FHFA Ownership Exemption Pilot Program Further Review

Federal Housing Finance Agency needs title insurance pilot Through its new event rules Two letters from Washington insiders said they were seeking public attention and comment.

House Republicans pledged to investigate how the announcement came so quickly, especially given previous statements by FHFA Director Sandra Thompson about similar proposals Fannie Mae for 2023 was eventually withdrawn.

“Eliminating the use of title insurance on any loan backed by Fannie Mae and Freddie Mac (GSEs) and taxpayers is a significant change,” three Republican congressmen, Warren Davidson, wrote in a letter. Requires critical scrutiny.” , Bill Huizenga and Andrew Garbarino.

They called on the FDA to follow the new product review process implemented in 2023.

“FHFA failed to follow this process, including allowing notice and comment, and secretly approved this new pilot,” the letter states.

Additionally, members of Congress introduced the pilot program and its announcement As part of President Biden’s State of the Union address Believe in FHFA’s independence from interference from federal officials or other agencies.

They called it “a partisan agenda that is directly contrary to FHFA’s mission and is detrimental to the housing market and the broader financial system,” the letter said. This means FHFA will take actions that could impact the safety and soundness of real estate. It is unacceptable for a government-backed enterprise to raise political topics. “

As a result, the House Financial Services Committee will investigate fast-tracking the pilot approval process, the letter promised.

Keefe, Bruyette & Woods analyst Bose George commented on the comments in a note.

“While this letter is unlikely to change the timing of any pilot program in the short term, it is a good indication that political opposition may arise if GSEs appear to be engaging in ‘charter expansion’ and strengthen their role in the mortgage market,” George wrote.

Ed DeMarco, FHFA’s acting director for five years, takes a more cautious view.

DeMarco, who wrote the letter in his capacity as chairman of the Housing Policy Committee, said: “I am writing to ask FHFA to approach this issue with caution and to provide a clear understanding of the role that title insurance companies and title insurance play in reducing risk to lenders and consumers. Be sensitive.” “Removing risk mitigation mechanisms from real estate finance requires careful study.”

Title claims are rare but can be costly, including the potential to eliminate the lender and homeowner’s position in the property.

“Eliminating title insurance can transform title risk from today’s low-frequency, high-severity outcomes to higher-frequency, high-severity outcomes,” DeMarco said. “Of course, as the two largest mortgage credit risk holders in the country, The owner, and got the taxpayer, Fannie Mae and Freddie Mac Beware to avoid increasing property rights risks. “

DeMarco proposed several possible topics for discussion as part of the comment period during the evaluation process, regarding how the pilot will work and the risks involved, including those borne by government-backed enterprises.

“All in all, without more details, this critical policy-making process is superficial at best,” DeMarco said. “That could mean we don’t know or misunderstand key elements of the proposal.”

DeMarco asked FHFA to engage in a transparent process that included “constructive dialogue” before entering the pilot program.

“A fair comparison of the current title insurance market with any alternative system should include an assessment of cost and value. Value is risk mitigation, including a true assessment of the financial strength of the party mitigating the risk,” he wrote. “

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