Title waiver pilot program will have little impact on the industry: Fitch Ratings

Industry analysts believe the subset of loans at hand is too small to have an impact on the title industry

Despite the protests of the title insurance industry, Fitch Ratings does not believe the lender title insurance waiver pilot program for certain refinance transactions announced by the Federal Housing Finance Agency (FHFA) on Thursday will have an impact on title insurer ratings.

In an emailed statement, Fitch Ratings attributed this to the relatively narrow scope of the proposal.

According to a statement put out by the White House, the initial pilot program would only apply to “low-risk” refinances. Homeowners would still have the option of ensuring clear title through their own title policy or attorney opinion letter (AOL).

Fitch also noted that other similar efforts by the federal government to lower closing costs, including Fannie Mae’s announcement in April 2022 that it would accept AOLs in lieu of title insurance policies, has had no material impact on the title industry.

Soham Bhonsle, an analyst at BTIG, shares a similar outlook. In an emailed statement, Bhonsle wrote that he believed the pilot program’s lack of impact on the title industry is tied to the fact that the pilot is focused on a small subset of loans. Additionally, as long as interest rates remain elevated, few refinance transactions will occur.

He added that the lack of detail in the plan suggests “some level of political posturing rather than a decision rooted in solving the key issue at hand.”

Bhonsle also noted that this program “feels a lot like the pilot that was axed just a few months ago on the basis that it would increase risk to the GSEs/taxpayer.”

In March 2023, a report from Politico Pro showed that Fannie Mae was considering a pilot program to bypass traditional title insurance and AOLs, which drew resistance from trade groups. The introduction of AOLs in the previous year had already frustrated groups representing the title industry. In August 2023, Fannie Mae said it was no longer considering the pilot program.

In an emailed statement, the American Land Title Association (ALTA) called the program “a hollow attempt by the White House to placate Americans’ current economic frustrations.”

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