For the millions of Americans looking to purchase their first home, housing affordability remains a difficult hurdle to overcome. Home prices rose 6.3% in April, compared to the same month a year ago, and are 47% higher than just four years ago. We all know lack of supply and regulatory barriers are the core reason for the housing crisis but instead of addressing the real affordability challenges title insurance is a convenient scapegoat for the Biden Administration. To that end, the Federal Housing Finance Agency (FHFA) has announced a title insurance waiver pilot program that would eliminate the protections of title insurance for certain refinance loans with loan-to-value ratios less than 80 percent.
The pilot program catapults Fannie Mae and Freddie Mac into the title insurance business, a primary activity for which the government sponsored enterprises (GSEs), who remain in conservatorship due to risky business practices during the financial crisis of 2008, are not chartered, licensed, regulated, or reserved to provide. While there has been much discussion about the risks associated with the program, there has been a smaller spotlight, however, on the fact that title insurance follows a state-based regulatory system.
National Council of Insurance Legislators (NCOIL) President and Texas State Rep. Tom Oliverson noted that the federal government is overstepping its bounds given that the McCarran-Ferguson Act delegated the authority and responsibility for the business of insurance to the states outlined in a letter to FHFA Director Sandra Thompson and extolled the virtues of title insurance, writing it is “an important part of the proven state-based system of insurance, a system that has effectively protected consumers and helped create the largest, most competitive and innovative insurance market in the world.”
Rather than recognizing and embracing the industry’s “strong record of consumer protection at the state level” Oliverson continued, the FHFA wants to insert the inexperienced Fannie Mae into “critically important consumer financial transactions.”
The American Legislative Exchange Council (ALEC), another membership organization of state legislators also weighed in on the title waiver pilot as well, arguing that it undercuts state title insurance laws and calling the risk it poses to homebuyers the “plan’s most disturbing consequence.” ALEC points out that the pilot shifts risk to prospective homeowners and Fannie Mae and Freddie Mac, which ultimately translates into additional risk for American taxpayers.
State legislators are not alone—members of Congress from both sides of aisle have also weighed in in opposition to the pilot. For instance, Rep. Wiley Nickel (D-NC) and 17 of his Democratic colleagues penned a letter to President Biden expressing their concerns about the pilot program. The members argued, “While well-intentioned, this pilot program will not address the true issue of housing affordability in our communities and puts homebuyers at risk.”
Making homeownership more affordable for Americans is critical, and we believe there should be a real and inclusive regulatory process about how that can be done. Most importantly, we can open the door to home ownership without undermining well-established state insurance laws and a well-functioning state-based regulatory system.
Diane Tomb is CEO of the American Land Title Association.
This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.
To contact the editor responsible for this piece: zeb@hwmedia.com
