Real World Stories of Title Insurance Protection

From HousingWire

https://www.housingwire.com/articles/opinion-title-insurance-matters-heres-why/

Last month, the Biden Administration announced the revival of a previously abandoned pilot program that would waive the requirement for lender’s title insurance on certain home refinances – part of a misdirected effort to address housing affordability. Additionally, the CFPB has shortsightedly questioned the benefits and cost of title insurance.

It’s uncertain whether federal regulators are purposefully misleading Americans about the potential savings or just don’t understand how title insurance works. The truth is the cost of title insurance coverage has decreased nearly 8% over the last two decades due to innovation in the industry.

Critics of title insurance highlight a limited understanding of the vital nature of title insurance protection by mistakenly and repeatedly referring to the industry’s lower claims rate relative to other lines of insurance. A 70% claims rate — standard for other insurance lines — on property rights would be catastrophic to our economy. Success in the title insurance industry is measured by preventing claims in the first place. A lower claims rate means that title agents are succeeding in their job by resolving any title issues and reducing risk upfront – protecting the largest asset most households will ever own and source of their greatest wealth over time.

Title insurance is significantly different from other lines of insurance. For a one-time fee paid at closing, title insurance provides homeowners protection for as they or their heirs own the property. Other types of insurance charge monthly or yearly premiums. The facts are clear: title insurance is essential to protecting homeowners and their most important investment both during the initial purchase of a home and refinancing – and it exists for a reason.

Without a title insurance policy, homeowners can find themselves fighting for their property over issues they never knew existed.

Here are some real-world examples of how title insurance protects consumers:

Surviving Spouse Left Without Deed

Under the new pilot program, the requirement for a lender’s title insurance policy on certain refinances would be waived – but this can leave homeowners vulnerable. For example, a property owner passes away and leaves behind his surviving wife. If the widow isn’t listed on the deed, issues regarding ownership could arise when the wife goes to refinance. During the refinance process, title insurance professionals would do their due diligence to disqualify any potential heirs who may attempt to claim the property down the road. This would allow the surviving wife to officially claim ownership of the property. The proposed pilot program would not identify this type of issue with a search engine.

IRS Tells Couple: “You Don’t Own Your Home”

After purchasing their home from an individual who had acquired it from an IRS auction, a couple found out the government agency had rescinded the original sale. The IRS refused to turn over the deed to the new homeowners because of unpaid tax bills by a previous owner. The couple contacted their title company and were told they had coverage for this dilemma. Thanks to their title insurance policy and the great work conducted by their title professionals, the couple was able to keep their home, and they didn’t have to pay a dime out of pocket. Fannie Mae is not capitalized to address these issues, nor is set up to be able to pay these types of claims.

Sold—But Not by Homeowners

After a California vacation home was left unused for several months, the county notified the homeowners that the property had sold – but the owners hadn’t put the house up for sale. This was a case of seller impersonation fraud, where an unsavory actor posed as a homeowner and fraudulently “sold” a property. Thankfully, due to their title insurance policy, the homeowners were protected against post-policy fraud; title professionals were able to expunge the fraudulent deed from the record. The “buyer” also had a title insurance policy for the transaction, and their title company paid them the purchase price of the home – money that they otherwise would have lost without their policy. Fraud and forgery claims account for more than 20% of claims expenses and dollars paid to insureds.
Approximately one-third of all claims are for issues that would not be found in a public records search – demonstrating that title insurance could not be effectively replaced by an automated search engine that will be used under the title waiver program.

Title Insurance Provides Essential Protection

The above examples barely scratch the surface when it comes to the protection provided by title insurance. Time and time again, seasoned title professionals have saved American homeowners from their homes being seized, stolen, or defrauded. The Biden Administration’s pilot program would put Fannie Mae and Freddie Mac in charge of resolving any title-related claims that arise for qualified borrowers refinancing – a seismic shift in the housing finance system.

Title insurance is equally important when homeowners refinance. When a homeowner refinances, they obtain a new loan. Lenders require a new title search for a title insurance policy on that loan to protect their investment in the property. If this is not done correctly, the homeowner could still face collection on a previous mortgage thought to have been paid off. Similarly, a lender could face the risk that they do not have the required lien priority.

Under the Administration’s title waiver plan, title insurance professionals will be eliminated from refinance transactions, removing a key layer of anti-fraud protections for consumers and lenders. Consumers and lenders who are victims of refinance fraud would have to investigate and negotiate a resolution with some unidentified department within the GSEs, and consumers could ultimately be forced into property sale or foreclosure.

