A government-sponsored enterprise is carefully adding to a test allowing certain refinance loans to forgo title insurance, its oversight chief said Tuesday, just as new industry research urges caution around this.
"As long as it is safe and sound, our team is pushing for efficiencies and lower costs in title insurance," Federal Housing Finance Agency Director Bill Pulte said in a post on X that arrived a few weeks after
Fannie Mae has allowed waivers of both lender title policies and
Fannie and Pulte have continued the pilot under President Trump
Rate has cited potential closing cost savings of up to $2,000 from the pilot. But insurers have warned that waivers can leave loans without sufficient protection from impact of ownership challenges that undermine collateral property values in costly ways.
A new First American study released Tuesday aims to reinforce this with findings from various data sets.
Insurers "protect homeowners, lenders and taxpayers from substantial financial risk," Paul Hurst, chief strategy officer at First American, in a press release issued in conjunction with the company's report.
If no curative lien work was done on refinance transactions, the costs would be in the billions of dollars a year for other industries, including the mortgage business, according to an analysis of 2014-2023 data from the company and the American Land Title Association.
Removing refinances that have relatively less title risk than others from the universe of loans insurers cover could raise premiums, according to First American's study.
"Purposefully removing lower risk refinances from the insurable pool would only increase the cost to the remaining borrowers as investors adjust for the unmitigated title risks," the company wrote. "In the end, selective removal of low-risk participants from an insurance pool either drives up premiums for those who can least afford it or makes some risks altogether uninsurable."
Even refinances "are not zero-risk" and are susceptible to concerns like fraudulent liens that typically occur years after the initial title search at origination, according to the report, which references a 2019 Milliman study's findings.
First American also noted that its own data shows that between 2012 and 2023, around 70 months or 5.9 years passed before 2012-2016 vintage loans experienced 80% of their losses. For the 2027-2021 vintages, 23 months or 2.7 years passed before roughly 50% of losses materialized.
"This timing dynamic has important implications if large segments of the market move to waive or replace traditional title insurance," the company wrote. "Short-term cost savings are likely to be unreliable data, as the long-term costs of clouded titles, contested liens, and litigation will not be known for years."
