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ALTA Applauds Amendment Requiring Title Insurance for Qualified Residential Mortgages

April 7, 2011

The American Land Title Association’s advocacy efforts showed success Wednesday as the U.S. House Financial Services Subcommittee on Capital Markets and Government Sponsored Enterprises (GSE) passed an amendment requiring title insurance for all loans that would be defined as qualified residential mortgages (QRM).

The Dodd-Frank Wall Street Reform and Consumer Protection Act requires the establishment of rules for lenders that securitize mortgage loans to retain 5 percent of the credit risk for loans sold to the secondary market unless the mortgage is a QRM.

The amendment, which was introduced by U.S. Rep. Michael Fitzpatrick (R-PA) and had strong support from Reps. Ed Perlmutter (D-CO) and Brad Sherman (D-CA), would require the placement of a title insurance policy on all loans defined as a QRM. While the amendment’s language does not apply broadly to all future mortgage loans, it is a great first step. The amendment is attached to HR 1223 (GSE Credit Risk Equitable Treatment Act of 2011), which was introduced by U.S. Rep. Scott Garrett (R-NJ) and is one of eight GSE reform bills the Committee is considering.

Passage of the amendment by the Subcommittee is just the beginning of this process. The bill still has many steps before it becomes law. The full Committee must now act on the bill before it goes to a vote before the U.S. House of Representatives and then the Senate.

ALTA has recommended that a title search, examination, curative work and the placement of a title insurance policy are best practices that allay collateral risk and protect both consumers and creditors.

“Underwriting the real property that will serve as collateral for the mortgage loan is one of the most fundamental parts of the underwriting process and can be achieved by utilizing a title search backed by a title insurance policy to investigate, identify, and analyze the state of title to the collateral,” said Kurt Pfotenhauer, ALTA’s chief executive officer. “We congratulate the Committee for supporting an amendment that maintains integrity of collateral by supporting underwriting and product features that result in a lower risk of default and loss.”

Much of the success in getting this amendment was due to meetings ALTA members had with members of Congress during the Federal Conference and Lobby Day in March. The message on GSE reform helped tremendously in ALTA’s advocacy. ALTA staff and members have met with Garrett, Royce, Sherman, Perlmutter, Subcommittee Vice Chair David Schweikert (R-AZ), Don Manzullo (R-IL), Judy Biggert (R-IL), Jeb Hensarling (R-TX), Randy Neugebauer (R-TX), Stevan Pearce (R-NM), Nan Hayworth (R-NY), Robert Hurt (R-VA), Ruben Hinojosa (D-TX), Gwen Moore (D-WI), Joe Donnelly (D-IN), Jim Himes (D-CT), Gary Peters (D-MI).

Both Royce and Perlmutter spoke at ALTA’s Federal Conference and discussed GSE reform.

While the future of Fannie Mae and Freddie Mac remains unclear, this is an important step in the process to reform the mortgage market. Whatever model is eventually agreed upon for the GSEs, the common feature must require the inclusion of title insurance protection.

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