In response to the Consumer Financial Protection Bureau’s (CFPB) contemplation of potential changes to title insurance practices, the American Land Title Association (ALTA) has underscored the critical role of title insurance in safeguarding homeowners’ investments.
In a comprehensive 15-page missive addressed to CFPB Director Rohit Chopra on August 2, ALTA emphasized the significance of title insurance in providing assurance to homebuyers regarding property ownership and protecting their substantial investments. Chris Morton, ALTA’s Senior Vice President of Public Affairs and Chief Advocacy Officer, articulated these sentiments in the letter to the CFPB.
The communication was prompted by the CFPB’s call for information on residential mortgage fees in late May, alongside considerations about prohibiting mortgage banks from charging homebuyers for the lender’s title insurance policy.
While ALTA shares the CFPB’s objective of enhancing housing accessibility and affordability, the association voiced concerns over labeling title insurance as a “junk fee,” fearing that such rhetoric might dissuade consumers from availing themselves of the protections afforded by title insurance.
The ALTA letter contended that services that are legal, transparent, and subject to regulation cannot be designated as “junk fees.”
ALTA further argued that consumers are adequately informed about closing costs, pointing to the provisions of the CFPB’s TILA-RESPA Integrated Disclosure (TRID) rule. Under this rule, the costs associated with title insurance and related services are disclosed to consumers at the commencement of the loan underwriting process and prior to closing.
Moreover, ALTA highlighted that the cost of a title insurance premium and settlement expenses represents a negligible portion—merely 0.7%—of the borrower’s total life-of-loan costs combined.
The association justified the cost of title insurance by elucidating the extensive work undertaken to clear a title before closing and the legal defense coverage provided in case of title challenges.
The letter underscored the value of this defense coverage, as it can prevent homeowners from being displaced in the event of a title dispute, which could incur significant expenses. ALTA cited an analysis by the actuarial firm Milliman, revealing that the average cost of providing legal defense exceeds $8,000, even if the claim is ultimately deemed invalid.
ALTA concluded by emphasizing that the benefits of a lender’s title policy extend beyond lenders to encompass consumers and even the federal government. Consumers benefit from reduced financial risks through title insurance, offering assurances to lenders, investors like Fannie Mae, Freddie Mac, Ginnie Mae, and ultimately, the federal government.
