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Fannie Mae’s Ambitions Would Inject More Risk in the Housing Market


By Mario H. Lopez, Hispanic Leadership Fund

Buying a house is a cornerstone of the American Dream.  But it is an achievement that can be scary and expensive.  Most everyone can agree that something as significant as home ownership needs to be done right.  Risks, though a natural part of any home purchase, should be minimized.

Unfortunately, Fannie Mae, a government-sponsored enterprise that is ostensibly tasked with keeping mortgage interest rates low, is poised to take steps that would result in more risk for buyers and a potentially huge negative impact on the overall housing market overall.

Fannie Mae is considering a new pilot program that would allow certain homebuyers to forgo buying title insurance, a widely utilized safeguard for mortgages, including those backed by Fannie Mae itself.  The home-mortgage finance giant claims that doing away with title insurance would make houses more affordable.

In fact, the pilot program, if undertaken and expanded as Fannie Mae hopes it will be, will put many homeowners at needless risk of losing what for most people is their biggest investment.

Title insurance is a product that many buyers do not pay attention to during the process of buying a house.  It is usually just another line item on the closing documents for a mortgage.  But title insurance has several benefits that help secure not just the actual home but also the value of the home.  It protects against fraud and liens and gives title insurers the incentive to keep the title market clear and avoid future problems. Title insurance and the searches that precede its issuance protect homeowners against fraud and liens that might not be readily apparent.  

Some homeowners are inevitably going to run into trouble if Fannie Mae gets its way.  A clear title is needed for people to keep their homes, as well as to sell them. If its pilot program goes forward, Fannie Mae would be taking on the risk of title protection, adding costs to its own taxpayer-backed budget for a job with which it is not experienced. Searching for flaws in home titles is nothing that Fannie Mae does or was created to do.  

Fannie Mae has been through tough times before when it took unwise gambles. In 2008, its excesses helped lead to a global financial meltdown.  The result was a housing market collapse that had a disastrous effect on the economy and disproportionately harmed underserved communities across the country.

One result of the 2008 aftermath is that Fannie Mae was placed in federal conservatorship, a status that continues to this day.  The U.S. government decided correctly that it needs to keep a close eye on the company’s vulnerabilities.

Government intervention into markets is almost always destabilizing.  Incentives are often scrambled when the government imposes risk profiles on markets.  Home purchases are a driver of economic progress.  If policymakers want to increase homeownership, they should institute policies that produce economic growth and stability. 

A proper role government at various levels could take in ensuring a stable market can involve increasing financial education, lowering taxes, streamlining zoning regulations, and fighting inflation by bringing the federal government’s overspending under control. 

But Fannie Mae adding a new vulnerability to the process by taking on a huge role—one for which it is not designed nor accustomed to doing—is not a path to success.  That Fannie Mae’s mistakes could again cause harm to taxpayers and the public dramatically raises the stakes.

Fannie Mae might not want to hear concerns about the needless risk it might inject into the housing market, but other lawmakers would do well to understand the consequences and take action to reject Fannie Mae’s plan, starting with rejecting its title insurance pilot program.

Mario H. Lopez is the President of the Hispanic Leadership Fund, a public policy advocacy organization that promotes liberty, opportunity, and prosperity for all.