This morning, I received the following memo from our media communications consultants.
Bob
We wanted to make you aware of a recent story (3/1/23) from “Politico” on Fannie May’s leaked plan to change title insurance. It’s behind a pay wall but the following is a rundown.
“Fannie moves to revamp title insurance despite GOP warnings of risk” was written by Katy O’Donnell and includes references to Congressional GOP warnings to the Administration.
The article states according to sources, “Fannie Mae is developing a pilot program to bypass traditional title insurance, and planning to expand its role in homeowners' insurance despite warnings from Republican lawmakers to stay away from the industry.”
According to the sources, Fannie is developing a pilot program to bypass traditional title insurance.
The program is part of a strategy to reduce closing costs for minority borrowers. Critics say it “could increase risk for taxpayers and have major consequences for the title insurance industry.
The plan could be rolled out this spring, according to industry sources who requested anonymity to discuss conversations with Fannie's regulator. Certain mortgage lenders would be granted a waiver on title insurance requirements for loans sold to Fannie.
A spokeswoman for Fannie declined to comment, but pointed out the company is “continuing to research options to help borrowers save money on closing costs and protect borrowers... and Fannie Mae from property and title defect risks.”
O’Donnell wrote, “Critics of Fannie and Freddie Mac see the latest proposal as part of the ‘mission creep’ that they say the companies have engaged in for years. Fannie and Freddie, which together guarantee about half of the residential mortgage market, were created by Congress to help stabilize the market and increase the availability of money for residential mortgages. The companies have been in the government's hands since 2008, when Treasury took control of them to stave off their collapse in the financial crisis. The $190 billion bailout sparked more protests against the companies.”
The article states, “Republican lawmakers have already taken issue with Fannie’s foray into tinkering with title insurance requirements.” It points out Senate Banking Committee Republicans warned Freddie’s regulator in July against “repeating the mistakes of the recent past” by allowing the government-sponsored enterprises to overextend themselves as they did in the run-up to the 2008 crisis.
“The plans are a return to GSE mission creep,” the 12 Republicans, including Sens. Mike Crapo of Idaho, Thom Tillis of North Carolina and Tim Scott of South Carolina, wrote in a letter to Thompson 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 market,” they added. “Primary market participants should be concerned about the GSEs seeking to return to their pre-crisis endeavors at evolving into full-service mortgage companies.”
Fannie identified “reduc[ing] closing costs for Black consumers” as a goal in its Equitable Housing Finance Plan, the plan to advance racial equity in the market. The company said it would consider “pilot options to reduce title insurance costs to borrowers" as part of that effort.
Industry insiders stressed “the new pilot is being developed in secret and goes beyond reducing the cost of insurance by effectively making Fannie itself a title insurer.”
“As the industry continues to work collaboratively with the FHFA and the GSEs to strengthen its Equitable Housing Finance Plans, it was shocking to see this unprecedented step by Fannie Mae to move well beyond its statutory authority under its charter and mission,” said an industry participant.
“Fannie Mae is now essentially entering the title business, and as a result, low- and moderate-income homeowners may unknowingly become exposed to greater risks and unforeseen financial costs,” the industry participant added.
Lawmakers also objected to Fannie’s announcement in April 2022 that it would accept attorney opinion letters in lieu of traditional title insurance as a way to lower closing costs. Attorney opinion letters are based on searches of public records about a property and do not cover issues that may not be discoverable in the public record.
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