Biden's Title Insurance Reform
One of the unappreciated parts of President Biden’s economic policies were the efforts to reduce the burden of costs on average citizens. Some of them, like student loan forgiveness, were quite substantial. Others, like the ability to buy hearing aids over the counter, or the ability of Medicare to negotiate prices, offered relief to wide swaths of the population. Although they may not affect everyone, they do help people.
In an age where wages may exceed or fall behind living expenses, these moves to lower the river, as opposed to raising the bridge, can make a genuine difference in people’s lives.
As a former mortgage broker, one of the most irksome and outrageous fees I’ve seen homeowners pay is title insurance. These costs are generally regulated by the states, and since the Legislatures are pretty much captive, I use the term "regulated" loosely.
What the administration was proposing was eliminating the need for title insurance on refinances for FannieMae loans under a pilot program.
What happens is this: you close on your home and you pay for the bank’s title policy and the homeowner’s. The prices are set by the states, and they generally correlate with the cost of the home and the size of the mortgage. This comes to many thousands of dollars at closing. With home prices inflating the way they have, this is the easiest money these companies can make.
The insurance costs themselves are plainly outrageous. Title searches generally only reveal the sloppy record keeping of the title companies themselves. The title firms act as if there might be a 50/50 chance of the Sante Fe Railroad having the right of way through your kitchen. In fact, legal challenges on title are exceptionally rare. What isn’t rare is the industry’s incompetence. Speaking from my own experience, each time I’ve bought and refinanced, the title companies could not verify past satisfied mortgages, and not only that, never corrected the “cloud on title” from a previous refinance that I myself provided the evidence to correct. Nothing gets updated.
Take note, homeowners: SAVE EVERYTHING. When I sold my home, the title company couldn’t find a mortgage satisfaction note from The Bank of New York, which ceased to exist in 2007. Oddly enough, the lender I had my existing mortgage with was able to find it years ago, but my purchaser’s title company couldn’t. Thankfully I had the satisfaction note in my files. Good luck finding it otherwise, because they leave it to you to do the work for them.
The Biden proposal would have eliminated the need to issue a new title insurance policy when refinancing. The existing one you purchased when you first closed on the house would (and should) suffice, especially since the property isn’t changing hands. When most people refinance, the new policies, along with all of the other closing costs, are rolled into the new mortgage. So not only are you paying for a needless new policy, you’re also paying interest on it for the life of the mortgage.
That’s a lot of money. In fact, collectively, that’s relieving millions of Americans billions of their own money every time they refinance, and if mortgage rates drop, expect another boom in refinance originations. The title companies then sit back and rake it in, for doing very little and taking on almost no risk. Trust me, orphans claiming ownership are not going to show up at your door, and your local utility will not be building a new power plant where your house stands.
As you might expect, the trend towards digitization of records is threatening this quill pen and pendaflex file industry, and they don’t want to be turned into pumpkins
Predictably, our bought and paid for Congress is aghast. The American Land Title Association (ALTA) warned against the "risk." The opposition in Congress is bipartisan, since the campaign contributions have apparently been spread around evenly.
They write:
“Relying simply on an automated title search using public records alone will leave consumers susceptible to hidden threats not found in other records like unfiled liens, fraud, and forgery,” the Members added. “Title agents, who are trained experts that comb through these various filings and cure defects to ensure a clear title, will be removed from the process under the Pilot, leaving consumers vulnerable to significant risk.”
Pretty bold claim from an industry that can’t find a toilet in a bathroom.
In any case, I hope the reforms go through. Mr. Biden once used an allegory of removing the bricks off your back as a policy tool. This would be a nice fat brick to get rid of, and put these rent-seeking grifters in their place.
