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Title Insurance Requirement Included in GSE Reform Bill

December 31, 2013

A bipartisan bill introduced today (June 25) would wind down Fannie Mae and Freddie Mac over five years and replace the Federal Housing Finance Agency with a new government agency, the Federal Mortgage Insurance Corporation (FMIC).

The legislation was authored by Sens. Bob Corker (TN) and Mark Warner (VA) and co-sponsored by Mike Johanns (R-NE), Jon Tester (D-MT), Dean Heller (R-NV), Heidi Heitkamp (D-ND), Jerry Moran (R-KS) and Kay Hagan (D-NC).

Under the proposed legislation, the FMIC would issue bond insurance on some well-capitalized institutions’ mortgage bonds. The mortgages in these bonds would have to meet specific standards—similar to the GSEs’ seller servicing guides—set by the FMIC. Issuers would pay for the insurance through a fee that would be held in reserve and only used once a large amount of private capital is exhausted in future downturns.

Of significance to the title insurance industry, the bill includes a list of requirements for eligible mortgages. Included in the requirements is a section that says an eligible mortgage must be “insured by an approved State licensed title insurance company.”

“We are grateful to Senators Corker and Warner for their recognition of the value of title insurance in their GSE reform bill introduced today,” said Michelle Korsmo, ALTA’s chief executive officer. “Ensuring that mortgages are insured by a licensed title insurance company is an important risk management standard. We look forward to more thoughtful conversations with members of Congress as they address reforming Fannie Mae and Freddie Mac.”

Also, an eligible mortgage would require a downpayment of at least 5 percent of purchase price of the property securing the mortgage.

Additionally, the bill would allow first-lien holders on a single-family mortgage to prevent a borrower from taking out a second lien. The legislation says if a borrower enters into a credit transaction that increases the combined loan-to-value ratio of the mortgage to 80 percent or more, the second-lien lender must obtain the approval of the first-lien holder.

The bill also calls for the creation of a new data base that identifies and tracks second liens or any other subordinated liens issued on a mortgaged residential property. The data base would notify the senior-lien holder of the existence of a second lien and track the performance of junior liens.

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