In his campaign to lower housing costs, President Joe Biden is singling out an obscure corner of the mortgage industry and beginning to trigger a backlash. At issue in the new housing industry fight is title insurance, which protects lenders and homebuyers from disputes over the legal ownership of a home. Biden said in his State of the Union address that he wants to scrap title insurance fees for federally backed mortgages. Critics in the industry and on Capitol Hill are accusing the Biden administration of meddling with an independent regulator for political reasons. The push to eliminate the insurance on certain loans sold to Fannie Mae and Freddie Mac, the government-controlled companies underpinning half the residential mortgage market, is sparking bipartisan pushback in Congress over concerns it could expose consumers and taxpayers to more risk. House Republicans are pledging to investigate Fannie and Freddie’s regulator, the Federal Housing Finance Agency, over a new pilot program waiving title insurance on certain refinancing loans sold to the companies. In a letter obtained by POLITICO, Reps. Warren Davidson, Bill Huizenga and Andrew Garbarino told FHFA Director Sandra Thompson that the agency's announcement in unison with the State of the Union address "reveals a partisan agenda." Lenders and title insurers say they were blindsided by the State of the Union mention and that the campaign against closing costs is misguided. “This is a political move to deal with economic challenges that the White House has,” said Chris Morton, chief advocacy officer at the American Land Title Association, an industry trade group. “This was something they threw at a wall and overruled both sides on the Hill [and] the regulator.” An FHFA spokesperson said Fannie submitted the pilot – which the agency expects to save homebuyers between $300 and $1,500 when they refinance – about a month before the State of the Union. “Really the pilot is about testing the concept, and it may or may not be expanded and made permanent,” FHFA Chief of Staff Karen Chang said. “I think we’ll take the data and based on that decide whether to move forward with a permanent program. … Right now we’re just trying to test the concept in a low-risk population.” But even some Democrats are wary of efforts to bypass traditional title insurance, pointing to the potential for consumers to get hit in the event of a title defect. “It’s up to state insurance commissioners to determine the price of title insurance,” said Rep.Brad Sherman (D-Calif.). “Title insurance is a better product for homeowners because it provides a guarantee.” Sherman co-sponsored legislation to require title insurance on all loans sold to Fannie and Freddie. Housing policy experts also warn of additional risk to the government-owned companies’ bottom line. “As the largest two holders of mortgage credit risk in the country, and being backed by taxpayers, Fannie Mae and Freddie Mac should be careful to avoid increasing title risk,” wrote Ed DeMarco, who was acting FHFA director during the Obama administration and how heads the Housing Policy Council trade group, in a letter to Thompson Friday. “After all, waiving traditional title insurance coverage does not make the risk go away. Someone is holding it.” Read more here. Happy Tuesday — Send tips to zwarmbrodt@politico.com.
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