Biden is looking for ways to reduce costs for homebuyers. He wants to trim fees and eliminate title insurance.

Title insurance companies have reacted quickly to the move, which has roiled the mortgage industry. The plan, they say, “smells like pure politics”, and will do little to reduce housing costs and increase risks for taxpayers and buyers.

As Americans struggle with high mortgage and rent rates, Mr. Biden has made lowering housing costs a central part of his reelection platform. Rates have doubled during his administration, making homeownership unattainable for many.

The Federal Reserve raised rates multiple times during the Biden Administration to stabilize inflation near record levels. Economists attribute the high rate of inflation to massive government spending, which began during the Trump administration with the COVID-19 epidemic and continued under Biden.

According to the National Association of Realtors (NAR), 2023 will be the slowest year in existing home sales since 1995.

“I’m not going to wait” for the mortgage rates to drop, said President Obama.

In his State of the Union Address to Congress, he announced on March 7 a pilot project to eliminate title insurance requirements for some federally-backed mortgages. He said that removing title insurance could save “$1,000” or more for some borrowers refinancing homes.

The President’s plan will reduce more than just title insurance costs.

Last week, the Consumer Financial Protection Bureau (CFPB) announced that it would be examining all costs associated with closing a house purchase, including origination, credit report, and appraisal fees.

The CFPB reported that costs and fees on home purchase loans increased by nearly 22% between 2021 and 2022. This pushed the median amount borrowers had to pay to almost $6,000 in the year 2022.

The CFPB has announced that it is targeting the handful of credit bureaus in the United States, who have increased their costs by as much as 400%.

Officials said that “these steep increases in an industry with little competition and no choice warrants further scrutiny.”

The CFPB stated that closing costs fees can sometimes be more than a down payment for a house and have disproportionate impact on borrowers with lower incomes, first-time buyers, and those living in Black or Hispanic communities.

Biden administration officials say title insurance is not necessary. Title insurance payouts were cited in a memo after Mr. Biden’s address to Congress. They ranged from 5% to less, while other types of insurance averaged 70%.

Officials from the administration said that eliminating title insurance could save homeowners up to $1500 when refinancing. This is an average saving of $750 for each transaction. The president has also proposed a $10,000 credit to be spread over two years for homebuyers. This initiative would need congressional approval.

Before a property is purchased, title insurance companies perform searches on the property to make sure there are no tax liens or unpaid mortgages. If a claim is successful, they pay the lender or buyer in cash.

The industry was surprised by Mr. Biden’s announcement in his State of the Union address that he would be targeting title insurance.

Biden administration officials have not implemented the proposal of the American Land Title Association which represents over 6,000 insurance companies, title and settlement agents and settlement agents.

Diane Tomb, CEO of the American Land Title Association, told reporters that Mr. Biden’s proposal will not help low-income home owners.

She said that the pilot program only applies to those who are deemed low-risk, which translates into higher-income home owners.

Agents of title insurance reacted angrily to the Biden administration’s claim that the payout for claims is low. They claimed that the figures were taken out of context and shouldn’t be compared to recurring insurance premiums.

Joe Powell, a title insurance attorney in Atlanta, wrote on X that “title insurance premiums can only be paid ONCE.” Title insurance premiums are used to cover the cost of the risk assessment and underwriting BEFORE a loan or purchase is made. This ensures that there will be no claims.

Title association officials said that the pilot program of the Biden administration would “cherry pick” the lowest-risk refinancing loan and then take on the title insurance themselves. They will use an automated system, which title companies use already to reduce costs.

Title insurance is a must for refinancing. Without it, you could be exposed to unpaid taxes, liens or other issues arising from the original purchase of your home, like unpaid taxes, liens or other issues relating to builders or homeowners’ associations.

The Washington Times reported that Ms. Tomb said, “Fannie mae is not a title insurer nor was it established, or has any expertise to conduct such a business.”

She said that the program would require lenders pay Fannie Mae an amount to cover any risk in the event of a title defect being discovered. “Essentially, the government-sponsored organization will become a primary market insurance company, expanding its authority beyond its charter and mission.”

She said that this would expose taxpayers and lenders to “much more risk than they understand”.

Under pressure from both political parties, a similar pilot program was cancelled last year.

“Our greatest concern is to play politics with the largest assets of most Americans,” said Ms. Tomb. “And if this is what they’re going to do, then on what else will they do it?”

Consumer groups applauded the announcement made by Mr. Biden.

Birny Birnbaum is the executive director of Center for Economic Justice. She said that title insurance companies engaged in anticompetitive practices, and charged excessive fees. He said that lower-cost alternatives should be developed.

He said that reforming the title insurance industry was an important component in addressing affordability of homebuying.