Bipartisan Congressional Caucus Calls On Fhfa To Halt Title Waiver Program

The Bipartisan Congressional Real Estate Caucus is calling on the Federal Housing Finance Agency (FHFA) to cease its pilot program for title insurance waivers until the program is vetted and the agency seeks public input on it.

The caucus expressed this view in a letter written by Reps. Lou Correa (D-Calif.), Mark Alford (R-Mo.), Tracey Mann (R-Kan.) and Brittany Pettersen (D-Colo.) and sent to FHFA Director Sandra Thompson on Monday.

In an era of obvious political division, lawmakers on both sides of the aisle have expressed concerns over the program. The National Council of Insurance Legislators and 14 attorneys general have also pushed for its termination.

While the co-chairs of the caucus wrote that they “applaud” Thompson and the FHFA’s efforts to promote homeownership for low-income Americans, they believe that the pilot program will not help to achieve the goal of “finding ways to ‘responsibly reduce closing costs for homeowners in a safe and sound manner.’”

In the letter, the caucus members argue that the pilot — which they said insinuates that title insurance is a “junk fee” — will cause “irreparable damage” to homeowners and mortgage lenders. A lack of title insurance “may expose homeowners and lenders to a heightened risk of future financial loss, or even the loss of their home,” they wrote.

“Buying a home represents the largest and most important acquisition Americans make in their lifetime and purchasing title insurance secures that investment by protecting against financial loss from threats like unrecorded liens, fraud, and forgery,” the letter states.

According to the letter, the average cost of a title claim and associated expenses is $26,000. The average amount for fraud and forgery claims has jumped to $143,000.

“Therefore, even loans that pass the automated title review process proposed under the Pilot remain at significant risk of a costly future claim but will not have the protections afforded by title insurance. Additionally, the Pilot poses unnecessary risk by removing expert title agents from the refinance process,” the letter states.

The caucus chairs concluded their letter by asking Thompson to answer five questions before the end of the week. These include how the pilot program will protect consumers from title risks that are not easily discoverable by a public records search; how the FHFA will handle claims that arise on loans acquired through the pilot; if the FHFA has performed an analysis to understand the impacts that removing title insurance could have on foreclosure rates; and who will cover the cost of rectifying claims that arise.

“Relying simply on an automated title search using public records alone will leave consumers susceptible to hidden threats not found in other records like unfiled liens, fraud, and forgery,” the caucus members wrote. “Title agents, who are trained experts that comb through these various filings and cure defects to ensure a clear title, will be removed from the process under the Pilot, leaving consumers vulnerable to significant risk.”