Criticism, praise follow Fannie Mae's scuttled title-waiver pilot

Reaction to a recent decision by Fannie Mae to not go forward with a proposed title-waiver pilot is drawing both praise and pushback from stakeholders in the space.

The government-sponsored enterprise first floated a potential program this spring that would have waived title insurance requirements on some loans sold to it in the secondary market. 

Along with fellow GSE Freddie Mac, Fannie Mae has actively looked for solutions to address affordability and widen homeownership opportunities across the country. Among several developments emerging in the past several months are new underwriting guidelines as well as decisions by both Fannie Mae and Freddie Mac to allow the use of attorney-opinion letters in lieu of title insurance in limited cases. But the suggestion of waiving insurance requirements altogether drew criticism and challenges from the title industry.

Upon learning of Fannie Mae's decision to not move the proposal forward, the American Land Title Association lauded the outcome. 

"This is a significant achievement to protect consumers, lenders and the housing finance system, and showcases the benefits of our products, industry and your business," the trade group said in a message to its members last week.

"We will also continue to collaborate with Fannie Mae and Freddie Mac to deliver innovative and cost-effective title insurance products and solutions that best protect lenders and consumers," ALTA stated. 

Providers of attorney-opinion alternatives also came forward this week to clarify that the end of the title-waiver pilot had no connection to the products they offer. 

"Certain title alternatives, such as the attorney opinion letter (AOL), have been deemed acceptable alternatives to title insurance by agencies and investors," said Stacy Mestayer, chief compliance officer at Voxtur Analytics, in a statement sent to National Mortgage News. 

"Importantly, the recent reports related to halting title waiver initiatives has no impact on existing agency approvals of title alternatives, including Fannie Mae's approval of AOLs," she said. 

Harsher words came from Theodore Sprink, founder of iTitle Transfer and a former executive at insurers Fidelity National and First American Financial. A frequent critic of ALTA, Sprink alleged the trade group "fabricated the title waiver 'pilot' program," in multiple LinkedIn posts.

"ALTA created a solution in search of a problem," he wrote, adding the waiver program had "nothing to do with AOLs as an alternative to costly and unnecessary title insurance."

Fannie Mae's title-waiver proposal emerged as both GSEs were tasked with introducing equitable housing plans in late 2021 to help close homeownership and disparity gaps. Subsequently, both Fannie Mae and Freddie Mac took a closer look at alternatives to title insurance, such as attorney-opinion letters, which they began accepting last year. 

The use of AOLs, similarly, has drawn its share of critics from within the title industry. But the GSEs' announcement it would begin to consider them also drew increased interest from major industry names, such as United Wholesale Mortgage, in providing such options at the tail end of 2022.  

Adding further fuel to recent title industry discussions was a recent blog post by mortgage banking consultant Rob Chrisman, who highlighted an article claiming less than 5% of money collected from title insurance premiums went to claims, "the rest of it going to fat profits." ALTA and mortgage industry lawyers attempted to refute the findings in following days. 

In 2022, the title industry collected approximately $21 billion off of premiums based on mortgage volume totaling $2.25 trillion, ALTA reported. Insurers also paid $596.1 million in claims last year, representing an increase of 25% from 2021. 

In the second quarter, five publicly-traded title insurers reported profits, recovering from a lackluster start to the year. But only two saw their profits increase on an annual basis as mortgage originations slowed substantially.