Nadzeya Haroshka
The Consumer Financial Protection Bureau is weighing whether to prohibit mortgage bankers from charging homebuyers for title insurance that protects lenders, which would end a long-standing industry practice, according to a media report.
The CFPB’s plan is in an early stage, Bloomberg reported, citing people familiar with the matter. The regulator will begin the process by requesting information on closing costs, including title insurance and other fees, as soon as this month, they said. Any final proposal on closing costs, including title insurance, wouldn’t occur before 2025, one of the people said.
The initiative fits with President Joe Biden’s campaign to crack down on so-called “junk fees,” by limiting certain overdraft fees and credit card late fees, among others. Last month, the administration announced a pilot program to waive the required lender’s title insurance on certain refinances.
The draft measure is expected to apply to home purchases and refinancings, but could be scaled back to only cover refinancings, the people said. It would only apply to lenders’ insurance, not to buyers’ title insurance, which is optional.
No doubt, lenders and title insurers will push back on the proposals. “We have real concerns about how this proposed framework would undermine the critical protections provided by title insurance,” Diane Tomb, CEO of the American Land Title Association, told Bloomberg.
There’s also the concern that even if CFPB is able to issue a new rule ending buyers’ responsibility to pay for lenders’ title insurance, lenders will find other ways to pass the cost onto consumers.
Stocks of companies that offer title insurance were in the red on Wednesday. However, that comes as most real estate-related stocks are also slumping after continued hot inflation readings increase the likelihood that the Federal Reserve will delay any rate cuts.
First American Financial (NYSE:FAF) stock sank 6.2%, Fidelity National Financial (NYSE:FNF) slid 8.5%, Stewart Information Services (NYSE:STC) dipped 4.6%, and Old Republic International (NYSE:ORI) dropped 1.7% in Wednesday morning trading.