By turning Fannie Mae and Freddie Mac into title insurers, the GSEs would also be moving beyond its charter into a primary market activity. The 2008 financial crisis happened the last time these entities took on significant risk for which they were ill-equipped to handle.

The title industry agrees that homeownership should be more attainable and affordable for more Americans. However, the notion that title insurance is in any way a principal driver of affordability challenges is misguided. Title insurance is crucial to protecting American homeowners, lenders, and their most important investments.

ALTA's Diane Tomb on why title insurance is essential

It is no secret that there is a housing affordability challenge in the U.S. According to the National Association of Realtors’ (NAR) Housing Affordability Index, since spring of last year, a typical family with a median income have not been able to afford a median-priced home. 

While mortgage rates will likely fall this year, conversations about how to increase accessibility to homeownership are still top of mind — and should be top of mind — across the real estate industry. However, there is no one-size-fits-all approach to homeownership affordability. Any proposal to increase access to homeownership and improve affordability should be evidence-based, sustainable (avoiding quick fixes) and not come at the cost of consumer protection.

For example, recently, Fannie Mae has focused on expanding alternatives to title insurance as a way to supposedly increase homeownership affordability. However, Fannie Mae’s own research from 2022 found that title insurance is not a significant component of the overall closing costs when buying a home. Accounting for geography, differences in title and settlement costs across groups of borrowers were not “economically meaningful.”

Additionally, recent research by First American found that title and settlement fees account for less than 1% of a borrower’s total life-of-loan costs, indicating that title insurance fees are one of the smallest portions of the equation. A homeowner’s largest life-of-loan costs are property taxes and recording fees ($29,675), fees paid to the mortgage-backed security (MBS) investor ($28,779), fees paid to the lender ($14,026), homeowner’s insurance ($9,279) and GSE fees (7,705). 

Targeting title insurance as a way to cut costs not only fails to address real affordability problems, but it can actually leave consumers open to future title risks that can come with large price tags. As an example, attorney opinion letters (AOLs) are being touted as a substitute to title insurance, but they do not offer the same level of protection.

According to industry data, a third of all claims paid by title insurance companies are for issues that cannot be found in a search of the public records and would not be covered by an AOL. An opinion from an attorney based on a title search is not the same thing as insurance, which has statutory reserving requirements to protect against losses.

Additionally, in the majority of states – so-called “seller pay” states – AOLs can increase expenses for consumers beyond what they would pay for title insurance. In these states, the seller pays for the homebuyer’s title insurance policy, and therefore, homebuyers only pay for a lender’s policy at a reduced cost at closing, oftentimes as little as $150.

The title industry embraces efforts to help increase homeownership accessibility. That’s why title companies are constantly innovating to drive down the cost of our policies. While the cost of other forms of insurance have steadily increased in recent years, thanks to industry innovations, the cost title insurance has decreased by 7.8% nationally since 2004, according to industry financial statements. Additionally, title companies offer various discounts – such as a simultaneous issue rate discount when owner’s and lender’s policies are purchased together – to help lower the cost of coverage.  

But while these improvements to reduce costs are important to addressing housing affordability, there are much bigger barriers to homeownership, especially for low- and moderate-income homebuyers. Instead of replacing longstanding products that have protected consumers for the last century and only cost homebuyers sometimes as little as a couple hundred dollars, both the private and public sector should focus on addressing the root causes of housing unaffordability.

As Fannie Mae’s Senior Vice President and Chief Economist Doug Duncan recently noted, “Until we see a meaningful increase in housing supply, we expect affordability will remain a significant barrier to homeownership for many households.” Increasing the supply of affordable housing is critical to bringing the American Dream of homeownership within reach for more Americans. According to NAR, elevated home prices, mortgage rates and a limited supply of homes are the top barriers to homeownership.

In order to fix the housing affordability crisis, the real estate industry and federal government must focus on the fundamental problems that keep home prices high. Replacing consumer safeguards like title insurance with unproven, unregulated alternatives will just expose homebuyers—especially first-time homebuyers who need it the most—to greater financial risk.

Diane Tomb is CEO of the American Land Title Association.

