A Largely Unnoticed Part of the State of the Union Address Threatens to Undermine State Regulatory Authority and State Sovereignty

If implemented, the President’s pledge threatens property rights, makes homeownership riskier, and undermines state law governing title insurance.

In March, President Biden made a last-minute change to his State of the Union Address (SOTU), adding a commitment to eliminate title insurance fees on certain federally backed mortgages. Just hours before the address, the Federal Housing Finance Agency (FHFA) announced plans to launch a pilot program to advance the same idea overriding a decision to halt a similar project due to its associated risks and bipartisan congressional opposition in 2023. The FHFA proposal was issued without the transparency and comment period that typically precedes significant policy changes. If implemented, the President’s pledge threatens property rights, makes homeownership riskier and undermines state law governing title insurance. In other words, it is inconsistent with ALEC’s core principle of federalism.

Alarmed by the White House’s unilateral attempt to advance this policy, Members of the US House of Representatives sent a letter to the Director of the FHFA questioning the agency’s transparency and independence.

As the Congressmen observe, the “FHFA was established as an independent agency by the Housing and Economic Recovery Act of 2008.” This independence appears to have been compromised given the “timing and substance of the announcement” to coincide with the SOTU.

In addition to questions of process, this policy change allows Fannie Mae to act as a title insurer – without adhering to state insurance laws and regulations. Authority to regulate title insurance falls to state insurance commissioners, but this policy establishes an unregulated federal title insurance pilot.

However, this plan’s most disturbing consequence is the risk that it poses to homebuyers. Title insurance is a one-time fee that prospective homeowners pay to comprehensively protect their rights to the property as well as their lenders’ financial interest in it, ensuring that there are no liens against the property. If the FHFA’s pilot program is implemented, this risk shifts from title insurers to prospective homeowners and Fannie Mae and Freddie Mac which translates into hardworking American taxpayers footing the bill.

While the President’s motivation to make homeownership more affordable is laudable, his approach doesn’t appreciably lower the cost of buying a home, but it does increase the risk assumed by the purchaser. Transparent discussions about title insurance fees are fair, and making homeownership attainable for more Americans is a positive goal, and there are ways to accomplish it without undercutting state title insurance laws which conform with American federalism. However, this proposal that eschewed an agreed-upon a comment period for stakeholders to weigh in is no way to implement such a consequential policy – especially when the cost to American consumers could be as high as the cost of a home.


In Depth: Federalism

Genuine accountability to hardworking taxpayers results when state and local legislators work with members of the community to determine a plan of action that is right for each individual state, city or town. Real solutions to America’s challenges can be found in the states – America’s fifty laboratories of democracy…

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