The Biden administration unveiled a new program on Thursday aimed at alleviating the financial burden on homeowners by slashing closing costs on select mortgages, reviving a proposal that faced opposition from the industry in the past.
The initiative targets a significant expense associated with closing on a mortgage: title insurance. In a pilot program, Fannie Mae will waive the title insurance requirement on mortgage refinancings it acquires from certain lenders, according to a report by The Wall Street Journal.
This move reignites a clash with the industry regarding the cost and necessity of title insurance and aligns with the White House's broader objective of dismantling obstacles to homeownership, the Journal reported. The program was announced shortly before Biden's State of the Union address.
Last fall, The Wall Street Journal reported that Fannie's federal regulator, the Federal Housing Finance Agency (FHFA), halted work on the pilot program following objections from title insurers and lawmakers on Capitol Hill. The White House has been urging agencies like the FHFA to explore ways to reduce closing costs, prompted by the Journal's report on the abandoned pilot.
Critics from the title and settlement industry, which stands to lose premium revenue, argue that Fannie lacks experience with title insurance and shouldn't take on additional risk after being bailed out by taxpayers during the financial crisis.
The American Land Title Association condemned the plan as "a purely political gesture offering a false promise of savings for homeowners." The industry body warned of increased financial risk for consumers, lenders, and taxpayers.
Title insurance serves to declare legal ownership of a property and offers protection against potential ownership disputes. However, some critics argue that it is excessively costly in an age of digitized land and title records, the Journal reported.
Under the pilot program, Fannie would waive the need for title insurance for a limited number of mortgage refinancings offered by select lenders. The program could expand over time to include more lenders and other mortgage types. Instead of paying premiums to title insurers, Fannie may collaborate with financial technology company Doma to ensure clear titles, with any remaining risk potentially covered by Fannie itself.
FHFA Director Sandra Thompson told the Journal that the test pilot would apply to "certain low-risk refinance transactions" where there is confidence in the property's freedom from prior liens or encumbrances. However, FHFA has not yet approved specific technology vendors or lenders for the pilot.
The White House indicated further actions to address title insurance costs, with the Treasury Department planning to convene a roundtable to discuss the industry and explore potential reforms, the Journal reported. The Consumer Financial Protection Bureau will also pursue potential new rules to scrutinize "anticompetitive closing costs" imposed by lenders on home buyers and homeowners.
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