Main U.S. mortgage lenders United Wholesale Mortgage (UWM) and Higher have joined Fannie Mae’s pilot program that waives lender title insurance coverage necessities for sure refinance transactions, HousingWire has realized.
The initiative, introduced by President Joe Biden throughout his March 2024 State of the Union tackle, seeks to scale back closing prices as a part of his broader “warfare on junk charges.” The Federal Housing Finance Company (FHFA) accredited the pilot, framing it as a step towards extra inexpensive homeownership.
However this system has encountered important opposition. The title trade, dismissive of the “junk charges” label, argues that it introduces pointless danger to the market. Many hope the Trump administration is not going to advocate to advance it. And bipartisan members of Congress have urged a pause till it undergoes thorough public evaluation.
Within the meantime, Fannie Mae has begun to implement the pilot. UWM joined this system in November, Higher began providing it to debtors on Wednesday, and sources point out that further lenders are in discussions about collaborating.
A consultant at Fannie Mae didn’t instantly reply to a request for remark.
How does it work?
Within the case of the UWM program, launched to its dealer companions on Nov. 20 as TRAC Lite, there isn’t a lender title insurance coverage on some rate-term and cash-out refinances. The transfer could enchantment to debtors as refi volumes might rise in 2025 as a result of anticipated decrease charges.
TRAC Lite was initially obtainable solely for eligible standard desktop underwriter refinance transactions in 4 states: Arizona, California, New Jersey and Texas. This week, it was additionally rolled out in Colorado, Ohio and Virginia. It targets loans with a most loan-to-value (LTV) ratio of 80% and there aren’t any title charges. By comparability, UWM’s different applications, TRAC and TRAC+, embrace title charges of $1,600 and $1,850, respectively.
“This can be a program that saves customers cash as a result of they don’t have to pay for a lender title insurance coverage, and moreover, the closing charge, just like the settlement charge, may be very low as effectively,” mentioned Melinda Wilner, UWM’s chief working officer. “Switching to TRAC Lite has saved a number of hundreds of {dollars} [for borrowers] within the state of Texas, the place it is vitally costly relating to title insurance coverage.”
The Fannie Mae pilot program is executed by Higher and UWM in partnership with Doma Title, which serves because the settlement agent and is the principle vendor behind the title insurance coverage vendor pilot. UWM mentioned its program does embrace a settlement agent charge that varies by state, starting from $375 to $475.
A spokesperson for Doma didn’t reply to requests for feedback.
In a press release, a spokesperson for Higher mentioned, “We’re excited in regards to the financial savings this program might present customers. Closing-related charges can usually be price prohibitive for debtors, and waiving title insurance coverage can assist supply mandatory aid to households in search of to refinance.”
This system can save debtors $1,500 associated to lender title insurance coverage, but it surely requires lenders to pay Fannie Mae a charge of $75 per transaction, in response to a supply accustomed to the agreements between lenders and the government-sponsored enterprise.
“The common title charge on a refinance is about 50 foundation factors, so on a $300,000 mortgage, that’s about $1,500 in financial savings for debtors,” the supply mentioned. “Fannie Mae already has that danger as a result of it already has the prevailing mortgage — there’s no have to cost one other charge.”
Challenges to the pilot
The American Land Title Affiliation (ALTA) has voiced sturdy opposition to this system, arguing that it introduces important danger into the market and positions Fannie Mae as a major market insurer — an authority that ALTA contends exceeds its mission.
ALTA emphasizes that title insurance coverage performs a vital function in defending towards dangers that come up between the origination of an outdated mortgage and a brand new one, similar to fraud or unresolved liens from unpaid money owed.
Reflecting ALTA’s considerations, the Bipartisan Congressional Actual Property Caucus despatched a letter to FHFA Director Sandra Thompson in November, urging the company to halt the pilot program till it undergoes an intensive vetting course of with public enter.
“If the FHFA permits this pilot program to maneuver ahead throughout this transition interval, it as soon as once more raises questions in regards to the company not solely disregarding the views of policymakers but additionally flaunting any semblance of an open and clear regulatory course of,” an ALTA spokesperson mentioned.
“Any program that waives title insurance coverage is just unhealthy for customers, unhealthy for lenders and unhealthy for taxpayers, and needs to be halted as bipartisan lawmakers have requested.”
However mortgage lenders have refuted these arguments, saying that the danger of a title insurance coverage declare on a refinance mortgage is very low. As well as, any such title insurance coverage goals to solely shield the lender however not the borrower, they famous.
“I’ve by no means run a title firm. I do know what we’ve had right here at UWM so far as title claims on refinances, and so they don’t exist,” Wilner mentioned.