Last week, it was reported that Fannie Mae is considering a pilot program that grants certain mortgage lenders a waiver on title insurance requirements for loans sold to Fannie Mae. This would be in place of traditional title insurance.

Fannie Mae’s charter and mission is to guarantee mortgages and provide liquidity for the secondary market. Fannie Mae was not established to provide title insurance and this mission creep should raise significant alarms. Fannie Mae is not licensed, regulated or reserved for such purposes. Oversight of this business is the purview of state insurance regulators. The Federal Housing Finance Agency (FHFA) should instruct Fannie Mae to halt this activity.

Several members of the Senate Banking Committee have already taken issue with Fannie Mae moving beyond its charter into primary market activities. The lawmakers warned FHFA Director Sandra Thompson against repeating past mistakes learned from the 2008 financial crisis by allowing the Government Sponsored Entities (GSEs) to extend themselves and take on more risk.

The senators objected to initiatives outlined in the equitable housing finance plans re

leased by the companies, which are known as government-sponsored enterprises, or GSEs.
“The plans are a return to GSE mission creep,” the senators wrote to Thompson on July 19. “The GSEs’ charters limit them to supporting the secondary market. These plans, however, contemplate that the GSEs would push into the title insurance and appraisal markets, and even the lending market. Primary market participants should be concerned about the GSEs seeking to return to their pre-crisis endeavors at evolving into full-service mortgage companies.”

In its Equitable Housing Finance Plan, Fannie Mae said it would consider “pilot options to reduce title insurance costs to borrowers" as part of that effort.

Members of Congress have also objected to Fannie Mae’s announcement in April 2022 that it would accept AOLs in lieu of traditional title insurance to lower closing costs. U.S. Rep. Bryan Steil asked the FHFA for more details about the decision to accept AOLs.

“Do you believe that encouraging lower- and moderate-income homebuyers to purchase a less protective insurance product is conducive to your goal of sustainable homeownership?” Steil wrote to Thompson in a Jan. 31 letter.

In a separate letter, Reps. Brad Sherman and Blaine Luetkemeyer also warned Director Thompson that these initiatives risk exposing consumers to harm by not providing the same consumer protections as title insurance.

“They also raise concerns about the safety and soundness of the Enterprises, increase[d] taxpayer risk which FHFA must consider as the GSEs’ regulator and conservator,” the lawmakers wrote.

 

A move by Fannie Mae into title insurance also raises risk to consumers. We learned from the 2008 financial crisis that strong underwriting standards are essential to a healthy housing market. Lowering of standards brought the housing finance system to its knees, leaving taxpayers to spend nearly $200 billion to bail out the GSEs for their role in the 2008 housing crash.

 

What You Can Do We are engaged with federal policymakers to highlight our serious concerns with these moves by the GSEs, as well as working with policymakers and regulators who share our perspective. Your engagement remains important in this process, including by participating in ALTA’s upcoming ALTA Advocacy Summit in May, and responding to forthcoming alerts from ALTA. As always, if there are relationships you have with your Member of Congress of which we are unaware, please let us know. ALTA will keep you informed as we push back on misguided policy proposals. Comments and questions are always welcome. I can be reached at dtomb@alta.org.

Best regards,
Diane Tomb