In early March, the White House announced a pilot program to waive the requirement for lender’s title insurance on certain refinance loans. The program was described as a way to reduce closing costs and allow more homeowners to refinance as mortgage rates decrease. The White House also noted that lender’s title insurance typically only pays out 3% to 5% of premiums in claims to consumers, compared to 70% in other types of insurance.
Following the White House announcement, the Federal Housing Finance Agency (“FHFA”) released a statement to address the program. The pilot program waives the requirement for lender’s title insurance or a legal opinion on certain “low-risk refinance transactions where there is confidence that the property is free and clear of any prior lien or encumbrance” stated FHFA Director Sandra L. Thompson. The FHFA statement indicates that participating homeowners will save an estimated $300 to $1,500 on closing costs under the program.
The FHFA also released Title Acceptance Pilot FAQs in which the program is described as “a small-scale, limited duration pilot that will leverage an automated title review process to assess title risk during loan manufacturing and prior to loan purchase.” This review will allow for the requirement for lender’s title insurance to be waived for certain refinance loans with loan-to-value ratios under 80%. The program is limited to participating lenders in select geographic areas.
The announcement of the pilot program was met with criticism by several members of the House Financial Services Committee who stated that the pilot program appeared to be approved without the rigorous scrutiny that such a change to title insurance requirements warrants before being enacted. Title insurance associations have also criticized the role of FHFA in the pilot program, stating that the agency is acting outside of its charter and exposing consumers and lenders to greater financial risk.
