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The debate over a pilot program that allowed some homeowners to refinance their mortgages without paying title insurance erupted again this week, with Republican attorneys general from 14 states urging federal regulators at Fannie Mae and Freddie Mac to end it The plan.
A July 22 letter to Federal Housing Finance Agency (FHFA) Director Sandra Thompson states:
- FHFA approves plan without public comment
- The program only benefits homeowners with “lower-risk” refinancing loans and does not serve first-time homebuyers and low-income homeowners
- Forgoing title insurance exposes homeowners to potential fraud and abuse
- Plan allows Fannie Mae to exclude small businesses
“The affordable housing crisis requires meaningful bipartisan solutions, not short-sighted overregulation,” Tennessee Attorney General Jonathan Schemetti said in a statement.
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The letter was also signed by Attorneys General Steve Marshall (Alabama), Tim Griffin (Arkansas), Chris Carr (Georgia), Todd Rokita (Indiana) , Chris Kobach (Kansas), Liz Muriel (Louisiana), Lynn Fitch (Mississippi), John Formella (New Hampshire), Gentner Drummond (Oklahoma State), Aaron Wilson (South Carolina), Marty Jackley (South Dakota State), Ken Paxton (Texas) and Jason Miares (Virginia) state).
“FHFA has received this letter and will respond directly,” was the agency’s only comment to Inman on Thursday about the charges brought by the state attorney general.
The FHFA pilot program, one of several housing initiatives unveiled by President Biden during his State of the Union address in March, allows lenders to sell a portion of the mortgages they refinance to Fannie Mae without having to Provide independent verification that there are no issues with the condition of the property.
FHFA estimates that the Title Acceptance Pilot Program will save eligible homeowners $500 to $1,500 in closing costs when refinancing by eliminating the need to purchase lender’s title insurance.
In a website FAQ, the Federal Housing Finance Agency (FHFA) said it approved a “small, limited-duration pilot” that would allow Fannie Mae to use an automated title review process “during loan origination and Assess title risk before loan purchase.”
Currently, the title acceptance pilot program is limited to loan refinancing lenders in certain areas, and only mortgages with loan-to-value ratios below 80 percent qualify for the title insurance exemption.
“Pilots are typically small, limited in duration, and designed to inform long-term policy in some way,” the FHFA FAQ states. “Pilots are important tools for testing, learning, and, in some cases, expansion permanent policy.”
The title acceptance pilot is part of a broader push to allow mortgage borrowers to bypass title insurance fees through alternatives such as attorney opinions.
Fannie Mae in 2022 will begin giving lenders the option of using attorney opinions instead of traditional title insurance on certain loans, a practice Freddie Mac has allowed since at least 2008. Fannie Mae said in February that it had purchased more than 10,000 mortgage letters with attorney opinions “and suffered no losses as a result of title claims on those loans.”
The American Land Title Association (ALTA), an industry trade group, has been engaged in public relations and lobbying efforts against this “unregulated alternative to title insurance.”
ALTA weighed in again Thursday, claiming that the title acceptance pilot program — which allows lenders to refinance some borrowers without title insurance or an attorney’s opinion letter — faces “strong bipartisan opposition from state and federal lawmakers.”
“Attorneys general are charged with enforcing state consumer protection laws, and we at ALTA join 14 state attorneys general in raising concerns about the pilot program’s lack of transparency and the transfer of title risk from state-regulated title insurance companies to Fannie Mae. “We applaud their call to end the pilot program. “
Rep. Wiley Nickel, D-N.C., and 17 other Democrats wrote to Biden in April opposing the pilot program, citing ALTA statistics that more than 90 percent of the title industry is represented by Made up of small businesses.
“We are very interested in the idea of supporting two large companies [Fannie Mae and Freddie Mac]are currently under federal regulation to exclude small businesses in our communities that pride themselves on helping their neighbors protect their homes,” Nickell and his colleagues wrote.
The dispute over lawyers’ opinions
As part of a parallel campaign opposing the attorney brief, ALTA supports legislation in the House and Senate that would require title insurance for mortgages purchased by Fannie Mae and Freddie Mac.
New York Republican Rep. Andrew Garbarino (H.R. 5837) introduced legislation in the House in September that would effectively ban the use of attorney opinions to liquidate title to conventional mortgages required to be sold to Fannie Mae and Freddie Mac The lender must obtain title insurance. The bill attracted 11 Republicans and four Democrats to co-sponsor, including Nickell.
