ALTA Submits Letter to FHFA Regarding Role of Technology in Housing Finance
October 20, 2022
ALTA recently submitted a letter in response to a request for information (RFI) issued by the Federal Housing Finance Agency, which is focused on the use of technology in the housing finance space.
In its letter, ALTA said that a thoughtful approach to the use of fintech for mortgage and real estate transactions is vital to mitigating risk. ALTA also outlined several initiatives the title industry has led to utilize technology and digital the transaction to improve the customer experience.
The FHFA issued the RFI in July to get information about the on the role of fintech in the mortgage industry. The RFI’s questions focused on six areas:
- Fintech and innovation, including the factors that may inhibit the adoption of fintech in the primary and secondary markets for housing finance
- Identifying opportunities for fintech use, including whether fintechs might speed up lending decisions and whether regulator or data limitations inhibit fintech adoption
- Equitable access to credit, including what new tools might expand access to credit and how to reduce the risk of discrimination when developing algorithms
- Whether fintech firms present specific risks to the mortgage sector and how firms manage those risks
- Regtech, including the most promising areas for applying technology to regulatory and compliance functions
- How the Fintech Office can effectively engage with outside stakeholders
“Our members provide insurance coverages that create certainty around homeownership, and prior to closing, conduct extensive search and examination services and take curative actions to clear title,” ALTA wrote. “This certainty and title curative work provides the bedrock for the U.S. housing finance economy. Additionally, the industry’s duty to defend, which means a title insurance company will handle litigation and pay a homeowner’s defense costs, further demonstrates how ALTA members help consumers protect their property rights.”
When it comes to innovation, ALTA told the FHFA that the primary focus should be on initiatives that
- improve the overall experience for the consumer
- reduce costs in the process or
- lower the risk to the parties involved.
ALTA recommended the FHFA put particular emphasis on innovation initiatives that address the needs of all homebuyers and protect the privacy of consumers. Innovation that evades established regulatory frameworks or compromises security or privacy should not be considered, according to ALTA.
Promotion of using attorney opinion letters in lieu of title insurance in certain circumstances is one area that draws particular concern.
“These alternative title products increase risks which are ultimately shifted to both lenders and consumers,” ALTA wrote. “Should a title issue arise on a property covered by an attorney opinion only, the buyer would need to prove negligence on the part of the attorney to pursue a claim. If negligence is not proven, a claimant would likely need to pay the legal costs involved to litigate the title matter. Additionally, consumers could be pushed into foreclosure, as that is a condition to make a claim under terms of alternative products currently in the market. By contrast, title insurance policies are backed by statutorily required financial reserves to cover future claims risks.”
ALTA also informed the FHFA of several technology advancements the title industry has made over the past decade to improve processes and reduce search and turn times. For example, while curative time can vary, title search-related innovation has decreased the time to complete a title search from days or weeks to hours—and in some areas—minutes.
ALTA pointed out that the cost for title insurance has decreased 7% since 2004.
“We welcome opportunities to expand collaboration with industry partners to assist in their efforts to speed up transactions and reduce consumer costs,” ALTA wrote. “Additionally, ALTA has been working with Congress and the (Consumer Financial Protection Bureau) to modify the TRID disclosures to accurately reflect the lower title premium costs in states where discounts are offered when a lender and owner policy are issued simultaneously.”
In addition to the RFI, the FHFA created an Office of Financial Technology. Its purpose is to address emerging risks and advance the agency’s priorities related to the adoption and deployment of financial technology.
Contact ALTA at 202-296-3671 or firstname.lastname@example.org.