Join Melissa Murphy, Fund General Counsel, and Chris Morton from the American Land Title Association for a discussion on the current “lay of the land” regarding the use of alternative title products by the GSEs.
Melissa Jay Murphy 00:10
Welcome, everyone to this week's Title Now webinar, pop up webinar. I forgot my catchy name pop up webinar. I'm Melissa Murphy with The Fund and I have the pleasure of hosting these pop up webinars, and a quick reminder that we push the audio from this webinar out to our podcast, which is also conveniently titled, Title Now, so you can subscribe to that podcast for free of course, anywhere that you get your podcasts and it is a great way for you to perhaps revisit the information that we present today or let others know how great it was and share that information with them and let them know that they can get it through a podcast. So today we're talking about Fannie Mae, Freddie Mac, and some of their new efforts to allow alternatives to title insurance in their loan closings. Back in January, we did a webinar on this topic about the changes in those guidelines that the GSEs issued, allowing for, at that time, attorney opinion letters. We did this because it felt like in 2022 attorney opinion letters were on everyone's minds. What are they? Who's behind them? Why did the GSEs care about this? Why are they making this change? And of course this is going to put me out of business. Well, it feels like things have settled down a little bit on this topic and title agents have gone back to dealing with their day to day challenges of getting transactions closed, dealing with at least here in Florida, a much cooler market than what they had a year or two ago. But I know that ALTA, the American Land Title Association, has continued to pay a lot of attention to what's going on in this larger context of title assurance alternatives. So after attending the ALTA Advocacy Summit up in Washington, DC in May, I thought it was a good time to give Fund Members an update on this topic because it remains very, very important even though it's it's sort of become not an everyday discussion, everyday topic of conversation. It still remains a very critical thing that is going on in our industry. So I've invited back our expert on this topic, Chris Morton, who is the Public Affairs and Chief Advocacy Officer for ALTA. So, Chris, welcome back to Title Now.
Chris Morton 03:18
Well, thanks Melissa. It's great to be with you again and wonderful to dig in a little bit more on this, which is still as you mentioned, a huge priority from an advocacy perspective for us because we remain really concerned about sort of where the GSEs are headed here.
Melissa Jay Murphy 03:37
So one of the things that was talked about a lot when we first started learning about what was going on was the lack of transparency around attorney opinion letters. What are the coverages? What is this underlying insurance wrapper? I think that's what it was referred to. And what are the costs? It is it truly cheaper who's covered, etc. So any movement in that area that's helpful at all?
Chris Morton 04:17
So, you know, again, I think part of the part of the challenge here is the lack of transparency really is continuing. You know, we've had a number of conversations, I think maybe as we talked about last time with the National Association of Insurance Commissioners Title Insurance Task Force, I think we've had three sessions now where we've talked about the need for more transparency around these alternative products, particularly the ones with potential insurance components to them. And the commissioners themselves expressed an interest in learning more. I think some of the providers though, have been less than forthcoming as it relates to putting those policies out into the public domain. And I think there's another meeting coming up here in August, I believe in Seattle. You know, this is going to be certainly an area that we continue to press, but we haven't seen anything more from a data perspective, anecdotal information about these deals, trickling sort of into different markets. And so we're, again going to encourage the Fund Members, you know, to the extent that you're seeing deals, and specifics in the marketplace, we'd love to be able to better understand and have the specifics around that so we can do, you know, additional analysis around it. But, Fannie Mae actually put out as part of its equitable housing finance plan, about a month ago, some data on at least the transactions they've done. To date there's only been 45 of these AOL's that they've purchased with loans, you know, on their books. And, you know, that's out of 1.15 million loans I think they've purchased in total, so that just seems to indicate there's not been a huge uptick in activity at least from the data they've collected.
Melissa Jay Murphy 06:23
Well, and that sort of begs the question, why? Why have these not penetrated the market? I mean, I'm not complaining about that. But, the lack of transparency and the the lack of information is what is causing us to not be able to answer that question. So, and I know you can't answer that question Chris. But it's just very perplexing. So, let's move on to something that I think you can respond to, because I always like to ask my guests questions that they might have an answer to. So, I know that the focus of ALTA last year was really to educate, raise awareness, and do that amongst various groups and people who might be able to effectuate change. So what's the update on those efforts?
