American Land Title Association says QRM misses critical point
The American Land Title Association says the proposed qualified residential mortgage standard in its current form omits a critical aspect: the need for title insurance to function as a type of safe harbor for lenders who can then ensure clean and clear title on the collateral backing loans. The trade group believes "obtaining a title insurance commitment will provide lenders a more complete picture of the borrower's debt by showing debts tied to the collateral's title that cannot be found in a credit report." The organization warned that a QRM standard silent on title insurance "would serve to undermine the market as lenders seek market advantage by cutting corners." "Without the inclusion of appropriate title standards the rule will make mortgage lending more risky," according to ALTA. The group, like dozens of others also pushed back against the 20% down payment requirement under the current QRM, saying it would stifle lending among low to moderate homebuyers. Any loan that meets the QRM standard would essentially be exempt from the risk-retention rules that force financial institutions to keep a 5% stake in the credit tied to securitized mortgages. After analyzing the QRM exemption, ALTA found it specifically limiting to closed-end, first-lien mortgages to purchase or refinance a one- to four-family property. However, the trade group said without a title insurance requirement, the QRM standard, in its present form, does not explain how lenders will ensure the underlying collateral is not deficient in some way. "While this representation and warranty is typically satisfied through a title search and examination backed by a title insurance policy, some mortgage lenders may seek to skirt this best practice to obtain a market advantage," ALTA said. "Rather than take a Wild West approach, ALTA urges regulators to adopt the purchase of a loan title insurance policy as a best practice that helps ensure such residential mortgages are of very high credit quality.” Write to Kerri Panchuk.