The Consumer Financial Protection Bureau is thinking about stopping this mortgage lender practice
A leading consumer watchdog in the United States is thinking about whether mortgage lenders should be banned from charging borrowers for title insurance.
The coverage is meant to add a layer of protection for lenders
Charging homebuyers for title insurance has long been a practice among mortgage lenders, who use it to provide themselves with additional protection.
According to people familiar with the Consumer Financial Protection Bureau consumer watchdog matter, as cited in a recent Bloomberg report, it remains early days for the issue. The watchdog is only just setting itself up to obtain the necessary information regarding closing costs, including the fees associated with title insurance, among others. That information is expected to be available for release as early as this month. Still, any final proposals regarding those costs and fees would not be made until next year, said the Bloomberg sources.
Eliminating title insurance could provide relief to some homeowners
Should the elimination of title insurance be proposed and approved, it could offer financial relief to Americans who are having a hard time trying to afford a home because of elevated prices and closing costs, a seller’s market, and the 11 interest rate hikes that have taken place since March 2022.
That said, this decision wouldn’t go without substantial opposition from title insurers and mortgage lenders.
Would this place lenders at risk?
“Reducing the homeowner’s closing costs is excellent policy, provided the lender cannot recover that cost in another way from the homebuyer through some other fee or a higher rate,” said former New Yrok Department of Financial Services superintendent (from 2016 to 2019) Maria Vullo. “A title insurance policy for the lender protects the lender’s interest. I think it is a positive, pro-consumer, pro-homeowner policy to say that the lender has to pay for it themselves.”
Already facing challenges
Title insurance companies are already facing a number of financial challenges, particularly as inflation was greater than expected last month, suggesting that the Federal Reserve is unlikely to reduce rates in the near future.
Major mortgage lenders and title insurers saw their shares drop earlier this week, with the parent company of two of the largest title insurers in the US, First American Financial Corp and Fidelity National Financial Inc, falling by as much as 7.4 percent and 9.1 percent respectively on Wednesday.
