During the State of the Union, President Biden announced an array of proposals aimed at making homeownership more accessible for those who have struggled to enter the housing market. While the Administration’s efforts to expand homeownership are admirable, one program in particular – which would waive title insurance requirements on refinancing transactions for certain borrowers – would be disastrous for California homeowners and the broader housing finance system.
This pilot program would resurrect a proposal by Fannie Mae that was abandoned last August after bipartisan backlash from members of Congress, who voiced concerns over how the program would expose lenders and taxpayers to greater risk. Instead of being insured by their local title insurance company, Fannie Mae – which is under federal government control for its role in the 2008 financial crisis – would essentially become a title insurance company, displacing the expertise and jobs of small title companies in every county in the state. Importantly, this pilot program only applies to higher-wealth homeowners that are refinancing, who need federal government assistance the least.
Why would the Biden Administration promote such a program – especially one that would hurt the small businesses that make up 90% of the title insurance industry?
Title professionals work to provide homeowners and lenders with the long-term protection of their property rights. For a one-time fee, title professionals both identify and resolve title issues at the onset of a home purchase as well as protect homeowners against losses from title defects. While homeowners only have to pay for an owner’s policy once, a new lender’s title insurance policy is required if a homeowner chooses to refinance because title problems could have arisen between the old and new loan, such as having to pay past debt thought to have been paid off. Lenders need assurance that their financial interest is protected, and that is why lender’s title insurance exists.
Title insurance is a comprehensively regulated product in California, but under this pilot, Fannie Mae would be responsible for resolving title issues that arise, something that is far beyond their mission and expertise. The risks from this shift could expose the housing market to more instability, similar to the loosening of standards that preceded the 2008 financial crisis fueled by the overreach of Fannie Mae.
This proposal is deeply concerning – not just for the risks it presents to the housing market, but also for the implications for California’s small businesses and broader economy. According to a recent study, the title industry directly fuels 15,900 jobs and $3.38 billion to California’s gross domestic product (GDP) annually.
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Members of Congress from both sides of the aisle share these concerns and have introduced the bipartisan Protecting America’s Property Rights Act, which would require title insurance on all loans purchased by the Government-Sponsored Enterprises (GSEs). I urge Sen. Laphonza Butler to help pass this bill as well as call on the Biden Administration to rethink this misguided title insurance waiver pilot program.
To be clear: making homeownership more attainable for all Americans is a worthy goal and should be a key priority for the Administration. However, the best way to do that is by addressing the true barriers to homeownership – burdensome regulations and a lack of housing supply.
While saving homeowners a few hundred bucks is a good talking point, the reality is that this pilot program is too risky for California and too risky for the country. Let’s prioritize protecting one of the biggest purchases of a person’s life – a home. Cutting corners could be costly.
Lisa Steele is Chief Operating Officer of Mother Lode Holding Co. in Roseville, California.