's plan to wind down Fannie Mae
and Freddie Mac
could result in a downsized title insurance market and confusion over what best practices are applicable when passing title, professionals in the title insurance industry say.
"If there are fewer lenders, there are fewer players to be had (in title insurance)," said Justin Ailes, director of government affairs at the American Land Title Association.
Ailes' association pushed back at the Treasury's report, which proposed three ways
the government could wind down Fannie and Freddie, thereby handing the majority of the mortgage finance market to the private sector.
"I think it's important to underscore the intent of the plan is to make sure that fewer people are able to purchase a home," Ailes said Monday.
Ailes also believes a loss of GSE power in the marketplace will mean the loss of an objective model that the title insurance industry copies when handling property titles.
"The GSEs provide the marketplace with clarity on how the title insurance should be applied to a property," Ailes said. "It's not clear who will take over that role."
David Baxter, a title insurance attorney in Dallas, said if someone had a 30-year home loan and that loan was sold to Fannie Mae before the GSE left the marketplace, there could be concerns over tracking the chain of title.
"There would have to be a process to determine who owns a loan," Baxter said, although he believes the Treasury will find a way. "There is always that question (of who owns the title) in foreclosure. It would be more confusing if Fannie and Freddie disappeared."
Ailes, meanwhile, is less concerned about the passage of the property title itself and more concerned about what the changes will do to the title insurance industry as a whole and to homebuyers.
"These types of standards (set by the GSEs for passing title insurance and buying properties) allow investors to be able to purchase these investments with certainty," Ailes said. He fears no longer having public GSEs to serve as models for handling title insurance, appraisals and other homebuyer issues will create confusion, and he's not sure what entity would take on that role.
Write to Kerri Panchuk.