CFPB Considers Crackdown on Title Insurance | Insurance business America
The agency is considering a proposal that would prohibit home lenders from passing on the cost of title insurance to homebuyers
Insurance News
By Ryan Smith
The Consumer Financial Protection Bureau is considering banning banks from charging homeowners for title insurance.
It has long been standard practice in the industry to charge homebuyers for title insurance that protects lenders, according to a Bloomberg report. The CFPB’s plan is still in its early stages, sources told the news outlet.
Bloomberg reported that the CFPB will soon issue a comprehensive request for information on closing costs – including title insurance. That proposal will lay the groundwork for any plan to ban title insurance, but a final proposal on closing costs won’t be available until next year, sources told Bloomberg.
The proposal would reportedly apply to both home purchases and refinances, sources told Bloomberg – although they said it could be changed to cover only refis or even scrapped entirely. The plan would only affect lenders’ insurance – buyers could still purchase optional title insurance to protect their equity.
President Joe Biden has targeted title insurance to control closing costs, part of a broader effort to increase housing affordability. Last month, the Biden administration announced a pilot program that would waive title insurance requirements for some companies refinanced through Fannie Mae.
“Reducing the homeowner’s closing costs is a great strategy, provided the lender cannot otherwise recover those costs from the homebuyer through a fee or a higher interest rate,” Vullo told Bloomberg. “Lender title insurance protects the lender’s interests. I think it’s a positive, consumer-friendly, homeowner-friendly policy to say that the lender has to pay for it themselves.”
Industry resistance
But such a proposal would likely face stiff opposition from lenders and title insurers already grappling with a real estate slump that has hit their profits, according to Bloomberg.
Both lenders and title insurers have already expressed concerns about the proposal.
“Title insurance is one of the most important but cost-effective parts of the home buying process,” Diane Tomb, CEO of the American Land Title Association, said in a statement to Bloomberg. “We have real concerns about how this proposed framework would undermine the important protections of title insurance.”
ALTA CEO @dltomb was featured in @WashingtonPost last week.
She wrote: “The program (the government’s #Insurance Waiver Pilot) is aimed only at wealthier homeowners, not first-time homebuyers. It will do little to encourage new ownership.”https://t.co/aCr9lYMu4R#realestate
— ALTA (@ALTAonline) April 4, 2024
Bob Broeksmit, CEO of the Mortgage Bankers Association, told Bloomberg that the plan “reveals a fundamental misunderstanding of how the mortgage market works and a troubling lack of awareness of existing regulations.”
Bloomberg reported that lenders are required to purchase title insurance on most home loans they issue. Coverage typically costs around 0.5% of the loan amount – this cost is passed on to the home buyer. According to the American Land Title Association, American homeowners paid $21 billion in title insurance premiums in 2022.
However, title insurance premium volume has declined as interest rates have risen. The industry giant’s parent company, First American Title Insurance Co., saw adjusted net income fall to $369 million last year from $671 million a year earlier, according to Bloomberg.
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2024-04-10 16:16:56
www.insurancebusinessmag.com
