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The White House acts against strong business resistance to eliminate the need for this insurance.

A spokeswoman describes it as “a purely political gesture offering a false promise of savings.”

The White House acts against strong business resistance to eliminate the need for this insurance.
The White House acts against strong business resistance to eliminate the need for this insurance.

Reviving a proposal that had previously encountered resistance from the sector, the Biden administration introduced a new initiative on Thursday that aims to reduce closing fees on some mortgages, thereby lessening the financial strain on homeowners.

The project focuses on title insurance, a major cost related to mortgage closing. According to a Wall Street Journal story, Fannie Mae will exempt mortgage refinancing purchases from specific lenders from the title insurance requirement as part of a trial program.

This action is in line with the White House’s larger goal of removing barriers to homeownership and rekindles a dispute with the industry about the price and necessity of title insurance, according to the Journal. Shortly before Biden’s State of the Union speech, the program was revealed.

The Federal Housing Finance Agency (FHFA), which oversees Fannie Mae, stopped working on the pilot program last October, according to a Wall Street Journal article. The FHFA was prompted to take action by title insurers and senators on Capitol Hill. Following the Journal’s story on the canceled pilot, the White House has been pressuring organizations such as the FHFA to look into ways to lower closing costs.

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The title and settlement business’s detractors contend that Fannie is inexperienced with title insurance and shouldn’t take on further risk after taxpayers bailed it out during the financial crisis. The sector stands to lose premium income.

The concept was denounced by the American Land Title Association as “a purely political gesture offering a false promise of savings for homeowners.” The trade association alerted taxpayers, lenders, and consumers to heightened financial risk.

In addition to providing protection against future ownership issues, title insurance serves to establish the legitimate ownership of a property. But as the Journal noted, some detractors contend that in a time of digitalized land and title records, it is unduly expensive.

For a restricted number of mortgage refinancings provided by particular lenders, Fannie would waive the requirement for title insurance under the trial program. With time, the scheme might grow to include more lenders and different kinds of mortgages. To guarantee clean titles, Fannie might work with financial technology business Doma rather than paying title insurers’ premiums; if there is still risk, Fannie might pick up the tab.

The Journal was informed by FHFA Director Sandra Thompson that the test pilot would be applicable to “certain low-risk refinance transactions” in which it is believed that the property is clear of previous liens or encumbrances. FHFA hasn’t yet given its approval to any particular lenders or IT providers for the experiment, though.

According to the Journal, the Treasury Department is organizing a roundtable to evaluate the title insurance market and possible reforms, while the White House announced additional steps to reduce the costs of the policy. Additionally, the Consumer Financial Protection Bureau will look into possible new regulations to examine “anticompetitive closing costs” that lenders charge homeowners and property buyers.

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The White House acts against strong business resistance to eliminate the need for this insurance.
The White House acts against strong business resistance to eliminate the need for this insurance.

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