Title, Settlement Fees Less Than 1% of Borrower’s Life-of-loan Costs

December 14, 2023

Analysis from First American finds that fees for title insurance and settlement services are well below other costs charged to borrowers over the life of the mortgage loan.

Titled “Missing the Forest for the Fees – An Analysis of the Regressivity and Closing Cost Significance of Title and Settlement Fees,” the research points out the inaccurate conclusion drawn from Fannie Mae’s 2021 study of borrower life-of-loan costs and details the more accurate differences in various costs over the life of a mortgage from Fannie Mae’s own updated research in 2022. Title and settlement fees are less than 1 percent of the borrower’s total life-of-loan costs, First American’s study showed.

According to First American Chief Economist Mark Fleming, Fannie Mae’s research finds that title and settlement fees are neither regressive nor a significant component. Updated research published in December 2022 by Fannie Mae, found that “differences in title and settlement costs across borrower race and ethnicity groups, once accounting for geography, were not economically meaningful.” What differences do exist are very small, Fleming said. Asian borrowers pay $13 less than non-Hispanic white borrowers (the control group); low-income borrowers pay $14 more; and first-time home buyers pay $11 less than repeat buyers.

“With affordability at historic lows and the prospect of homeownership seemingly out of reach for low- and moderate-income families, it’s critical to evaluate the borrower’s total life-of-loan costs,” Fleming said.

According to First American’s data, a borrower’s largest life-of-loan costs are property taxes and recording fees paid at closing plus the accumulated cost of annual property taxes paid over the life of the loan. The fees paid to the mortgage-backed security (MBS) investor and lender are next with the accumulated cost of the annual interest payments made to the investor(s) that purchased the MBS bond containing the mortgage, and the lender’s net origination charges at closing plus the accumulated value of the excess interest the lender charges for profit. Homeowner’s insurance, the servicer, and even the GSE (the actual holder of the default risk on the mortgage), represent small overall costs by comparison. The title insurance premium and settlement costs (collectively title and settlement fees), along with the accumulated costs of the annual mortgage insurance premium, barely equate to 1% of the borrower’s total life-of-loan costs.

Fleming highlighted that there are many different costs and fees associated with purchasing a home with a loan and it’s often not clear who the beneficiary is, or what the reason is for the cost or fee. Some fees are charged once at closing, others over the life of the loan.

So, what’s peace of mind worth?

"For less than half a percent of the purchase price, or about the monthly equivalent of an Amazon Prime subscription, title insurance protects one of the most important purchases in someone’s life,” Fleming said. “A title insurance policy protects homeowners from having to pay for the costs, legal and otherwise, of resolving any covered title claim that may reveal itself after the closing. Property ownership can be called into question over something that was missed in the title search and examination prior to closing, a boundary line dispute with a neighbor, or even fraud and forgery among other potential threats. The protection title insurance provides is most valuable to the low- and moderate-income home buyer, who otherwise could not afford the thousands or even hundreds of thousands of dollars needed to defend a threat to their ownership rights.”

Contact ALTA at 202-296-3671 or communications@alta.org.