Chris Morton 07:29
Yeah, well, you mentioned and thank you for attending Advocacy Summit in Washington, DC. in May. We were up on Capitol Hill with ALTA members on May 10 to meet with members of Congress to really talk about some of the concerns that we've expressed, you know, on this issue. And, we had, I think, over 200 meetings on Capitol Hill, where we did just that, and as a result of those conversations, there's been a lot of interest and awareness built about these concerns, particularly among policymakers who understand and value the work that the title industry does. You know, we're in every community nationwide, we're doing things really important to the economy, you know, from property rights perspective, and so they were eager to better understand this. Subsequent to the meetings that we had on May 10, there were then two, I think, critical hearings in the House Financial Services Committee that were opportunities for those same policymakers to ask questions. On May 17 there was a hearing in the House Financial Services Housing and Insurance Subcommittee, really on a different topic. Many of you have heard about the loan level price adjustment issues that the GSEs have been dealing with, was part of that conversation, though, however, at Ed DeMarco, who's the former director of the Federal Housing Finance Agency, was a witness talking about that topic. And in that process, there was a question asked of him about the pilot that Fannie Mae had put forward to waive title insurance or was reporting to put forward to waive title insurance requirements on certain loans they purchase. And he said, look, they have plenty to do with the secondary market in their responsibilities. This should be not something that should be sort of moved forward. He found a lot of challenge with it. And that kicked off, you know, additional interest on the part of the committee members. The next week, there was a hearing on May 23, at which the director of the FHFA Sandra Thompson testified, really an oversight hearing on all things, but I think there were at least eight members of Congress on both sides, Republicans and Democrats who asked questions about the risks, expressed concerns about the risks associated with both alternative products like attorney opinion letters that are emerging as well as this waiver program. And, you know, urged the FHFA to be very cautious, one in moving forward with either of those initiatives in a significant way and then two, really talk more about the point that you just made Melissa, which is the need for more transparency and public comment, openness, something that we've you know, talked about, so we're hopeful that message was heard, and, you know, and we continue to collaborate with both the GSEs and FHFA to find, you know, important paths forward because we all agree that affordability is a really critical topic.
Melissa Jay Murphy 10:48
No question about it, something of concern to everyone that's sort of a policy that not many people can argue about until it comes down to how it affects them. But I do want to go back to this pilot project that Fannie Mae suggested they might engage in. To me that was a little ambiguous exactly what that was. So remind us what that was all about, and perhaps what the status is
Chris Morton 11:23
Yeah. So on that one. So going back to I think it was February or March, there was a report that came out in one of the publications here in DC, Politico, that revealed that there was some work going on behind the scenes where Fannie Mae would essentially waive their requirements on certain loans they purchase for title insurance on the lender side. And again, not a lot of depth in detail because that actual proposal has not yet been formally submitted to the FHFA which then would kick off a process of review at FHFA. But from what was reported and what we've heard in the marketplace, you know, part of the program would essentially be structured in a way that in exchange for the waiver of [unintelligible 11:23] on the lender side and the acceptance of the risk, you know, in terms of the title risk, Fannie would take a fee from the lender and you know, it's basically, essentially act as an insurer in that in that instance and that fee would essentially, our understanding would be some sort of a, you know, fee for a claims reserve type process. There's a lot of questions about, obviously, risk experience, it's sort of expertise and exposure, how that was all going to be navigated and managed, which are still unanswered questions, but the primary thing I think we're concerned about is, is this really the role that a secondary market player should be playing, you know, essentially taking a primary market role kind of beyond the charter, for which they were established? And in a time period, certainly where, you know, we've got more challenge in the housing market rates are going up. We've seen financial institutions have failures recently, and so do we want to be moving the GSEs in a place where they're, you know, perhaps having a redo of the 2008 window, and certainly we all know how that ended. And so we don't want to, you know, sort of cross that threshold. So we've raised those questions, those concerns, you know, both on the policymaker side on the hill, but also within the FHFA and directly with the GSEs, too, and so we're hopeful again, that people in authority are listening certainly the policymakers are expressing views so, we're feeling like we're making an impact. The other thing I'll say, just on the advocacy front, we've had now I think, almost 800 members of ALTA in the industry express those views. We've done an action alert through our Title Action Network. We have that continually available, happy to send that around to you all but the more people can express their voice, the more positive reception.
Melissa Jay Murphy 14:41
And let me take advantage of your mentioning TAN, Title Action Network, to Fund Members out there. You do not need to be a member of ALTA to join the Title Action Network. It doesn't cost you a thing. And I have sent links to the registration page for TAN multiple times and I'll do it again. But this is a great example of how a simple email from you through the Title Action Network could potentially make a huge difference on issues like this. So I'll be sure to send that out in my next blog posting Chris so that we can try to get even more participation amongst Fund Members. So thank you for reminding me of that.
