Protecting Consumers and Preserving the Title Insurance Industry

On March 7, 2024, in conjunction with the State of the Union Address, the White House posted the WHITE HOUSE FACT SHEET on the Internet. Excerpts directly applicable to the title insurance industry are reprinted below:

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Lowering Closing Costs for Refinancing

The Federal Housing Finance Agency (FHFA) has approved policies and pilots to reduce closing costs for homeowners, including a pilot to waive the requirement for lender’s title insurance on certain refinances. This would save thousands of homeowners up to $1500, and an average of $750, and the lower upfront fees will unlock substantial savings for homeowners as mortgage rates continue to fall and more homeowners are able to refinance. According to independent analysis, across the market title insurance typically pays out only 3% to 5% of premiums in claims to consumers, compared to more than 70% in other types of insurance. Homeowners can still purchase their own title insurance policies if they choose to do so.

Lowering Closing Costs for Home Mortgages

The Consumer Financial Protection Bureau (CFPB) will pursue rulemaking and guidance to address anticompetitive closing costs imposed by lenders on homebuyers and homeowners. These charges—which benefit the lender but not the borrower—can add thousands to the upfront costs of a mortgage. Those upfront costs cut into the amount of homebuyers’ down payments and reduce homeowners’ available equity.

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In response to the above, on April 8, 2024, The Koogler Group provided in-depth (22-Page) Educational Commentary to the Title Waiver Regulatory Initiative.

FHFA “Title Acceptance Pilot” on Certain Refinance Loans

In addition to the above, the Federal Housing Finance Agency (FHFA) posted TITLE ACCEPTANCE PILOT FAQS on the Internet. Excerpts directly applicable to the title insurance industry are reprinted below:

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Title Acceptance Pilot

For many aspiring and current homeowners, closing costs represent a substantial barrier to affordability when purchasing or refinancing a home. The Federal Housing Finance Agency (FHFA) continues to focus on ways in which Fannie Mae and Freddie Mac (the Enterprises) can reduce closing costs for homeowners in a safe and sound manner. The recently approved title acceptance pilot will allow existing homeowners that meet certain criteria to reduce some closing costs.

Lenders are permitted to sell refinance mortgage loans to the Enterprises [Fannie Mae and Freddie Mac] only if they warrant that the mortgage is a valid first lien on the homeowner’s property. Additionally, the property must be free and clear of any prior lien or encumbrance.

These title requirements will not change under the pilot, but Fannie Mae will not require a repurchase or make-whole payment for certain title-related representations and warranties if lenders elect not to obtain title insurance or an AOL.

Under the pilot, an automated title review process to assess title risk will inform whether title insurance or an AOL should be required, or if additional independent verification of title is unnecessary. If the automated title review process confidently assesses that title risk is low, lenders will not be required to provide additional independent verification and instead will pay a fee to the Enterprise to cover the risk that there is an unexpected title defect.

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As noted, in response to the above, on April 8, 2024, The Koogler Group provided in-depth (22-Page) Educational Commentary to the Title Waiver Regulatory Initiative.

CFPB And Lender-Controlled Guaranteed-Price Settlement Packages

As noted above, the WHITE HOUSE FACT SHEET also addressed lowering closing costs for home mortgages—pointing to the Consumer Financial Protection Bureau (CFPB) pursuing rulemaking and guidance to address anticompetitive closing costs imposed by lenders on homebuyers and homeowners.

Karen Koogler, CEO of The Koogler Group, has focused on advocacy-through-education regarding various CFPB industry initiatives since its inception in 2012.

One of the first things she focused on was the TRID Final Rule. In addition to writing The TRID Final Rule Study Manual—and developing and delivering an 8-hour PPT program on TRID Rule implementation to thousands of title (settlement) agents, attorneys, and mortgage loan originators throughout the country—Karen directly addressed the issue of title insurance premium treatment under the TRID Rule via formal and informal meetings and educational commentary memos with the CFPB and, also, with the National Association of Insurance Commissioners (NAIC) Title Insurance Task Force.

Concurrently, Karen was alarmed when the Bureau published its 2012 CFPB Bulletin regarding oversight of third-party service providers, as it applies to mortgage lenders’ oversight of title (settlement) agents. She noted that the combination of the 2012 Bulletin with the (at the time) Proposed TRID Rule seemed to indicate that the CFPB intended to bring the title (settlement) industry under control of the mortgage lending industry.

Upon conveying her concern to a CFPB spokesperson [at a CSBS-NMLS Safe Mortgage Conference] that the Bureau seemed to basically ignore the vital role of title (settlement) agents in processing and closing new loan and refinance transactions, the spokesperson replied that “it is easier for the Bureau to deal with only one party,” which, in this case, is the mortgage lender.

However, such narrow focus invariably leads to a myopic perspective that obfuscates the vital role that title (settlement) agents play in the overall settlement-escrow process as well as the importance of title insurance.

Today (2022-2024 and beyond) Karen is focused on the CFPB’s ongoing interest in removing regulatory barriers (e.g., via RESPA safe harbor) to permit lenders and mortgage originators (that offer loans without upfront fees) to control third-party costs – e.g., title premium and related search/exam and settlement/escrow services fees – in order to provide prospective Consumers a guaranteed-price settlement package.

This, too, was covered in the April 8, 2024, The Koogler Group provided in-depth (22-Page) Educational Commentary to the Title Waiver Regulatory Initiative.

Fannie Mae and Freddie Mac Accept Alt-Ven Products (AOLs) in Lieu of Traditional Title (Loan Policy) Insurance on Certain Refinance Transactions

In 2022, Fannie Mae and Freddie Mac both published their respective Equitable Housing Finance Plans, in which they announced acceptance of Attorney Opinion Letters (AOLs) in lieu of traditional (loan policy) title insurance, under limited circumstances, on certain refinance transactions, as a means to reducing closing costs for homeowners. This is not the first time Freddie Mac has been down this road; it first began accepting AOLs in the early 1990s; including Norwest Mortgage Title Option Plus (TOP) alternative to title insurance.

In response, Karen Koogler, CEO of The Koogler Group, began providing educational programs on alternative-vendor (‘Alt-Ven’) providers and products as part of her 1994-1995 National Lecture Series. At the time, she used the (then-new) Norwest TOP Program and the relationship between Norwest Mortgage and Freddie Mac that formed around the product.

Thirty years later, she is once again stepping into an advocacy-through-education role; this time addressing regulatory (affordable housing) initiatives regarding ‘Alt-Ven’ providers and products, as well as ‘Title Waiver’ pilot programs.

In response to the GSEs 2022 announcement, on December 9, 2022, The Koogler Group provided in-depth (27-Page) Educational Commentary to the ‘AOL Title Insurance Alternative’ Regulatory Initiative to the National Association of Insurance Commissioners (NAIC).

In addition to the above, a copy of the ‘AOL Title Insurance Alternative’ Educational Commentary was contemporaneously forwarded to the Director of the Federal Housing Finance Agency (FHFA).

NOTE: For those new to the current 2022-2024 Regulatory Initiatives, we strongly recommend reading all linked Educational Commentary provided by The Koogler Group that resides on the Research Library page of our website.