Fannie Mae wants to pedal an alternative to title insurance
In 2007, Salon predicted the subprime financial crash with his cleverly named “Implode-O-Meter” – if they brought it back today, would anyone notice? this time?
While the housing market was incredibly hot at the top of the year things calmed down so fast kill woolly mammoths. Last month, the CEO of the National Association of Home Builders, Jerry Howard, admitted that the housing market was in a recession and that itstay at the bottomfor the foreseeable future. The National Association of Realtors (NAR) said sales of existing homes were down 20.2 percent from 2021. Layoffs in the industry are described as alternating between massive Where scanning.
And, in the midst of this housing market — more volatile than it has been in, say, 15 years — Fannie Mae made a decision to make buying a home even more dangerous: get rid of traditional title insurance. This is a measure likely to produce the same benefits for society as making car insurance optional and lowering the driving age to 6 years.
In April, government-sponsored firm Fannie Mae announced it would accept written opinion letters from an attorney in lieu of a title insurance policy “in limited circumstances,” a move that is expected to scare anyone hoping to invest confidently in the real estate market for the foreseeable future.
Title insurance is a policy that covers potential third-party property claims that may arise after a property closes – something the mortgage lender missed when doing their title search in public records related to property. Some of the issues this can protect people against, as Forbes was kind enough to prepare for us, include:
- Property Inquiry Errors
- Border disputes
- Errors on the title deed
- Previous Building Code Violations
- Conflicting wills
- Claims of an ex-spouse who did not sign the sale
- Falsified documents
- Privileges of contractors, tax entities or others.
Buying title insurance is not the same as when airlines trick you into buying worthless theft insurance. There are many things that can go wrong. Since a home is the biggest purchase most people make in their lifetime, it’s probably best to insure them in case of a disaster. Title insurance critics toss around statistics that “insurance companies only pay 3-5% of the time!” but – spoiler – that’s how insurance works. We may not need to use it right away, but we pay for it for the rare times we need it. And in the case of title insurance, these statistics don’t take into account all the upfront work done by title professionals to resolve any issues before the deal is closed.
Now back to the news: Fannie Mae would like to trade that for AOL – not the 1990s internet service, the aforementioned lawyer op-eds.
An AOL is a legal document that presents formal advice or an expression of judgment. The lawyer writing looks at the facts and makes an educated guess about how the law would play out in that case. Historically, the market has moved away from lawyers’ opinions because they did not meet the needs of lenders, and title insurance emerged to provide stronger protection for lenders and consumers.
In the case of home ownership, AOLs have no substantial clout behind them. They are not subject to the same rigorous state-level insurance regulatory oversight or consumer protection as title insurance. Under state insurance laws, only licensed title insurers are permitted to underwrite specific coverages provided by title insurance.
While Fannie Mae insists that the use of AOL will be “limited”, the company clarified that the only transactions ineligible for an AOL will be those involving loans secured by a unit in a condo project, loans in condominiums, loans secured by a dwelling on a leasehold estate, loans executed using a power of attorney and a few others exceptions. This hardly constitutes “limited”.
So should we really go ahead with this now? Or can we just jump forward 10 years and watch Margo Robbie or Selena Gomez explain why that was such a terrible idea in The big court II?
Title insurance is a one-time closing expense and protects the policyholder for as long as he or his heirs own the property. Even if alternative products look attractive in the short term, owners will likely pay more in the long term by taking on additional risk by sacrificing a title company’s legal defense obligation in the event of the worst.
Given Fannie Mae’s history of bad loans to people who buy homes before they’re ready, it seems foolish of them to go down this road again. As we’ve already reported here, GSE’s business volume is growing at a slow 1% rate, so they may be looking to make a quick buck – which is inexcusable.
Investors would do well to avoid Fannie Mae at this time. A huge organization that uses public funds as his insurance policy favoring short-term profits over long-term viability. What could go wrong?