This Act requires Federal Housing Enterprises to use state-regulated title protection products for mortgages or hold extra capital reserves against those without such protection.
Andrew Garbarino
Representative
NY-2
The Protecting America's Property Rights Act aims to enhance the security of mortgages purchased by Federal Housing Enterprises by requiring the use of state-regulated title protection products. If these regulated products are not used, the Enterprises must hold additional capital reserves against those mortgages. This legislation mandates the Director to quickly establish rules ensuring compliance with these new title risk management standards.
Fannie & Freddie Face 1.00% Capital Hit Over Unregulated Title Insurance: What It Means for Mortgages
The “Protecting America’s Property Rights Act” focuses on tightening the rules around how the Federal Housing Enterprises—better known as Fannie Mae and Freddie Mac—manage the risk associated with property titles when they buy mortgages. Essentially, this bill mandates that if these Enterprises use a title protection product (like title insurance) to cover their purchase, that product must be regulated by a state insurance or financial authority. This is the government saying, “If you’re going to use this product, make sure a state regulator has signed off on it.”
The Cost of Unregulated Risk
The real punch in this bill comes down to capital reserves. If Fannie or Freddie purchase a mortgage where the title protection product doesn’t meet the new state-regulated standard, they get penalized. Specifically, the Director (of the Federal Housing Finance Agency) must require them to hold an additional 1.00 percent of the unpaid principal balance of that mortgage in reserve capital. Think of it like a financial fine for taking on an unverified risk. For example, on a $300,000 mortgage, that’s an extra $3,000 the Enterprise has to keep locked away instead of investing or using elsewhere. This provision (SEC. 2) creates a massive financial incentive for the Enterprises to only deal with state-regulated title products.
Why This Matters for Home Buyers
This isn’t just bureaucratic accounting; it trickles down to the housing market. Fannie Mae and Freddie Mac are the biggest buyers of mortgages, which keeps cash flowing to local banks and lenders. By imposing this 1.00% capital surcharge, the bill makes mortgages that use non-state-regulated title protection significantly more expensive for the Enterprises to acquire. This could discourage lenders from using alternative title products, even if they are innovative or cost-effective, if they haven't gone through the specified state regulatory process. For the average homebuyer, this could mean less choice in title products or potentially higher costs if lenders pass on the compliance burden.
New Rules, Tight Deadline
To make sure this happens quickly, the bill gives the Director a tight 180-day deadline to issue the necessary rules and guidance. This rapid turnaround is intended to standardize how title risk is managed across the secondary mortgage market. The goal is clear: increase regulatory oversight of the title products used in federally backed mortgages. While this standardization offers a benefit by ensuring that the insurance products covering these massive loans are vetted, the immediate financial burden and the potential narrowing of the market for title protection products are the practical challenges that must be watched closely.