Fannie Mae expanding title waiver pilot, Pulte says

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Fannie Mae, a large government-sponsored enterprise serving the U.S. mortgage market, is expanding its limited title waiver pilot, according to a social media post by its conservator and regulator.

"Effective today, in order to further reduce closing costs for homeowners, and foster more competition, we will be adding a second vendor — Westcor — to Fannie Mae's title acceptance pilot on certain refinances," said Bill Pulte, director of the GSE's oversight agency in an X post Thursday. (Westcor and Fannie Mae had not responded to inquiries at the time of this writing.)

The statement by Pulte, who has said his social media posts are a means of informally announcing policy decisions as quickly as possible, adds to signs that in some cases he will foster competition between private companies that coordinate with the GSEs he oversees.

A bipartisan group of legislators had called for the title waiver pilot to be dismantled ahead of the change in administration in Washington, saying the risk involved in not thoroughly vetting potential title conflicts could outweigh what Fannie says is $500 to $1,500 in per-loan cost savings. 

What is the title waiver pilot program?

The title waiver pilot allows "certain refinance loans with loan-to-value ratios less than 80 percent" to forgo not only insurance policies but also attorney opinion letters, according to a description of it on Fannie's website. A limited group of lenders "operating in select geographies" have been involved.

"Under the pilot, an automated title review process to assess title risk will inform whether title insurance or an AOL should be required, or if additional independent verification of title is unnecessary," Fannie has said. "If the automated title review process confidently assesses that title risk is low, lenders will not be required to provide additional independent verification and instead will pay a fee to the enterprise to cover the risk that there is an unexpected title defect."

The enterprise will not require lenders involved in the test to repurchase the loans for certain title-related representations and warranties.

Fannie has said it limited the test to refinances because "they represent a lower risk population because title remains with the same borrower in their existing residence."

Market reaction to the title waiver's expansion

The expansion of Fannie's pilot led to reductions in the price of some large title insurers' shares, but Bose George and Frankie Labetti, analysts at Keefe, Bruyette & Woods, called the selloff "overdone" in a report they issued Thursday. 

At the time of this writing Thursday afternoon, First American's shares were down by around 6% on the day, Fidelity National Financial's had dropped by closer to 7%, Stewart's had fallen by nearly 7% and Old Republic's were lower by more than 2%. 

Doma is the only other known participant involved in the pilot and has a 1.5% market share, with Westor accounting for another 4%, according to KBW. (Doma's shares had fallen by around three-quarters of a percent at the time of this writing. Westcor is privately held.)

"The scale of the title pilot is modest, so we expect no discernible earnings impact. We think the market concern reflects the risk of the title pilot being broadened to a bigger pool of refinances or something potentially occurring on the purchase side," George and Labetti said.

Chris Morton, CEO of the American Land Title Association, released a statement in response to the pilot expansion noting its members are participating in the business' evolution and reiterating the importance of the industry's role.

"ALTA and the title industry continue to develop innovative solutions using title insurance that support housing affordability and expand access to homeownership while protecting the places people call home," he said.  "Title insurance and the more than 100,000 title professionals who work in every community across the country are vital to providing certainty in the real estate market and ensuring secure and efficient real estate transactions."

Another competitive initiative Pulte moved forward this week was a 2018 legislative mandate to add VantageScore 4.0 as a competitor to FICO classic. This adds an advanced score option that considers data like rent, not just debt. FICO also offers such a score in addition to classic.

Pulte decided against a move that would have added competition between three major credit bureaus by allowing GSEs to accept just one or two reports instead of a tri-merge. He cited the infrastructure burden that would be involved in doing this.


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