A top U.S. consumer watchdog is considering whether to bar mortgage bankers from charging home buyers for title insurance that protects the lenders, ending a long-standing industry practice.
The Consumer Financial Protection Bureau’s (CFPB) plan is still in the early stages, according to people familiar with the matter. The agency will begin to lay the groundwork for the measure in a broad request for information on closing costs, including title insurance and other fees, that will be released as soon as this month, they added. Any final proposal on closing costs, including title insurance, would not come until 2025, one of the people said.
If approved, it may offer at least some relief to Americans struggling to purchase affordable homes due to limited inventory, elevated prices and closing costs, and 11 interest-rate hikes since March 2022. But it would also draw strong opposition from mortgage lenders and title insurers grappling with a housing market slump that has squeezed profits.
“Reducing the homeowner’s closing costs is excellent policy, provided the lender cannot recover that cost in another way from the home buyer through some other fee or a higher rate,” Maria Vullo, who was superintendent of New York’s Department of Financial Services from 2016 to 2019, said in an interview. “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.”
The draft measure would apply to both home purchases and refinancings, according to the people, who cautioned that it could be scaled back to cover only refinancings – or ditched altogether. Only the lenders’ insurance would be affected. Title insurance for buyers is optional and covers an owner’s equity in a property.
President Joe Biden has zeroed in on title insurance as one way to lower closing costs. Last month, the White House announced a pilot program to waive the requirement for title insurance altogether for a small amount of refinances at the mortgage giant Fannie Mae, a government-sponsored enterprise.