Title Insurance Helps Protect Homeownership
President Biden and his administration are working overtime to make homeownership possible for millions of working families who did not have a shot at it before. During his State of the Union Address, the president appealed to Congressional Republicans to work with him and pass legislation to lower costs for first-time homebuyers by providing a $10,000 tax credit and by building and renovating more than two million homes. Like the unprecedented job-growing success of Bidenomics, that’s great news that everyone should applaud.
Perhaps to show faster progress in an election year, the administration has also embraced a quick fix that might be superficially helpful but will impose long-term impediments to homeownership. The recently approved pilot program for mortgage-giant Fannie Mae to waive the requirement for lender’s title insurance on some refinances offers a questionable promise of savings and exposes homeowners to additional financial risks.
The pilot, in effect, would turn Fannie Mae into a title insurer, something it was never designed to be. It also would not help the lower income working families that need help the most. The program applies to “low risk” refinances, which means that existing, mostly wealthier homeowners will benefit, not someone trying to buy their first home, a big challenge for low-income buyers.
The Federal Housing Finance Agency last year dropped plans for a similar pilot after hearing from lawmakers and others who viewed it as a step too far for the government-owned Fannie Mae to take rather than a reasonable incentive to spur homeownership affordability. It should stick to that decision.
More importantly, allowing any mortgage transaction – either a refinance or a home purchase – without the protection of title insurance makes homebuyers more susceptible to legal challenges to their property rights. Title insurance goes beyond public records searches and covers homeowners for a variety of risks not discoverable in the public records, including fraud, forgery, and certain tax liens. For instance, unpaid condominium or homeowners’ association dues and assessments that could lead to liens are not found in public records searches.
In addition, title insurance is comprehensively regulated. Both state and federal regulators oversee the title insurance industry and its products and services. Regulators insist that title insurance protect consumers and hold reserves to pay claims.
Avoiding title insurance does little to make homes more affordable. Title insurance is a small, one-time fee that protects property rights for as long as a family owns its home. According to a recent study, title and settlement fees are less than 1 percent of a borrower’s total life-of-loan costs.
Clearing the way for Fannie Mae to rely less on title insurance, even in limited circumstances, increases the risk for families and endangers their property rights.
Although well intentioned, the title insurance part of the Biden administration’s prescription for improving access to homeownership for families of modest means – especially people of color – misses the mark. Indeed, the fundamental barriers to access for low- and moderate-income families are stubbornly high interest rates and a short supply of affordable houses.
The President currently has plenty of proposals that would actually help homeowners while skipping the exposure of these same individuals to risk that they don’t need or deserve. Owning a home is the American Dream – unless it goes bad. Let’s not let the government provide the push toward an American nightmare for working families.
Jehmu Greene is a television commentator, social justice advocate, and Co-founder & CEO of We Defend Truth.
