Fannie Mae, a large government-sponsored enterprise serving the U.S. mortgage market, is expanding its limited title waiver pilot, according to a social media post by its conservator and regulator.
"Effective today, in order to further reduce closing costs for homeowners, and foster more competition, we will be adding a second
Westcor Land Title Insurance Co. released a press release late Thursday confirming that it was working on Fannie's pilot with X1 Analytics, a company that has applied digital data to title production.
The statement by Pulte, who has said his social media posts are a means of informally announcing policy decisions as quickly as possible, adds to signs that in some cases he will foster competition between private companies that coordinate with the GSEs he oversees.
"We're grateful to Director Pulte and his team at FHFA and Fannie Mae for recognizing that innovation in title can both lower costs and preserve protections while fostering competition," said Mary O'Donnell, CEO of Westcor, in the company's press release.
But Westcor said its initiative "is distinct in the marketplace as it includes a title insurance-backed product.
"While this policy departs from the traditional title insurance model in scope, it retains the core benefits and legal assurances that are the hallmark of the industry," the company said in its release.
"We're proud to support the GSEs' modernization goals while continuing to uphold the core value of title insurance — protecting property rights," O'Donnell said.
What is the title waiver pilot program?
The title waiver pilot allows "certain refinance loans with loan-to-value ratios less than 80%" to forgo not only insurance policies but also attorney opinion letters, according to a description of it on Fannie's website. A limited group of lenders "operating in select geographies" have been involved.
"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," Fannie has said. "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."
The enterprise will not require lenders involved in the test to repurchase the loans for certain title-related representations and warranties.
Fannie has said it limited the test to refinances because "they represent a lower risk population because title remains with the same borrower in their existing residence."
Market reaction to the title waiver's expansion
The expansion of Fannie's pilot led to reductions in the price of some large title insurers' shares, but Bose George and Frankie Labetti, analysts at Keefe, Bruyette & Woods, called the selloff "overdone" in a report they issued Thursday.
At the time of this writing Thursday afternoon, First American's shares were down by around 6% on the day, Fidelity National Financial's had dropped by closer to 7%, Stewart's had fallen by nearly 7% and Old Republic's were lower by more than 2%.
Doma is the only other known participant involved in the pilot and has a 1.5% market share, with Westor accounting for another 4%, according to KBW. (Doma was previously publicly traded, but no longer is.
"The scale of the title pilot is modest, so we expect no discernible earnings impact. We think the market concern reflects the risk of the title pilot being broadened to a bigger pool of refinances or something potentially occurring on the purchase side," George and Labetti said.
Chris Morton, CEO of the American Land Title Association, released a statement in response to the pilot expansion noting its members are participating in the business' evolution and reiterating the importance of the industry's role.
"ALTA and the title industry continue to develop innovative solutions using title insurance that support housing affordability and expand access to homeownership while protecting the places people call home," he said. "Title insurance and the more than 100,000 title professionals who work in every community across the country are vital to providing certainty in the real estate market and ensuring secure and efficient real estate transactions."
Another competitive initiative Pulte moved forward this week was a 2018 legislative mandate to
Pulte decided against a move that would have added competition between three major credit bureaus by allowing GSEs to accept just one or two reports instead of a tri-merge. He cited the infrastructure burden that would be involved in doing this.