A companion Senate bill, S. 2687, was introduced in July 2023 by Sen. John F. Kennedy, R-Louisiana, and has two Republican co-sponsors but no Democrats.
According to OpenSecrets, ALTA increased its lobbying spending by 61% last year to $1.34 million and donated $777,000 to candidates and party committees in the current election cycle, with Republican candidates and committees giving slightly more (54%).
But barrister opinions may still be on the verge of widespread adoption, as new technologies promise to increase efficiency and scale.
In May, United Wholesale Mortgage, the nation’s largest mortgage lender, expanded its Title Review and Closing (TRAC) program, launched in 2022, to waive lender title insurance policies in favor of attorney titles issued by in-house counsel. Opinions review title documents.
This month, technology provider Alita Group launched a platform that allows title providers to create a “modern” attorney’s opinion that also “wraps” an errors and omissions insurance policy.
Alita claims that its insured attorney opinion, AOLPro, addresses the most common title risks and is “poised to become a viable option” for lenders looking to help borrowers avoid the costs of obtaining title insurance.
The company directed its headline industry critics to an analysis of AOLPro conducted by law firm Bradley Arant Boult Cummings LLP.
“Alita’s modernized version of AOL relies on the same title search and examination process used for title insurance policies and presents it in a format that lenders are accustomed to seeing,” the law firm found. “It also has the added benefit of attorney review and a carefully considered E&O policy issued by AM Best A-rated insurance company.”
Attorneys at Bradley’s Title Insurance Claims and Title Defect Treatment Practice Group acknowledge that insured attorney opinions “do not provide coverage for title defects that cannot be discovered in the public record.”
Deeds that were previously forged in the chain of title and were undetectable by examiners “generally will not be protected by AOLPro,” Bradley’s attorneys wrote. “However, we expect AOLPro Claims Outcomes to track title insurance claim outcomes when fraud, forgery, incapacity, impersonation, improperly executed or poorly recorded documents or actions related to the current transaction are preventable through a title examination.”
Ultimately, lenders and borrowers will conduct a cost-benefit analysis and choose the coverage they want. But “for the first time in 150 years, [Fannie Mae and Freddie Mac] Bradley’s attorneys, Hallman Eady and Spencer Mobley, concluded, “A vetted and approved alternative can take this into account and provide an alternative to traditional title insurance.”
Fannie Mae and Freddie Mac are exploring title insurance alternatives as a way to reduce closing costs in their 2022 Fair Housing Financing Plans.
“We believe that more widespread use of counsel may result in savings for some borrowers,” Fannie Mae officials said in releasing the enforcement plan, which details the mortgage giant’s intention to “eliminate mortgages, leases and ownership Unnecessary barriers in the process that challenge consumers.” , especially those who place a disproportionate burden on black families. “
The Consumer Financial Protection Bureau also highlighted title insurance in a May investigation into “junk fees” in mortgage closing costs.
“Title insurance is another major expense paid at closing,” the CFPB noted in announcing the investigation. “Most commonly, lender’s title insurance is paid for by the borrower to protect the lender from problems with the property. Consumers often have limited options for purchasing title insurance.
The Mortgage Bankers Association (MBA) is outraged that CFBP has characterized fees for required services such as appraisals, credit reports and flood certifications as “junk fees,” warning that the bureau “may plan to force lenders to bear these costs.”
“According to the White House, trash fees will not be disclosed to consumers,” MBA President and CEO Bob Broeksmit said at an industry conference in May. “But everything the CFPB mentions was thoroughly disclosed early in the loan process. The ultimate irony is that these fees are disclosed in accordance with CFPB regulations on a form designed by the CFPB itself. If these are ‘junk fees,’ Then the word trash has no meaning.
Broxmit complained that the CFPB’s campaign “began one day after President Biden introduced his proposal to abolish title insurance.” But again, clear title protects borrowers, lenders and investors, and is required by Fannie Mae and Freddie Mac before purchasing a loan.
The FHFA pilot program allows Fannie Mae to refinance some borrowers without obtaining title insurance or an attorney’s opinion. But the agency said that if title defects are discovered after a loan is refinanced, “homeowners are not responsible for repairing those defects. The cost of fixing title defects is expected to be lower and will be offset by loan fees charged on each loan sold through the pilot .
While critical of the FHFA’s pilot refinancing program, MBA supports the attorney title submission.
In November, the trade group published an analysis by lawyers at Blank Rome, which concluded that “there is room for both types of products.” [title insurance and attorney opinion letters] exist in today’s market.
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