Stand Out From the Competition

Invest in Your Career with ALTA

Are you the smartest person in your office? Prove it with the American Land Title Association’s (ALTA’s) National Title Professional (NTP) designation. A measure of personal achievement, ALTA’s professional acknowledgement affirms these experts are powerhouses of knowledge, experience and dedication essential to the title industry.

The NTP designation provides evidence of your industry proficiency as well as your commitment to professional development. It represents your achievement of excellence and enhances your status in the industry and among your colleagues! Other tangible benefits include:

• Individual recognition in ALTA publications and website
• Discounts on ALTA meetings
• Special benefits and recognition at ALTA meetings and select State Land Title Association events
• Right to use the NTP designation and logo in your business publications, website and correspondence, including marketing efforts, resume and networking activities

To apply for the NTP designation, you must meet several individual, licensing and training prerequisites. You must be an ALTA member and, if your State Land Title Association offers a similar designation, you also must earn your local credential before applying. Once all prerequisites are met, you must earn a minimum of 100 NTP points to qualify for consideration. Points can be earned in many areas, including industry experience, education and training as well as involvement with ALTA, your State Land Title Association and other professional organizations. All applications are reviewed by the NTP Council, a group of up to nine designees appointed by ALTA’s Board of Governors.

Stand out from the crowd and start earning your NTP designation this year! For more information on the program, email  ntp@alta.org or visit www.alta.org/ntp.

The following is an ALTA Alert issued yesterday.

You can also see it online - HERE

March 6, 2023

We want to bring to your attention an issue that is the highest priority for ALTA. We will need your active support going forward to combat this emerging challenge.

ALTA CEO

Revealing a Powerful Washington Secret – Advocacy Puts Us in a Position to Make Changes…For the Better

Two weeks ago, I attended the American Land Title Association (ALTA) Federal Conference and Lobby Day in Washington, D.C.  And, while I have been a participant in prior activities on the state and local level – I left Washington with a sense that I needed to share with NYSLTA’s members a line of sight to my experience.

This wasn’t a weekend in Vegas - but rather three days on the Hill – and the opportunity to raise the voice of the Title Insurance Agent and Real Estate Professional directly with key members of Congress.  And, more importantly, what became crystal clear was this – advocacy works. 

Speaking directly to Members of Congress, and their key staff, allows us to inform their opinion, educate decision makers, and improve upon their understanding of what is important in our business.   

NYSLTA members joined forces with title professionals from across the country to help strengthen the industry and advance the interest of our membership as well as consumers.  Our colleagues included DeAnna Stancanelli of National Granite, Vince Danzi of First Nationwide, Deb Paoli of First Nationwide, Tony Maiocchi of Perfect Abstract, Bill Treuber of New York Metro, Ted Werner of Fidelity National Title Group, and Bob Treuber of NYSLTA. [See attached image]

Specifically, we spoke with members of Congress regarding the Consumer Financial Protection Bureau’s (CFPB) recent regulations issued on the Know Before You Owe mortgage disclosure rule. While we applauded the CFPB on collaborating with key industry stakeholders to make mortgage transactions easier for consumers to understand, we encouraged lawmakers to address the regulation’s requirement that prohibits our industry from disclosing the actual cost of the title insurance policies.

[ See attached letters to the CFPB ]

This requirement is causing consumers to receive incorrect title insurance premium disclosures, and at times creating even more confusion for consumers during mortgage transactions – defeating the rule’s intended purpose. What’s more, the rule as currently written, actively dissuades buyers from purchasing financial protection for their largest investment, their home.

Lawmakers have an opportunity to encourage the CFPB to fix this issue during the TRID review in July, ensuring all consumers receive accurate information about the true costs of buying a home.

Homebuyer Outreach Program (HOP)

Additionally, we discussed ALTA’s Homebuyer Outreach Program (HOP). Today, consumers want more information from expert sources about the real estate process (including title insurance and settlement services) and how to best protect their investment. ALTA members can educate homebuyers about what to expect when buying a home and how an owner’s title insurance policy helps provide peace of mind by reducing their risk and protects their property rights. We encouraged lawmakers to use the HOP as a resource and contact an ALTA member with any questions.

Traveling to Washington to connect with New York Representatives, Nydia Velasquez, Carolyn Maloney, Peter King and Lee Zeldin to make sure our voice is heard was a powerful experience. I highly recommend all NYSLTA members to get involved. 

If you’d like to learn more, please contact me (347-987-0677) or Bob Treuber of NYSLTA (212-964-3701).

- Marianne Mathieu, President, NYSLTA