In a potential game-changer for homebuyers, the Consumer Financial Protection Bureau (CFPB) is mulling over a ban on mortgage banks charging buyers for the lender’s title insurance policy, as per a report by Bloomberg.
Lender’s title policies, typically footed by borrowers, shield lenders from potential title-related issues. Simultaneously, buyers have the option to snag an owner’s title policy, safeguarding the equity they build in the property.
While the draft measure hangs in the balance, Bloomberg reports it could extend its reach to both home purchases and refinances.
Expectedly, the news stirred a buzz in the mortgage and title industries. Diane Tomb, CEO of the American Land Title Association, expressed concerns, emphasizing the critical protection provided by title insurance. "We have real concerns about how this proposed framework would undermine the critical protections provided by title insurance," she said.
Bob Broeksmit, CEO and President of the Mortgage Bankers Association, chimed in, highlighting what he perceives as the CFPB’s lack of understanding of the mortgage industry's intricacies. "The CFPB’s attack on the costs for the services required to successfully underwrite a home loan... reveals a fundamental misunderstanding of how the mortgage market works," he said.
The CFPB, however, remained tight-lipped about the potential ban, but hinted at a broader initiative to enhance transparency and competition in the mortgage market.
This move comes on the heels of President Joe Biden's housing plan announcement during the 2024 State of the Union address, focusing on addressing anticompetitive closing costs. The White House expressed concerns about upfront costs eating into homebuyers' down payments and reducing homeowners' equity.
But this isn't the first time the CFPB has sought to trim borrower's closing costs. Last month, a pilot program was announced, in collaboration with Fannie Mae and the Federal Housing Finance Agency, aiming to waive the requirement for a lender’s title insurance policy for select refinance transactions.
Scott Olson, Executive Director of the Community Home Lenders of America, stressed the importance of any proposal not reducing transparency and protecting smaller lenders and borrowers from exclusive deals between title companies and large lenders.
Amidst the debate, reports from the CFPB and the American Land Title Association (ALTA) shed light on contrasting figures. While the median home-purchase loan costs surged to nearly $6,000 in 2022, ALTA reports a nationwide decrease of 7.8% in title insurance costs since 2004 and roughly 5% from 2019 to 2021. Additionally, in some states, the price of title insurance is regulated by the state's insurance regulator.
With the potential ban hanging in the balance, all eyes are on the CFPB as it navigates the complex landscape of closing costs, aiming to strike a balance between consumer protection and industry dynamics.