Fannie Mae pilot program won’t help most vulnerable

Derrick Hollie | Reaching America

The financial collapse of 2008 was hard on everyone. While most people were hit by the aftershocks, minority communities faced the full force of the crisis. Why, then, would anyone want to tempt fate and pile more risk atop the system that nearly broke 15 years ago?
One of the culprits back then was the mortgage-financing company Fannie Mae. It remains under the conservatorship of the federal government after almost collapsing the economy in 2008. It took on more risk than it could handle. The federal government stepped in to keep it afloat. But the damage was done. World markets tumbled, hurting severely the most vulnerable among us.
Now history is threatening to repeat itself. Fannie Mae reportedly is considering taking on more risk by testing a plan that could lead to its takeover of the title insurance business.
Ronald Reagan famously quipped, “The nine most terrifying words in the English language are, ‘I'm from the Government, and I'm here to help.’” That is the sarcastic message Fannie Mae needs to heed. Government, especially in this case, is not the answer.
Title insurance is a vital part of buying or refinancing a home. It is one reason that homeowners can sleep well at night. Why? They can be confident that the house that they own today will still be their house in the future. Title Insurance protects homeowners from fraud, tax liens, and forgery. Title companies scour records to make sure a title is clean at the outset and cover legal and other costs if it turns out it is not.
But just because title insurance isn’t as well understood as, say, mortgage or property insurance, that isn’t a reason to nationalize the market. On the contrary, the title insurance market is competitive, which is what we should all want. Thousands of small businesses around the country compete. It is as Main Street a business as there is. Competition means lower costs and greater innovation. If the government starts assuming the risk, that advantage goes away.
Fannie Mae clearly has a worthwhile desire. It wants to help low- and moderate-income families achieve and sustain the American Dream of homeownership. But the pilot program wouldn’t accomplish that.
Helping families build generational wealth is an excellent objective, but it won’t happen overnight. Removing the small, one-time cost of title insurance won’t help very much. Bigger issues should be reformed.
For example, the education system needs a serious upgrade. The justice system should be updated to make it fairer for everyone, not just those who can pay big lawyer fees. For starters, the U.S. economy needs to be stabilized – with lower inflation – which is exactly what Fannie Mae taking on more risk will not do.
To be clear, no public policy will act like a magic wand to open the way for lower-income families – especially families of color – to own their homes.
But its proposed pilot program is a bad idea. Besides raising Fannie Mae’s risk profile, the pilot won’t help the people it’s supposed to. Those who want to take advantage of it for refinancing reportedly will need at least 20 percent equity in their homes. Very few low-income families have that much or even close to it. So, why bother?
President Biden and his administration should focus instead on longer-term reforms that will strengthen the economic backbone of our country. Expanded homeownership will surely follow if that happens. If the title insurance pilot program is shelved, politicians will have one fewer initiative, albeit misguided, to take credit for. But ending the pilot before it begins would be the right thing to do for Fannie Mae.

Derrick Hollie is founder of Reaching America, an organization that addresses complex social issues impacting vulnerable populations.


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