Congress party asks FHFA to end title exemption program

The Twofold Congressional Real Estate Caucus calls on the Federal Agency for Housing Financing (FHFA) will suspend its pilot program for property insurance waivers until the program has been vetted and the agency has solicited 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 apparent political division, lawmakers on both sides of the aisle have expressed concerns about the program. The National Council of Insurance Lawmakers and fourteen attorneys general have also called for its termination.

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

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

“Buying a home represents the largest and most important purchase Americans make in their lifetime and purchasing title insurance safeguards that investment by protecting against financial loss from threats such as unrecorded liens, fraud and forgery,” the letter said .

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

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

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 ownership risks that are not easily discovered through a search of public records; how the FHFA will handle claims arising from loans obtained through the pilot; if the FHFA has conducted an analysis to understand the impact that eliminating title insurance could have on foreclosure rates; and who will cover the costs of rectifying any claims that arise.

“Simply relying on an automated title search using only public documents will leave consumers open to hidden threats not found in other documents, such as unfiled liens, fraud, and forgery,” caucus members wrote. “Title agents, trained experts who sift through these various files and fix flaws to ensure clear title, will be removed from the process under the pilot, leaving consumers vulnerable to significant risks.”