Plan "reveals a fundamental misunderstanding of how the mortgage market works," critic says
The Consumer Financial Protection Bureau is weighing whether to prohibit banks from charging homeowners for title insurance.
Charging home buyers for title insurance, which protects the lenders, is a long-standing industry practice, according to a Bloomberg report. The CFPB’s plan is still in its initial stages, sources told the news agency.
The CFPB will soon issue a broad request for information on closing costs – including title insurance, Bloomberg reported. That request will lay the foundations for any plan to prohibit title insurance, but any final proposal on closing costs won’t come until next year, sources told Bloomberg.
The proposal would reportedly apply to both home purchases and refinances, sources told Bloomberg – although they said it could be changed to cover only refis, or even scrapped altogether. The plan would only affect lenders’ insurance – buyers could still purchase optional title insurance to cover their equity.
President Joe Biden has targeted title insurance in an attempt to control closing costs, part of a broader effort to increase housing affordability. Last month, the Biden administration announced a pilot program that would waive the title insurance requirement for some refinanced through Fannie Mae.
Maria Vullo, former superintendent of the New York Department of Financial Services, said home buyers shouldn’t have to pay for insurance that protects the lender.
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“Reducing the homeowner’s closing costs is an excellent policy, provided the lender cannot recover that cost in another way from the homebuyer through some fee or a higher rate,” Vullo told Bloomberg. “A title insurance policy for the lender protects the lender’s interest. I think it is a positive, pro-consumer, pro-homeowner policy to say that the lender has to pay for it themselves.”
Industry opposition
However, such a proposal would likely face fierce opposition from lenders and title insurers, who are already struggling against a housing slump that has impacted their profits, Bloomberg reported.
Lenders and title insurers alike have already voiced concerns about the proposal.
“Title insurance is one of the most essential, but least expensive, parts of the home-buying process,” Diane Tomb, CEO of the American Land Title Association, said in a statement to Bloomberg. “We have real concerns about how this proposed framework would undermine the critical protections provided by title insurance.”
ALTA CEO @dltomb was published last week in @WashingtonPost.
— ALTA (@ALTAonline) April 4, 2024
She wrote, "The (Administration's title #insurance waiver pilot) program targets only higher-wealth homeowners, not first-time homebuyers. It will do little to spur new ownership."https://t.co/aCr9lYMu4R#realestate
Bob Broeksmit, CEO of the Mortgage Bankers Association, told Bloomberg that the plan “reveals a fundamental misunderstanding of how the mortgage market works and a disturbing lack of awareness of existing regulations.”
Lenders are required to obtain title insurance for most home loans they make, Bloomberg reported. The coverage generally costs around 0.5% of the loan amount – a cost passed on to the home buyer. American homeowners paid $21 billion in title insurance premiums in 2022, according to data from the American Land Title Association.
However, title insurance premium volume has plunged as interest rates have risen. The parent of industry giant First American Title Insurance Co. saw its adjusted net income tumble to $369 million last year from $671 million the year prior, Bloomberg reported.
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