection with the current transaction, we would expect the AOLPro claim outcomes to track title insurance claim outcomes.”
In the end, it is going to be as much as lenders and debtors to have interaction in a cost-benefit evaluation and select what protection they need. However, “for the first time in 150 years, there is a [Fannie Mae and Freddie Mac] vetted and approved alternative that allows for that consideration and provides optionality beyond traditional title insurance,” Bradley attorneys Hallman Eady and Spencer Mobley concluded.
Fannie Mae and Freddie Mac explored title insurance coverage alternate options as one approach to scale back closing prices of their 2022 Equitable Housing Finance Plans.
“We believe more common use of attorney opinions could lead to savings for some borrowers,” Fannie Mae officers stated in publishing the mandated plan detailing methods the mortgage big intends to “knock down barriers within mortgage, rental, and ownership processes that unnecessarily challenge consumers, especially those that disproportionally burden Black families.”
The Shopper Monetary Safety Bureau additionally highlighted title insurance coverage in Might when it launched an inquiry into “junk fees” in mortgage closing prices.
“Title insurance is another major fee paid at closing,” the CFPB famous in saying the inquiry. “Most commonly, lender’s title insurance is paid by the borrower to protect the lender against problems with the property. Consumers typically have limited options to shop around for title insurance.”
The Mortgage Bankers Affiliation (MBA) bristled on the CFBP’s characterization of charges for required companies like value determinations, credit score experiences, and flood certifications as “junk fees,” and warned that the bureau “may be planning to force lenders to absorb these costs.”
Bob Broeksmit
“According to the White House, a junk fee isn’t disclosed to consumers,” MBA President and CEO Bob Broeksmit stated in Might at an business convention. “But everything the CFPB mentioned is thoroughly disclosed early in the loan process. And in a supreme irony, these fees are disclosed because of CFPB regulations, on forms designed by the CFPB itself. If these are ‘junk fees,’ then the word junk has no meaning.”
Broeksmit complained that the CFPB’s marketing campaign “began a day after President Biden floated a proposal to scrap title insurance. But again, clear title protects borrowers, lenders, and investors and is required by Fannie and Freddie before they purchase a loan.”
The FHFA pilot program permits Fannie Mae to refinance some debtors with out acquiring title insurance coverage or an legal professional opinion letter. However the company says that if title defects are found after a mortgage is refinanced, the “homeowner is not responsible for curing the defects. The cost of curing title defects is expected to be low and will be offset by a lender fee applied to each loan sold through the pilot.”
Whereas important of the FHFA’s pilot refi program, the MBA is supportive of legal professional title opinion letters.
In November the commerce group revealed an evaluation by attorneys on the legislation agency Clean Rome that concluded “there is room for both types of products [title insurance and attorney opinion letters] to exist in today’s market.”
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