Fannie Mae rumored to be looking at forgoing title insurance

The title insurance industry often complains about being out of date and making little changes, but that hasn’t happened in the last 12 months.

Nearly a year after announcing it would begin accepting attorneys’ opinions (AOL) in lieu of title insurance in limited circumstances, Fannie Mae once again making waves in the title insurance industry.

According to reports from PoliticoPro, published last Wednesday, The Government-Sponsored Entity (GSE) is considering piloting a program that would bypass both traditional ownership insurance and AOL together. The program will provide certain mortgage lenders a waiver of title insurance requirements for loans sold to Fannie Mae and will launch this spring, according to Politico.

Fannie Mae, who currently backs nearly $9 trillion in US residential real estate mortgages, would neither confirm nor deny the rumours.

“We know that closing costs continue to be a barrier for homebuyers – especially among underserved populations and first-time homebuyers,” spokeswoman Fannie Mae wrote in an email. “We are constantly researching options that will lead to reduced costs in a safe and sound way and help borrowers save money as part of the Equitable Housing Finance Plan. As we are still in the research phase, we do not have additional details to share at this time.”

GSE’s Equitable Housing Financing Plan was approved this summer by Federal Housing Finance Agency.

“The goal is to promote affordable and sustainable housing opportunities for more households across the country,” Diane Tomb, CEO of american Land Rights Association, notified HousingWire late last year. “One of the goals they outlined in the plan is a push to reduce closing costs, particularly for low-income borrowers. Under the plan, the two GSEs are pushing for a pilot program promoting the use of attorneys’ opinions, reportedly as an alternative to reducing closing costs.”

While the introduction of AOL frustrated ALTA, Fannie Mae’s latest move has caused great concern for trade organizations.

“We are deeply concerned about the reported Fannie Mae pilot program to waive title insurance requirements for certain transactions. It seems that Fannie Mae is moving beyond her charter and mission right into the title insurance business. That should raise a significant alert,” the trading group wrote in an email. “If the financial crisis of 2008 teaches us anything, it is that shortcuts to established processes pose a grave risk to our sound, reliable and trustworthy real estate system, homeowners and taxpayers. FHFA should stop this activity.”

Howard Turk, founder and managing director Turkey & Cothat helped insurance companies become the Big Four First American launched in Canada in the 1980s, is also aware of what this means – especially for lenders.

“The real risk here is the lender. In the event of a problem, Fannie will likely just exercise their rights under a typical buyback agreement and send the deal back where it came from,” Turk wrote in an email. “The real question is with the Lender who did this deal. For them — they had to determine whether they felt lucky or not. Title insurance exists for a very good reason. Going without it involves a risk assessment.

ALTA has also raised concerns over what the trade group feels the lack of coverage will impact homeowners if claims to their rights to their homes ever arise.

“The products coming into this market – it’s confusing because they give the people who need it most, less coverage,” said Tomb. “We haven’t seen any real data based on conversations that it’s going to save money. In some ways that can make them more expensive. They might actually lose their home.”

However, proponents of the GSE’s Equitable Housing Finance Plan highlight the discrepancy between the property insurance premium income generated compared to the amount paid by the ownership company in claims.

According to ALTA, the insurer earned $17.6 billion in premiums during the first nine months of 2022, while paying only $438.7 million in claims during that time period.

For its part, ALTA said it is working to lower closing costs where possible, and believes increased automation and increased technology capabilities within the title industry will drive costs down even further over the next few years.

“Over the last 10 years, rates have fallen 6% across the industry and that’s important to homeowners and that’s because of the investments that the industry has made into things around automation and using machine learning and AI to find titles and get faster. decision on the title,” Steve Gottheim, general counsel for ALTA, told HousingWire last November. “These technologies come with costs on the front end, but over time, they bring those efficiencies and drive prices down.”