Republican members of the U.S. House of Representatives have voiced their concerns to the Federal Housing Finance Agency (FHFA) about a pilot program that will eliminate title insurance requirements for some refinance loans purchased by Fannie Mae and Freddie Mac.
In a letter dated March 15, members of the House Financial Services Committee stated that the pilot program seemingly conflicts with the agency’s Prior Approval for Enterprise Products rule, which is designed to provide transparency in the pilot development process. The letter was signed by representatives Warren Davidson (R-Ohio), Bill Huizenga (R-Mich.) and Andrew Garbarino (R-N.Y.).
The letter also indicates that the House committee intends to investigate the apparent fast-tracking of the pilot program, which has generated controversy as part of President Biden’s recent push to lower the costs of housing. The lawmakers argue that removing title insurance requirements on any conventional loan is a significant change that requires rigorous scrutiny.
The pilot program will waive title policy requirements for “low-risk refinance transactions where there is confidence that the property is free and clear of any prior lien or encumbrance,” according to FHFA Director Sandra L. Thompson. The agency notes that only refinances with a loan-to-value ratio below 80% are eligible, and it estimates that participating homeowners will save between $300 and $1,500 on closing costs.
The Mortgage Bankers Association (MBA) previously expressed its concerns that the move “could undermine consumer protections, increase risk, and reduce competition,” according to a statement by president and CEO Bob Broeksmit.
Meanwhile, the American Land Title Association (ALTA) wrote a scathing response in which it called the program a “purely political gesture offering a false promise of savings for homeowners while exposing consumers, lenders, and taxpayers to greater financial risk.”
Others, however, say that the proposal would have little to no impact. A BTIG analyst cited the small number of refinances that are taking place today. Fitch Ratings said that the narrow scope of the waiver would keep it from impacting title insurer ratings. The company also noted that Fannie Mae’s 2022 decision to allow attorney opinion letters to serve as an alternative to title insurance policies has not had a material impact.