Chris Morton 15:32
Oh, absolutely. That would be great.
Melissa Jay Murphy 15:36
So just to kind of close the door on this pilot project where title assurance would be waived by Fannie Mae. We don't know if it's going to go forward or not at this point, because sort of the message to FHFA is this is not a good idea, and here's why plus and maybe beyond their authority to do this. So that's not a good idea, but the verdict is still out, I guess is what I would ask.
Chris Morton 16:12
Yeah, I think it's still out. But, again, I think the more that we express those concerns and grow the voices to that process, I think this is really for from our purposes, this is a [unintelligible 16:27]. You know, we can talk about the attorney opinion letters, and we can debate the specifics. Once we see more about the policies and those kinds of things. I think, when you're waving in its entirety, any kind of protection for lenders, which then will ultimately have an impact on consumers. That's bad policy. I mean, at the end of the day, we believe every loan purchased by the GSEs from a policy perspective should have title insurance attached to it. But when you're waiving it in its entirety, you're going down a path that is very dangerous, you know, from a risk perspective, and from you know, from the perspective of an industry that's well regulated, that's overseen, and appropriately reserved for the things that we know happen on a daily basis in terms of plans. It's just not, it doesn't serve the purpose that you're trying to achieve. And, you know, there's a question ultimately about whether or not you know, that type of a program would really be targeted to the affordable borrower, whether it's really a move to create some space in revenue and sort of creaming of the top of the crop, so to speak, in terms of the, you know, the loans that would be purchased and the type of borrowers that would be affected by them.
Melissa Jay Murphy 17:46
Right, that would be a very interesting aspect of this pilot program to investigate if it moves along at all. Well, I'm confident you'll keep us posted on that and I will certainly keep an eye out for any information from ALTA on that. And are there other products in this arena that investors are suggesting or large scale mortgage brokers are suggesting? I know that there is one large mortgage broker/lender that also has some, some form of a self insuring product. And so is there anything new out there beyond just the initial attorney opinion letter product?
Chris Morton 18:38
So there's, there's kind of, I think we may have touched on this in our last conversation, Melissa, but there's two there's two general flavors that we're seeing in the market of these attorney opinion letters. One has this insurance wrap. The other one is, it's not and it's really more of an old fashioned type of attorney opinion letter on the lender side and the lender, in places the lender policy where there is that that sort of self insuring aspect to it. I think the concerns we continue to have in both instances is you know, the lack of coverage for perhaps things like fraud and forgery. The duty to defend necessarily not being a part of that attorney opinion letter structure. As well as you know, all of the things that are not revealed in the public records search that we know title insurance covers, whether or not these things are, you know, taken care of in any meaningful way, by the attorney opinion letter structures, either flavor that is emerging, and so those are still outstanding questions. The one thing I'll say sort of beyond all of this though, that is really important that we've emphasized, as we've talked to the GSEs, as we've talked to the FHFA, as we are partners at the table on this whole question of affordability, we want to find additional ways, not just on products, but also on policy. And so I'll just highlight you know, a couple of things that we're doing that we think are moving the ball forward. One, you know, I know in in Florida, you've focused on this, but these predatory listing agreements, you know, those are things that are harming consumers and we've been an advocate and a leader to put legislation in place, model legislation, you know, in various places, including in the work with you all in the state of Florida and the Attorney General's engaged there. But you know, when folks can't access their equity, they can't refinance, they can't do these things, that is a wealth sapping exercise. And we want to make sure that that doesn't take place. That's a part of the whole equation. I think the other thing is we're working on issues of heirs property, making sure that we're trying to find paths forward for people, you know, to address those kinds of things. And then we've had a number of conversations and I know a number of the companies have gone in, to talk to the regulators and to talk to the GSEs about, you know, different ways to provide for affordability approaches from a product perspective. But if you're throwing things like a title waiver on the table, the economics of anything that the industry would put forward would be totally up ended. And so you can't, on the one hand, pursue those policies or programs and then ask the industry to do things that come to the table in good faith. We're coming to the table in good faith. We hope that we can, you know, push some of these bad ideas to the side and move forward.
