CFPB considers ban on charging buyers for lender’s title policy

While the draft measure may be abandoned altogether, Bloomberg reported that in its current form it would apply to both home purchase and refinance transactions.

According to the publication, the CFPB will release a request for information on closing costs, including title insurance and other fees, as soon as late April. Sources told Bloomberg that any final proposal on changes to closing costs, including title insurance, would not come until 2025.

The CFPB would not comment on the possible ban on lenders charging buyers for their title policy, but a spokesperson noted in an email that the CFPB “is looking carefully at closing costs and fees consumers may encounter throughout the mortgage process.

“We are working with agencies across the government to foster greater competition in the mortgage market and help Americans save money when purchasing or refinancing a home,” the spokesperson added.

During his 2024 State of the Union address in early March, President Joe Biden announced a housing plan, noting that the CFPB would be pursuing “rulemaking and guidance to address anticompetitive closing costs imposed by lenders on homebuyers and homeowners.”

“These charges – which benefit the lender but not the borrower – can add thousands to the upfront costs of a mortgage,” the White House said in a prepared statement. “Those upfront costs cut into the amount of homebuyers’ down payments and reduce homeowners’ available equity.” 

Both the mortgage industry and the title industry have not taken kindly to the news of the CFPB’s latest proposal.

“Title insurance is one of the most essential, but least expensive, parts of the home buying process,” Diane Tomb, the CEO of the American Land Title Association, wrote in an email. “We have real concerns about how this proposed framework would undermine the critical protections provided by title insurance. We will continue our efforts to educate the CFPB as to how the title insurance market works and collaborate with policymakers on thoughtful approaches to housing affordability.”

Bob Broeksmit, the CEO and president of the Mortgage Bankers Association, also believes that the CFPB does not fully understand how the mortgage industry operates.

“The CFPB’s attack on the costs for the services required to successfully underwrite a home loan – title insurance, appraisals, credit reports, and flood hazard mapping – reveals a fundamental misunderstanding of how the mortgage market works and a disturbing lack of awareness of existing regulations, which the Bureau itself has promulgated and lauded, that provide full fee transparency and give consumers the ability to shop,” Broeksmit wrote in an email. “Our members spent hundreds of millions of dollars complying with those rules when they were established less than a decade ago, and another massive and costly revamp is not an effective solution and only increases costs while creating a false appearance of addressing housing affordability.”

This measure under consideration is just the latest attempt by the CFPB to cut borrower’s closing costs by reducing or removing title insurance coverage. Last month, the agency, in conjunction with Fannie Mae and the Federal Housing Finance Agency, announced a pilot program to waive the requirement for a lender’s title insurance policy for certain refinance transactions.

In March 2023, a report from PoliticoPro showed that Fannie Mae was considering piloting a program to bypass traditional title insurance and attorney opinion letters (AOLs), which drew resistance from trade groups. The introduction of AOLs had already frustrated groups representing the title industry the previous year. In August 2023, Fannie Mae said it was no longer considering the pilot program. 

“CHLA is concerned about the costs and competition for title insurance, and that is why we have supported Attorney Opinion Letters and the Fannie Mae title pilot program that FHFA has greenlighted,” Scott Olson, the executive director of the Community Home Lenders of America, wrote in an email. “However, it is important that any proposal does not reduce transparency and protects smaller lenders and their borrowers against the emergence of exclusive deals between title companies and large lenders that results in even less competition.”

According to a report from the CFPB, the median home-purchase loan costs, including title insurance, rose to nearly $6,000 in 2022. However, a report from ALTA shows that the cost of title insurance coverage has decreased 7.8% nationwide since 2004 and roughly 5% from 2019 to 2021. In addition, ALTA noted that in some state the price of title insurance is regulated and set by the state’s insurance regulator.