Introduced as part of the Biden Administration FHFA’s Equitable Housing Finance Plans, the Title Acceptance Pilot expands the role of the Government Sponsored Enterprises (GSEs) far beyond its chartered responsibility of maintaining liquidity in the secondary mortgage market. It essentially places the financial risk currently shouldered by state-regulated, private-market title insurance companies onto its own balance sheet.
The program runs counter to President Trump’s efforts to reform the federal bureaucracy and ensure taxpayers are protected, while also representing a significant federal intrusion into the comprehensive state oversight of insurance. Recall that during the great financial crisis in 2008, to prevent Fannie Mae and its fellow GSE Freddie Mac from collapsing and causing even more damage, the federal government stepped in and took over while taxpayers were handed a bill for a more than $200 billion dollar bailout.
Title insurance safeguards Americans’ property rights against potential complications with a property’s title, and it protects the property owner from incurring financial losses because of a title dispute. Any argument that title insurance, and by extension the title industry, is an obstacle to more affordable housing simply lacks a fundamental understanding of how both title insurance and housing markets work.
Proponents of the pilot continue to mislead about the program’s efficacy while minimizing the risk it poses to homeowners and lenders. In fact, a recently issued paper titled, “Assessing FHFA’s Pilot Program on Automated Title Decisioning: Promoting Competition and Reducing Housing Prices,” features overly simplistic and incorrect analysis about how the title insurance market operates. The fact that this paper was funded and promoted by the very company that stands to profit from the pilot shouldn’t surprise anyone.
The paper’s authors insinuate that title decision engines and “automated title review” processes are novel ideas unique to the pilot. The reality is that all major title underwriting companies utilize these tools to assess and manage risk. These tools, and other technological advancements by the industry, have helped bring down the cost of title insurance coverage by 5% over the last five years alone. However, these automated tools do not eliminate risk. Title decision engines only identify potential risks to the transaction, and it is the work of title professionals that mitigates that risk. This pilot would remove these professionals from the refinance process. In fact, 30% of claims paid are for issues that could not be found in a review of public records — automated or not — such as fraud and forgery
The paper also features bad math: it overestimates the number of transactions eligible for the pilot, ignoring the FHFA’s own pilot eligibility criteria (which ironically targets wealthier homeowners and does nothing for first-time buyers). Only loans with a loan-to-value ratio of 80% or less – and those that are free and clear of any prior lien or encumbrance – would be eligible. The paper disregards these facts.
In another attempt to misinform policymakers, this paper disregards widely available title insurance discounts and exaggerates purported savings for consumers. Depending on the state, discounts on title insurance coverage for refinance transactions can save as much as 40%. These discounted rates include many of the essential services that title professionals provide during a refinance. Consumers will have to purchase these separately when utilizing the Title Acceptance Pilot, increasing their costs.
Beyond false notions of cost savings, the FHFA Title Acceptance Pilot is a clear example of federal government overreach into the exclusively state-regulated insurance market — a concern that has been raised by Members of Congress in both parties, state policymakers, and attorneys general. The 1945 McCarran-Ferguson Act rightly delegated the authority and responsibility for the business of insurance to the states – not to the FHFA nor the GSEs.
The Biden-led FHFA’s heavy-handed approach enables the federal government to interfere in this well-established private market with little reward and a lot of risk. When it comes down to it, eliminating title insurance protections won’t make homebuying any more affordable. It will, however, put more homeowners and taxpayers on the hook for losses that will inevitably arise, threatening both homeownership and the stability of the housing finance system.
President Trump has been attacking federal regulatory overreach. Ensuring that the FHFA and the GSEs stay out of the title insurance business is a great way to continue that leadership
Diane Tomb is CEO of the American Land Title Association, the national trade association representing the land title insurance and settlement services industry, which employs more than 120,000 people working in every county in the United States.
This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.To contact the editor responsible for this piece: [email protected]