Melissa Jay Murphy 21:42
Because I feel like, well, I am learning that there are so many policies and things that various industry groups and the governmental agencies are trying to accomplish that all sort of intertwine. And the attorney opinion letters is an out there independent just because somebody at Fannie Mae said, oh we think that's a good idea. It's all intertwined in a fairly laudable goal of making housing more affordable. And when you combine that with the efforts to combat that predatory lending or predatory listing agreement, we have addressed that in Florida. Our Attorney General didn't waste much time at all and filed suit against the offending company. And we passed a bill on our legislative session this year that addressed those situations from the future and then we're hoping that the attorney general can be effective with regard to those agreements that have already been entered into. And then on the heirs property, we have a great law here in Florida that facilitates clearing up title that has been passed down over the years, but people did not have the wherewithal to do a probate and of course, every generation it gets worse and worse and more people involved and so we have been on the forefront. So I'm very proud of my state for doing that. And then on the issue of the value of title insurance, and you mentioned coverages for fraud and forgery. I don't think anybody can argue that the industry has not stepped up when it comes to damages and injury and harm that people have suffered as a result of fraud and forgery. It is one of the main sources of claims that our industry is paying these days, and we clearly understand our obligation and our responsibilities there. And so all of those things are intertwined and as I've learned over the years, as I've gotten more and more involved in advocacy, there are very few issues that are isolated and siloed and under themselves. So many things interreact and interrelate and one thing affects the other. So that all kind of leads me to just reminding people what we can do on a local level and I really mean on a state level here locally in Florida. But what can my Fund Members do? We've mentioned Title Action Network, but what are some other things that they can help me do on a statewide level? Suggestions that you have for us to continue the good fight?
Chris Morton 24:54
Well, I think you all are leaders and it's really been tremendous. I think, you know, the leadership here we are providing and continue to grow with the Florida Land Title Association. Scott Merritt is a great partner of ALTA. He's been a terrific leader there. And so, you know, we tried to really work collaboratively with all the State Land Title Association. So being engaged in both, both at the state level and the federal level and working collaboratively. One of the things we're seeing, you know, more so than ever that I've seen in my entire career, from an advocacy perspective is state issues are federal issues, and they're one in the same everything you can think about whether it's, you know, proactive things we've done on things like remote online notarization the emergence of issues around foreign ownership of land, or, you know, wire fraud or, you know, now these issues around alternative products, all of those things, you know, sort of flow back and forth between state and federal and I think being engaged you know, as much as possible to raise your voice in both forms.
Melissa Jay Murphy 26:11
Well, the first thing that I always suggest my members can do is just be knowledgeable. Just understand what the issue is so that if you get asked a question by a realtor or by a client, you have an answer, you've heard about the issue. You've looked into it. You participated in a webinar like this and learned from you, Chris, what's going on out there? So that's certainly is the first step. I am concerned a little bit about, on the AOL and title assurance alternatives, that the lack of penetration in the market that you mentioned, Fannie Mae, what was it 47 loans?
Chris Morton 26:55
Yeah
Melissa Jay Murphy 26:56
I am concerned that that affects our state regulators willingness to spend any time on this issue because they don't really perceive it as a major problem. But any suggestions you have on how we can position this issue such that we don't wait until it's a major problem? So I'll be continuing the conversation with you on that score.
Chris Morton 27:25
It's a great point. I mean, I think we've just got to keep it front of mind and you know, in front of the the regulators at both the state and federal level, I know that they're interested in learning more, the more you have marketplace data and information or hearing things. I think we've got to keep conveying that information, you know, to the regulators to make sure they know exactly what's going on as well as how it's being represented.
Melissa Jay Murphy 27:53
Right, and I'm a firm believer that you don't go in with this is gonna put me out of business. You go in with, here's why title insurance is so valuable, and here's why what we do every day is so important. Not that you're worried about being put out of business, because I said from the very beginning, we will compete based on coverages and service all day long every day. But you know, the AOL folks won't even tell us what they've got, what they do. So it's kind of hard to make an argument. Well, thank you. Thank you so much, Chris, for your time today. Thank you for continuing to help us work on this because, as I said at the top of the webinar, we haven't been talking about this a whole lot lately, because we've been focused on what's been going on in the legislature here in Florida, but it remains one of the most critical issues to our industry. And so we have to keep it front of mind.
Chris Morton 29:02
Absolutely. Well, thank thank you, Melissa. Appreciate the opportunity and as always, it's great to see you. I hope everyone has a wonderful holiday.
Melissa Jay Murphy 29:11
Well thanks everybody for listening, and attending and a reminder that I push this out on the podcast so that if you want to listen again or share it with your colleagues, it will be easy to do that. So thanks again. And as always thank you for your support of The Fund.