High housing costs and red tape continue to burden American families, particularly lower-income and minority homeowners.
One often-overlooked expense is title insurance, a fee ranging from 0.5% to 1% of a home’s price, which is paid during closing and cannot be rolled into the monthly payment. For many first-time homeowners, these fees can equal or exceed their entire down payment. Homeowners who refinance are required to do another title review.
A new pilot program administered by Fannie Mae is helping to address title insurance expenses by simplifying the process. The program introduces automated title risk assessments for homeowners who refinance. Because title checks are done on initial home purchases, title problems on ‘refis’ are rare. The pilot program is helping simplify “low-risk refinance transactions” on properties that are very unlikely to have outstanding liens or encumbrances.
Title insurance protects against legal challenges to property ownership and is typically required by lenders—and rarely questioned by buyers. Even as a one-time cost, it can be a burden, especially when consumers are seeking to lower their monthly mortgage payments.
The uncertainty of the current economic environment has spurred many consumers to tap the equity in their homes through refinancing. With rising interest rates the past few years, cash-out refinancings have become much more common than those without. Additionally, borrowers of cash-out refinances generally have lower incomes and/or come from underserved communities.
Unnecessary title insurance checks add to closing costs. Fortunately, the pilot program offers a smarter, faster and cheaper alternative to title insurance by leveraging technology. A leading mortgage lender recently estimated that this program is saving homeowners about $1,500 per transaction on average.
This market-driven reform empowers consumers with more choices and reduces homeowner costs. This pilot program fully aligns with the administration’s directive to federal agencies to take action to lower housing costs.
Housing affordability continues to be a strong concern with Americans.
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