By David Goldstein
May 31, 2023
The global financial crash of 2008 took a massive, disproportionate toll on disadvantaged communities around the U.S, striking at homeowners who are people of color hardest. There’s plenty of blame to go around, but banks bear an immense share of the responsibility abetted by the mortgage-lending giant Fannie Mae. Since then, a question has lingered: Are the reforms and regulations put in place afterward enough to prevent a repeat of reckless behavior?
Recent decisions by Fannie Mae indicate that the answer is “no,” which puts the U.S. economy in potential peril, and once again those with the least ability to weather another storm stand to suffer the most.
Home ownership is the bedrock of the American dream. But we have learned – or should have learned – that it is only through sensible, constructive policies that the American people can achieve that dream. Buying a house is the largest purchase most Americans will ever make, so a bad purchase combined with poor policy can tear families apart.
Fortunately, the Biden Administration is carefully attuned to these matters and is acting effectively.
In fact, the policies that the Biden administration is pushing are excellent examples of what good public policy can look like. The administration’s efforts do not introduce unneeded risk to the average homeowner or endanger the overall housing market. President Biden’s team is intelligently and carefully addressing perhaps the greatest challenge to the modern American family: working to increase the supply of affordable housing through its Housing Supply Action Plan.
In contrast, a pilot program reportedly under consideration by Fannie Mae would achieve the opposite of the Biden administration’s admirable goals and undermine much of the progress achieved so far. Under the reported pilot, Fannie Mae would waive the need for title insurance on certain loans. This change would endanger consumers, especially financially disadvantaged and minority homeowners.
The proposal would broaden Fannie Mae’s mission beyond what was envisioned and place the entity squarely into a business for which it has no experience. It also is not regulated for business in this area, one where all experts agree regulations are necessary and working.
The 2008 financial calamity demonstrated how dangerous a reversal in the housing market can be for the average American. The result of the crash was a lost generation of wealth that millions of Americans are still trying to recover from.
The recent regional banking failures and fluctuating economy highlight how important it is for financial institutions to serve their core missions. Fannie Mae has been in conservatorship since the financial crisis. Its past failures still require the federal government to carefully oversee it to make sure it doesn’t again put the financial system at risk. Moreover, the government must ensure that Fannie Mae fulfills its mission to the secondary mortgage market.
To some, title insurance is just another line item in the home buying process that most people don’t understand. But it’s there for a reason. Families need title insurance to make sure they can protect themselves from fraud, forgery, liens, and the potentially high cost of lawyers to address those things.
Title insurance is a well-regulated product that protects both lenders and homeowners against financial loss and potential loss of property from unknown problems of these kinds. It is a vital component of one of the largest investments of a consumer’s lifetime.
Title insurance provides comprehensive title searches, curative work on public records to fix problems, and comprehensive insurance protections to minimize risk for both lenders and consumers. It is a one-time fee that provides genuine financial security.
Policymakers should not allow Fannie Mae to move into a business that is outside its charter, increases risks, and imperils the consumers that need its help the most. Bridging the homeownership gap in America between white homeowners and people of color, between the already privileged and those still hoping to achieve their dreams, is fundamental to overcoming the persistent economic equality that has bedeviled our economy for decades. No one wants more front-page news about housing and Fannie Mae.
David Goldstein heads the Alliance to Defend Affordable Homeownership.
