Plan To Save Homeowners Thousands On Closing Costs Quietly Derailed By Obscure Industry, Legislative Opposition

In a recent move, a proposal under the Biden administration aimed at reducing closing costs for certain homeowners has been halted. The proposed plan could have resulted in savings of thousands of dollars for homeowners, but opposition from the industry and lawmakers has led to its discontinuation.

What Happened: According to The Wall Street Journal, Fannie Mae FNMA, a government-run mortgage giant, was set to finalize a program this summer that would have nullified the need for title insurance, a major fixed cost in mortgage closing.

The proposed scheme had plans for Fannie Mae to bear the costs of title insurance for a handful of mortgage refinancings provided by seven or eight lenders. The program had the potential for future expansion to incorporate more lenders and various mortgage types.

See Also: What Is Title Insurance? How Does It Work?

However, the proposal faced significant criticism, mainly from the title and settlement industry, arguing that Fannie Mae did not possess title insurance experience and did not need to take on this new risk, especially considering its financial bailout during the 2007-08 crisis.

Lawmakers from both sides also expressed their disapproval of the project in a House hearing in May. Following instructions from the Federal Housing Finance Agency (FHFA) officials in August, Fannie Mae stopped work on the program without submitting a formal request for its approval.

Why It Matters: The scraping of this proposal comes at a time when the US housing market braces for affordability as mortgage rates ease and property prices continue to rise, making mortgages increasingly unaffordable for many potential homeowners. The scrapped plan may have provided some relief for homeowners by reducing closing costs.

Fannie Mae is now exploring alternative methods to reduce closing costs. Title insurance, which acts as a guarantee of clear ownership, is required by Fannie and Freddie for the loans they buy from lenders. This requirement makes it a significant part of the closing costs for homeowners.

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