The American Land Title Association is making it clear that it won’t have the Consumer Financial Protection Bureau making drastic changes to title insurance without first at least hearing the trade groups thoughts on the issue.
In a 15-page letter sent to CFPB Director Rohit Chopra on Aug. 2, the trade group stressed the importance of title insurance.
“When Americans buy their home, they deserve to know that they truly own it and are not at risk of losing what is typically the largest and most important investment they will ever make. Title insurance provides this peace of mind,” the letter, signed by Chris Morton, ALTA’s senior vice president of public affairs and chief advocacy officer, stated.
The letter was in response to the CFPB’s request for information on residential mortgage fees, which the Bureau issued in late May. This request was in addition to the CFPB’s consideration of a ban on mortgage banks charging homebuyers for the lender’s title insurance policy.
While ALTA said it shares the CFPB’s goal of promoting greater housing opportunity and affordability, but it is concerned that calling title insurance a “junk fee” will encourage consumers to forgo the protections offered by title insurance.
“Services that are legal, disclosed, and regulated cannot be ‘junk fees,’” the letter states.
ALTA argues that consumers are in fact very well informed about the price of closing costs as under the CFPB’s TILA-RESPA Integrated Disclosure (TRID) rule, the cost of title insurance and related services is disclosed to consumers at the start of the loan underwriting process and prior to closing.
“According to the Bureau’s own research about the TRID disclosures, ‘the evidence available for the assessment indicates that the TRID Rule improved consumers’ ability to locate key information, compare terms and costs between initial disclosures and final disclosures, and compare terms and costs across mortgage offers,’” Morton wrote in the letter.
Additionally, the letter highlights that the price of a title insurance premium and settlement costs are “two of the least expensive costs, barely equating to 0.7% of the borrower’s total life-of-loan costs combined.”
To justify the price of title insurance, ALTA noted all of the curative work that goes into clearing a title prior to closing, as well as the fact that title insurance provides policyholders with legal defense if their title is ever challenged.
“This defense cost is valuable since a significant portion of claims can be won in court ensuring the owner is not displaced from their home. The cost of paying and defending against a title claim can be extremely expensive,” the letter states. “A recent analysis by the actuarial firm Milliman found that the average cost of providing a legal defense is over $8,000. This is spent even if the claim is ultimately found not to have merit. The average American simply cannot afford to fund such defense costs, since the Federal Reserve has recently shown in its 2023 household survey that 37% of Americans could not cover even a hypothetical $400 emergency expense with cash or a cash equivalent.”
The letter concluded with ALTA stressing that it is not just lenders who benefit from a lender’s title policy, but consumers and even the federal government.
“Consumers benefit from a loan policy of title insurance because it reduces the financial risk that they face through the warranties they make to the lender, investors (such as Fannie Mae, Freddie Mac, and Ginnie Mae), and ultimately to the federal government,” the letter states.
The comment period for the request for information closed on Aug. 2, 2024.
