Fannie Mae to Test Drive Ditching Title Insurance

In a surprising shift from its current position, Fannie Mae is expected to roll out a pilot program this spring that waives title insurance requirements for certain loans sold to Fannie Mae, according to a recent report from Politico. While the specifics of the plan have not been announced, this pilot program comes on the heels of Fannie Mae’s April 2022 announcement that it would accept attorney opinion letters in lieu of standard title insurance for certain loans. These initiatives are flowing from Fannie Mae’s Equitable Housing Finance Plan, which seeks to “advance greater equity in America’s housing finance system, its practices, and its outcomes.” Through this plan, Fannie Mae has targeted a reduction in closing costs, including “title insurance cost reduction.”

As we have long reported, triggering coverage under title insurance policies and then obtaining due benefits and payments from title insurers can be difficult. It appears that certain key mortgage industry players, including Fannie Mae, are weighing that against the added cost of the product. Title insurance companies would be wise to examine this as part of considering what coverages to provide moving forward, and how to handle claims when submitted.

The lending industry should continue to monitor these efforts and any corresponding shifts in the Fannie Mae Selling Guide.