President Biden, whose spending policies have been blamed for triggering skyrocketing mortgage rates, is seeking ways to cut costs for homebuyers by trimming the fees associated with loans and eliminating title insurance for some borrowers.
The move has rattled the mortgage industry and brought swift backlash from title insurance companies who say the president’s plan “smacks of pure politics” and will do little to lower housing costs while raising risks for buyers and taxpayers.
Mr. Biden has made lowering housing costs central to his reelection campaign platform as Americans cope with high rent as well as mortgage rates that have more than doubled under his administration, pushing homeownership out of reach for many homebuyers.
The Federal Reserve has raised rates several times during the Biden administration to help stabilize near-record inflation, which economists pin on massive government spending that began in the Trump administration during the COVID-19 pandemic and continued under Mr. Biden.
According to the National Association of Realtors, 2023 was the slowest year for existing home sales since 1995.
The president said the nation’s high mortgage rates will eventually decline, “but I’m not waiting.”
He announced a pilot program to wipe out title insurance requirements on some federally backed mortgages during his March 7 State of the Union address to Congress. Ditching title insurance, he said, could save “$1,000 or more” for certain borrowers who are refinancing their homes.
The president’s plan includes cutting more than just title insurance costs.
The Consumer Financial Protection Bureau announced last week it is examining all closing costs for finalizing the purchase of a home, including origination fees, credit report fees and appraisal fees.
Costs and fees increased nearly 22% on home purchase loans from 2021 to 2022, the CFPB said, pushing up the median amount paid by borrowers to nearly $6,000 in 2022.
The CFPB is eyeing the nation’s handful of credit reporting agencies, which have raised the costs as much as 400%, the government agency said.
“These steep increases in a market that lacks competition and choice warrant further scrutiny,” officials said.
Closing cost fees, the CFPB said, sometimes add up to more than the downpayment on a home and “have an outsized impact on lower-income borrowers, first-time homebuyers and borrowers living in Black and Hispanic communities.”
Title insurance makes up one portion of those costs and Biden administration officials suggested it is unnecessary. In a memo issued after Mr. Biden‘s address to Congress, they cited low title insurance claim payouts amounting to 5% or less, compared to other types of insurance that average 70%.
Eliminating title insurance would save thousands of homeowners up to $1,500 on refinancing or an average of $750 per transaction, administration officials said. The president also has proposed a $10,000 tax credit for certain homebuyers, spread out over two years, an initiative that would require congressional approval.
Title insurance companies conduct title searches on properties to ensure there are no unpaid mortgages or tax liens before a purchase. They pay back the lender, and the buyer who pays cash, in the event a successful claim is made on the property after the closing.
Mr. Biden‘s announcement targeting title insurance in his State of the Union speech caught the industry off guard.
Biden administration officials did not run the proposal by the main trade association, the American Land Title Association, which represents 6,000 insurance companies, title, and settlement agents.
American Land Title Association CEO Diane Tomb told reporters Mr. Biden‘s proposal is unlikely to help low-income homeowners.
“The pilot program would only apply to refinances for those with so-called low risk, which ultimately translates into the higher-income homeowners,” she said.
Title insurance agents bristled at the argument made by Biden administration officials that the claim payout is very low and said the numbers were used out of context and should not be compared to recurring insurance premiums.
“Title insurance premiums are paid only ONCE,” Joe Powell, an Atlanta-based title insurance lawyer, posted on X. “Title insurance premiums cover the underwriting and the risk assessment BEFORE the purchase or loan to confirm there won’t be any claims.”
Officials at the ALTA said the Biden administration’s pilot program would use the Federal National Mortgage Association, known as Fannie Mae, to “cherry-pick” the least-risky refinancing loans and take over the title insurance work themselves, using an automated system title companies are already utilizing to cut costs.
Refinancing without title insurance carries risks, such as unpaid taxes or liens from builders or homeowners associations incurred after the original home purchase, for example.
“Fannie Mae is not a title insurance company nor was it created, or have any expertise, to conduct such business,” Ms. Tomb told The Washington Times.
The program, she said, would require lenders to pay Fannie Mae a fee to cover the risk if a title defect is discovered, “essentially turning the government-sponsored entity into a de facto primary market insurer, expanding authority beyond its mission and charter.”
It would expose lenders and taxpayers to “a lot more risk than people understand,” she said.
A similar pilot program was canceled in 2023 under pressure from lawmakers in both parties.
“Our biggest concern is playing politics with most Americans’ largest assets,” Ms. Tomb said. “And if they are going to do it on this, what else are they going to do it on?”
Consumer groups applauded Mr. Biden‘s announcement.
Birny Birnbaum, executive director of the Center for Economic Justice, said title insurance companies have engaged in anti-competitive practices and charged excessive fees. Lower-cost alternatives need to be created, he said.
“Reforming the title insurance industry is an essential component of addressing home buying and homeownership affordability,” he said.
• Susan Ferrechio can be reached at sferrechio@washingtontimes.com.